The Bird Flu - the taxman not chickening - Are poultry Farms covered under Service Tax ambit?
Service Tax net - especially Business Auxiliary Service - is so wide that even the service providers themselves do not know about providing any taxable service until they are caught in the net?
There are branded chicken outlets which sell chicken (meat) produced from farms. The trade practice of these branded chicken outlets will normally be in the following manner.
Non-vegetarians are familiar with chicken outlets - Suguna, Bromark, etc which are believed to be selling quality chicken. But, the strange fact is that these brand owners do not own any poultry farms. Then where do they get their chicken from? The live chickens are supplied from poultry farms under contract farming with the brand owners. The contract farming is done in this manner - these brand owners enter into agreement with owners of poultry farms or persons who own the required area of vacant land and interested in setting up a poultry farm. The brand owner even constructs sheds and provides other equipment. The brand owners supply eggs (imported) to all Farms which are under agreement and also supply necessary poultry feed and vaccine. (If there is Flu, they secretly kill the chicken and keep it a secret) There is a field executive appointed by the brand owners to supervise the growth of chicken and also a veterinary doctor to administer necessary vaccines to protect from any infections. The poultry farm owner has the limited responsibility of giving feed (supplied by brand owners) at regular intervals and to provide water. The poultry farm owner is also required to make necessary arrangements for supply of electricity and has to pay for the electricity consumed for lighting or to run air conditioning equipment. The field executive appointed by the owner will check the chicken at regular intervals and once they attain the required size and weight they are segregated and dispatched to the nearest retail chicken outlets directly from the poultry farms. Normally it takes 45 day for egg to grow into a full size chicken. The entire chickens ready for consumption will be weighed before dispatch and the poultry farm owner is paid on the basis of weight. The rate is normally Rs.2-3 per Kg. A medium size poultry farm owner is assured of an income of Rs.5 laks per annum in this way. The brand owners in turn sell the chicken to retail outlets.
An alert Service Tax officer sees a tremendous opportunity in this process. Whether the chicken contracts Flu or not, it is sure to attract Service Tax.
"Production or processing of goods for, or on behalf of the client’ attracts Service Tax under the category Business Auxiliary service
It can be safely concluded that the activity in the farm is production on behalf of the client. Now the moot question is are the chickens goods?
The Act (FA 1994, I get a Flu when I refer to this Act; Why can’t there be a Service Tax Act?) defines goods as "goods" has the meaning assigned to it in clause (7) of section 2 of the sale of Goods Act, 1930 (3 of 1930); and that Act defines goods as
‘Goods’ means every kind of moveable property other than actionable claims and money; and includes stock and shares, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale.
Captive Animals and Birds (Live Stock) have been held to be goods - 60-STC-89.
So chicken produced in poultry farms are goods and as they are produced for the brand owners, the activity appears to be squarely covered under Business Auxiliary Service.
Now the remaining riddle is whether an individual running a poultry farm is covered under the term "commercial concern".
But did the legislature really want to tax chicken? Once a wide definition is given, we really do not know the boundaries. The Flu may keep prying officials at bay for some time, but they are sure to reach the farms to tax the chicken.
Next time you go to a Central Excise office, be sure to enquire whether the officer had been to a poultry farm recently and if so if he had taken any precaution to avoid the Flu.
Before that chicken flu into your kitchen, it must suffer Service Tax if not infection.
Go vegetarian - chicken is very complicated - with taxes and Flu!