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Procurement agencies told to pay VAT on sale of paddy by products
December, 11th 2014

The state excise department has served notices to the district drawing and disbursing officers of all five grain procurement agencies in Punjab and the Food Corporation of India (FCI) to pay value-added tax (VAT), since 2011-12, on the amount generated by the sale of byproducts of paddy by rice shelling mill owners.

The liability of each state procurement agency — Punsup (Punjab State Civil Supplies Corporation Limited), Pungrain (Punjab Grains Procurement Corporation Ltd), Punjab State Warehousing Cor poration ( PSWC ) , Punjab Markfed and Punjab Agro Industries Corporation Limited (PAIC) — and the FCI, on this count could run into crores of rupees, as estimates suggest that every kharif season, rice millers in the state sell byproducts of paddy — rice bran, rice husk and small broken rice (Kinki) — valued at around ` 800 crore in the open market.

In case VAT is paid, the agencies also become liable to pay income tax. In fact, the income tax department has also served notices on the agencies.

On its part, the state government and the FCI are in a catch22 situation as the profit earned by rice shelling mill (which shells rice on the behalf of the state procurement agencies) owners by selling the byproducts is part of the milling charges allowed by the Centre.

Since 2003, the Centre has frozen these milling charges at Rs. 15 per quintal on the condition that the profits generated by the rice shelling mills owners would be retained by them and this would be considered part of the milling charges.

The agencies and the FCI have not been able to decide on whether to pay up or file an appeal with the department or move court.

Punjab excise and taxation commissioner Anurag Verma said, “The procurement agencies can take up the issue with me and their requests will be examined. The notices were sent to streamline the VAT collection system. The department will not collect any unauthorised tax.”

The state government is unable to decide on the matter, as one of its departments (excise and taxation) has served notices on the subsidiaries of the other department (food and civil supplies).

The managing directors of the procurement agencies have sought an opinion from the food and civil
supplies department, but are yet to receive any response.


After procuring paddy from farmers, the state procurement agencies hand it to rice shellers, who after shelling the paddy return rice to these agencies. This rice is then handed over to the FCI for distribution, transport and storage. The excise and taxation department has argued that since rice millers work on the behalf of the procurement agencies, the latter is liable to pay VAT.

“We only take rice from rice shellers. If VAT is recoverable from us, then income tax is also chargeable. So far, the government has been unable to decide on the matter,” said a top officer in the food and civil supplies department.

He added that before the excise department started using coercive methods for recovery, the issue had to be settled.

On their part, cash-strapped procurement agencies claim to have no money to pay the VAT and the income tax.

They also want to avoid paying up as once it is paid, the levying of tax would become standard practice.

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