Suicide averted - Service Tax on ginning and pressing of cotton under BAS ?
Does ginning and pressing of cotton involve a service liable to Service Tax?
Cotton is a sensitive subject in Andhra Pradesh with frustrated cotton farmers committing suicide with politically incorrect regularity. Recently in a cotton troubled district of Andhra Pradesh, the Service Tax sleuths got activated and asked ginning and pressing units to pay Service Tax under Business Auxiliary Service. With threats of suicides looming large, a worried District Collector made a trip to the office of the Assistant Commissioner. Overawed by the presence of the District Collector in his office, the Assistant Commissioner promised to take up the matter with the CBEC and also advised the mighty District Collector to represent to the Board.
The following report from the Hindu on Nov 25, 2006 would make interesting reading.
The cotton conundrum in Adilabad district looks like getting resolved, what with new light being thrown on the issue of levy of service tax on processing units. Marketing Commissioner D. Sreenivasulu conferred with higher officials of the Central Excise over payment of service tax by the 30 odd private cotton ginning and pressing units where the Cotton Corporation of India (CCI) processed its purchases under the minimum support price (MSP).
The owners of these cotton processing units had refused according their facilities on lease to the CCI unless the issue of service tax was resolved. Farmers were facing problems in selling their produce at a remunerative price. Mr. Sreenivasulu directed the district administration to delink the CCI's commercial operations . He said in the case of MSP operations, the concerned Ministry will reimburse taxes like service tax.
The association of private cotton purchasers and ginning and pressing unit owners is ready to lease units if there is no `threat' of service tax.
But right through, everyone forgot about an exemption tucked away in our huge mountain of notifications, which the vigilant Commissioner, Service Tax in the Board hunted out. The Board had received several representations on the issue and the Service Tax Commissioner clarified in a letter addressed to a Commissioner with copies marked to several others including Hyderabad Chief Commissioner ,
The process of ginning and pressing of cotton does not amount to manufacture. Therefore, if these processes are undertaken ‘for or on behalf of the principal/client’, the same would fall within the purview of “business auxiliary service”.
However, notification No.14/2004-ST, dated 10.09.2004, exempts, interalia, production or processing of goods for or on behalf of the client if it is provided in relation to textile processing. Since, cotton fibre is a textile material, and ginning/processing are types of processing thereof, the said processes are covered within the ambit of exemption. Therefore, cotton ginning/pressing is presently exempted from service tax.
Thank You, Sir! You have perhaps saved a few lives and a government! But why can’t such important communication be issued in a circular and given wide publicity? Why are you shy of making public even the good work done by you? It was a frustrated and worried ginning unit which brought this to our notice! But who would have been responsible if a couple of farmers committed suicide because the Service Tax department is not aware of its own laws? And even the clarification given from the Board is secretly stored somewhere beyond the reach of the people for whom it is meant. There is life and death beyond your bureaucracy. Please understand this!
F.No. dated 13th December 2006