How Rice Became a Non-Agricultural Produce
GOD said, "let there be light", and there was light. Babu said, "rice is not agricultural produce", and rice became non-agricultural produce. It's Alice in Blunder-land all over again.
The whole idea was to grant exemption from Service Tax to storage, handling and transport of agricultural produce - a lofty ideal in a predominantly agricultural country where the cost of agricultural produce has to be kept at the lowest possible position.
By Order No. 1/2002-Service Tax dated 1.8.2002, the Government defined agricultural produce as:
"agricultural produce" means any produce resulting from cultivation or plantation, on which either no further processing is done or such processing is done by the cultivator like tending, pruning, cutting, harvesting, drying which does not alter its essential characteristics but make it only marketable and includes all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetable fibres such as cotton, flax, jute, etc., indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice , coffee and tea but does not include manufactured products such as sugar, edible oils, processed food, processed tobacco.
By Notification No. 8/2004 dated 9.7.2004, Notification No. 13/2003-Service Tax dated 20.06.2003 was amended to add an explanation which was identical to the above definition.:
"agricultural produce" means any produce resulting from cultivation or plantation, on which either no further processing is done or such processing is done by the cultivator like tending pruning, cutting, harvesting, drying which does not alter its essential characteristics but makes it only marketable and includes all cereals, pulses, fruits, nuts and vegetables, spices, copra, sugar cane, jaggery, raw vegetable fibres such as cotton, flax, jute, indigo, unmanufactured tobacco, betel leaves, tendu leaves, rice, coffee and tea but not include manufactured products such as sugar, edible oils, processes food and processed tobacco."
So, rice was very much an agricultural produce by definition. This definition continued for nearly a decade and then came the scholarly negative regime with effect from 1.7.2012 and the definition underwent a major surgery.
By Finance Act 2012, Section 65B(5), this definition became:
(5) "agricultural produce" means any produce of agriculture on which either no further processing is done or such processing is done as is usually done by a cultivator or producer which does not alter its essential characteristics but makes it marketable for primary market;
Lo and behold! Rice went out of the purview of the definition of agricultural produce. It did not go out as a conscious decision of the Parliament of the country, but because some babu in North Block was too lazy to copy the whole definition - he left out the inclusive part and that is how rice could be pushed out of the purview of 'agricultural produce'. No babu would have realised that he was granting exemption to storage of apples while he was denying it for rice.
You go to a court or Tribunal, they will tell you the intention of Parliament is very clear and there is no ambiguity. If you ask them how rice which was an agricultural produce till 30.06.2012, became a non-agricultural produce on 1.7.2012, they will tell you Parliament has decided so and Parliament has the power to decide so. Parliament? The babu in the North Block who could not copy the definition properly is the Parliament! And if the babu makes a mistake - we, the people have to pay for it and he will get a promotion. That is what our Republic is all about.
Even a brilliant financial wizard like P. Chidambaram told his cabinet colleague that rice is not covered under the definition of agricultural produce and it is not feasible to change the law. But did he ask his babus why rice is not in the definition of agricultural produce and why they want to tax storage of rice and exempt storage of apples and Italian kiwi fruits? There must be some strong reason.
Taxing storage and transport of rice in India is sacrilege - the FM should immediately rectify this lapse.
If rice does not figure in the definition of agricultural produce, what needs change is the definition…….