Hyderabad: Rice prices that are already touching Rs 50 a kg could go up further with the additional burden of 12.36 per cent service tax that might be levied on storage and transport.
Union finance minister P. Chidambaram, in a recent letter to Union minister of state for consumer affairs K.V. Thomas, had indicated that rice was “not an agricultural produce.”
Sources in the Central Board of Excise and Customs (CBEC) say that they will go after the Food Corporation of India (FCI) and warehousing corporations to collect service tax after the government clarifies.
No effect of service tax on PDS rice
While the price of rice available through the PDS system might not be affected by the rising price, it is bound to increase in the general market.
Services related to agriculture produce are in the negative list of service tax according to section 66D(d) of the Finance Act. However, when Thomas sought a clarification regarding the levy of service tax on rice, Chidambaram wrote back saying, “Certain specified services relating to agriculture or agricultural produce are kept in the negative list. Rice and ginned/baled cotton are not covered by the definition of ‘agricultural produce’ found in section 65B(5).” He further wrote, “It is not feasible at this stage, to further extend the scope of the existing exemptions.”
The government’s explanation is that paddy is an agricultural produce but rice is not since it is processed and de-husked in a mill.
This means that tax officials can levy the 12.36 per cent service tax on services offered by the FCI and the AP State Warehousing Corporation for storage and transport of rice grains. This will put a huge burden on the warehousing corporations and if they don’t absorb the tax, it will be transferred to the consumer.
“The government is playing with the definition but if they say that services to rice are not exempted from service tax then we have no choice but to go after them,” CBEC sources here said, adding, “We are evaluating the amount they are liable to pay.”
A senior official of the FCI said, “The price of rice through PDS is fixed so we will absorb the service tax component ourselves. It’s like transferring money from one department to another. But I can’t say anything about prices in the general market.”
Rice millers say that prices will definitely be affected. Mr S. Hanumantha Rao, general secretary, Rice Millers Association of Andhra Pradesh, said, “There will be burdens on both farmers and the consumer. Already VAT is being transferred but an additional service tax will be a huge burden. Prices will definitely rise in the market.”
The AP State Warehousing Corporation said that it was now liable to pay service tax but it would be reimbursed by the FCI since the stocks belonged to the latter.
The corporation has been asked to pay from July 2007 to December 2012 in two installments. Mr B. Peda Swamy, general manager (finance), said, “We have written letters on this issue but the government is stern and rice has been classified as a non-agricultural produce. But since the stocks in our warehouses and those leased to us belong to FCI, we will claim the service tax from them.”
