Finance Minister P Chidambram today announced that service tax would be abolished on rice from the staple's loading to storage stage.

The decision comes following intense pressure from Tamil Nadu Chief Minister Jayalalithaa who had shot off a letter recently to Prime Minister Manmohan Singh seeking his personal intervention in the issue.

Rice was originally exempt from service tax. However, later the Finance Ministry had said only paddy is agri- produce, while rice is a processed item. A market expert said most traders have not paid service tax on the staple since its imposition.

Presenting the interim budget for the 2014-15 fiscal, Chidambram 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. Hence, I propose to exempt loading, unloading, packing, storage and warehousing of rice from service tax," he said.

Welecoming the decision, All India Rice Exporters Association Executive Director Rajan Suderasan said, "The clarification was long overdue. Levy of service tax on rice on entire processing chain had made life miserable to small traders. It is a sigh of relief."

Recently in a letter to the Prime Minister, Jayalaithaa had said, "The interpretation given by the Ministry of Finance defies logic and common sense.

She had also said that the levy of service tax on rice as "discriminatory and completely unjust" against people in south and east where the grain is the staple food.