PC's Last Budget (of this Lok Sabha) - Rice still not Agricultural Produce - but FM relents by exemption and clarification
THOUGH DDT does not like to pat its back as the FM has done, we are extremely happy that our campaign to exempt RICE from Service Tax on various services like transport, handling, storage, construction of warehouses, has borne fruits. Of course the acidic letter from Jayalalithaa must have clinched the issue. Even now the Finance Minister does not concede that rice is an agricultural produce. He has clarified that transport of rice is already exempted as foodstuff and milling of paddy is also exempted as an intermediate production process in relation to agriculture. So rice is related to agriculture, is foodstuff, BUT IS NOT AN AGRICULTURAL PRODUCE. Anyway what's in a name - that which you call rice, by any other name, will taste so good.
So, now handling and storage of rice is exempted with effect from yesterday and transport of rice and milling of paddy were already exempted by clarifications issued yesterday.
Now the solution creates some more problems:
As handling, storage and warehousing of rice is exempted by Notification No. 04/2014-S.T, dated: February 17, 2014 (yesterday), the Department will argue that it was not exempted prior to 17.2.2014. So will the Government come out with a Section 11C Notification? Why can't the Government make a mention of that? If no such 11C notification is contemplated, what is the logic of taxing this activity between 1.7.2012 and 17.2.2014? There is another complication. Some Government Corporations have already paid the Service Tax under VCES and they will not get refund. This issue has to be sorted out.
What about Construction of warehouses for storage of rice? This issue has been totally left out in the interim budget and the notifications/clarifications. As per Sl. No. 14 (d) of the Notification No. 25/2012-Service Tax, dated 20.06.2012, Services by way of construction, erection, commissioning, or installation of original works pertaining to,- post-harvest storage infrastructure for agricultural produce including a cold storage for such purposes ; are exempted. Now is construction of warehouses for storage of rice exempted? As rice is not an agricultural produce as clarified by the Hon'ble Finance Minister, construction of warehouse for storage of rice is not exempted. May be the Board missed out this and has to be rectified soon. Perhaps while voting on the interim budget.
This exemption has a peculiar problem. Construction of a warehouse for storage of agricultural produce is exempted. Wheat is an agricultural produce; rice is not. If a warehouse is constructed for storage of wheat, will the exemption be withdrawn, if later rice is stored in the warehouse?
In his Budget speech the FM said, "By virtue of the definition of 'agricultural produce' in Finance Act 2012, read with the Negative List, storage or warehousing of paddy was excluded from the levy of service tax. Rice was not. The distinction is somewhat artificial."
Just three months ago, he wrote to his Cabinet Colleague Prof. KV Thomas "Rice is not covered by the definition of agricultural produce"