Tamil Nadu Chief Minister Jayalalithaa has called upon Prime Minister Manmohan Singh to ensure that rice is "unambiguously" declared an agricultural produce and no process related to it is subject to service tax.
Describing the Centre's decision to levy service tax on the storage of rice as "thoughtless, insensitive and discriminatory", the Chief Minister, in a letter to Dr Singh on Monday stated that "an invidious, discriminatory and completely unjust" situation had arisen as a result of an "extremely insensitive and regressive interpretation" of certain provisions of the Service Tax legislation, which had made the services such as storage and handling associated with rice liable to Service Tax.
She warned that the move would raise the price of rice in the open market, particularly at a time when food inflation was already a burden on the common people. Moreover, it would distort markets completely given the proviso that if the storage of rice was in owned premises or in the premises of an Agricultural Produce Marketing Committee or Board or with a commission agent, no Service Tax would be levied on storage costs. However, if the storage was in the godowns of the Central or State Warehousing Corporations, the tax would be levied on storage, warehousing and handling charges. This would also add to the costs substantially when the National Food Security Act, 2013, was implemented, she added.
"This will be an additional burden on the State Government towards the expense incurred for the Public Distribution System and weaken our efforts to provide food security to all," the letter said.
The Chief Minister added that of all foodgrains, rice alone was sought to be subject to the tax. Citing a letter written by Union Finance Minister P. Chidambaram to Union Minister of State for Consumer Affairs and Public Distribution System K.V.Thomas, the Chief Minister said the Finance Minister had clarified that “rice” and “ginned and baled cotton” did not fall within the definition of “agricultural produce” under Section 65B(5) of the Finance Act. He had further stated that the negative list based on comprehensive approach to the taxation of services was introduced as a preparation for introduction of Goods and Services Tax (GST) and it was not feasible at this stage to further extend the scope of existing exemptions. "Accordingly, from December, 2013, service tax is being collected on storage of rice, with effect from 1st July, 2012."
Calling Mr Chidambaram's stance "very strange," Ms Jayalalithaa said the Union Minister's position was that rice was not an agricultural product while other cereals including wheat were agricultural produce and hence, they were exempted from the levy of service tax on storage and other services. "It smacks of unfairness against people residing in certain regions of the country, especially in the South and the East where rice is the staple food grain consumed," she said.
Pointing out that from time immemorial, rice had been regarded as an “agricultural commodity” and that Tamil Nadu had already taken a clear stand in several fora that rice should be exempted from the levy of the GST, Ms Jayalalithaa said, "using the GST argument to refuse to include rice within the definition of “agricultural produce” is not an appropriate stance."
