United Planters’ Association of South India

1. Importance of Plantation Sector to the National Economy

The plantation sector in India plays an integral role in the economy of three
southern States. Kerala, Tamil Nadu and Karnataka together account for
almost one fourth of the total tea output and nearly the entire production of
Coffee, Natural Rubber and Spices.

Other statistics are also equally noteworthy. Of around 17.1 lakh growers and
24.0 lakh labourers who are involved in raising plantations in India; nearly 75.4
per cent of growers and 56.7 per cent of labourers are from South India. To be
specific, about 12.9 lakh growers – most of them small and tiny – cultivate the
plantation crops in South India in 11.4 lakh hectares providing round the year
permanent employment to nearly 13.6 lakh labourers.

The total area under plantation crops is estimated to be around 18.0 lakh
hectares, which is marginally less than 2 per cent of total cropped area in the
country. But what is striking is the importance of plantations in South India,
as it accounts for 63.1 per cent of the total area under plantations.

The value of the plantation commodities in 2014-15 is estimated at Rs.42,415

Crores, which account for marginally above 1.9 per cent of the India’s total
agricultural GDP, while the export realization is estimated at Rs.10,534 Crores
accounting for nearly 4 per cent of the total agricultural and allied product
exports. The share of South India in the total value is estimated at 62.7 per
cent whereas its share in the export value is 71.7 per cent. Commodity-wise
break-up is as under:

TEA RUBBER COFFEE CARDAMOM PEPPER TOTAL

1 No. of Growers/Estates 1,59,200 12,18,440 3,00,390 30,000 - 17,08,020

2 Area ( Hectare ) 5,80,181 7,34,780 4,18,975 69,970 Intercrop 18,03,906

3 Production ( Tonnes ) 11,96,510 6,45,000 3,27,000 18,000 70,000 -

4 Value of Crop ( Rs. Crores ) 17,408 8,464 10,625 1,376 4,542 42,415
5 Export - Quantity ( Tonnes ) 2,25,760 5,398 3,12,531 2,080 15,350 -

6 Export - Value ( Rs Crores ) 4,054 11 4,938 323 1,208 10,534

Consumed within India

7 (Tonnes) 9,89,110 10,86,128 - 14,205 48,550 -

8 Labour Employed ( Lakhs ) 12.60 4.93 6.13 0.30 - 23.96

 PRE-BUDGET PROPOSALS

A. DIRECT TAXES

1. WEIGHTED DEDUCTION FOR THE EXPENSES INCURRED BY

PLANTATION COMPANIES UNDER SPECIFIC ACTS OF CENTRAL
GOVERNMENT

Plantation managements are required to provide welfare facilities to their

workers like housing, water & sanitation, education and medical, etc.
under Plantation Labour Act 1951. In the case of other industries/sector
the social security measures are provided by the Government. Since
there is no tax concessions provided to the plantation sector, it is
proposed that weighted deduction under the Income Tax Act up to 200%
of the actual expenditure may please be considered.

2. REBATE ON TAX LIABILITY UNDER RULE 7A, 7B & 8

There is large variation in the Agriculture Income Tax rates from State to
State e.g. 50% in the State of Kerala and nil in the State of Tamilnadu.
Rule 8 of the Income Tax Rules may provide that where the aggregate of
the Central Income Tax and Agriculture Income Tax payable by an
assessee for income from the business of growing and manufacture of
plantation crops exceeds the amount of tax payable by him if this entire
income were to be assessed under Central Income Tax Act, then the
excess tax so arrived at should be allowed as a rebate against his liability
for tax under Central Income Tax.

3. AMENDMENT TO RULE 8, 7B & 7A

Income Tax on Tea, Coffee and Rubber are paid to the State Government
and to the Central Government under the Income Tax rules 8, 7B & 7A
respectively as follows.

Central Agricultural Year in which Rule

Income Income Tax % the Rule was
Tax % introduced
Tea 40 60 1971 8
Coffee 2002 7B
Cured Coffee 25 75
Processed Coffee 40 60
Rubber 35 65 2003 7A

Rule 8(2), 7B(2) and 7A(2) states that the expenditure incurred for
replanting Tea, Coffee or Rubber is a deductable expenditure. It further
states that any subsidy received for replanting purpose will also not be
taxable.
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In a judgment of the Kerala High Court, dated 21.02.2013 (251 CTR 343
Kerala), it was held that rule 7A is applicable only for infilling of Rubber
plants and not for replanting of rubber in an area already planted with
rubber.
Tea and Coffee do not yield any income during the first four years and
Rubber for seven years from the year of planting. These plantations are
also not claiming depreciation for the capital expenditure and therefore
replanting expenses are allowed as a deduction in lieu of depreciation.
The intention of the legislature to allow replanting expenses in lieu of
depreciation is clear from the memorandum explaining the Finance Bill
of 1995. (A Memorandum submitted earlier in this regard is attached at
Annexure-I).

4. SECTION 14A: EXPENDITURE INCURRED IN RELATION TO

INCOME NOT INCLUDABLE IN TOTAL INCOME

At present the provisions of section 14A of the Income Tax Act provides
for disallowance of expenditure to the extent it relates to the exempted
income which does not form part of the total income under the Act. In
view of the discretionary powers entrusted with the Assessing Officers
(AO) to determine the quantum of expenditure incurred for earning the
exempted income, huge expenses were estimated and disallowed without
any ground realities resulting in unending litigation.
To avoid litigation on account of wrong interpretation to the relevant
provision on disallowance on expenditure, suitable amendments may be
made so as to allow genuine expenditure pertaining to the business
activities. Specific exemptions/clarifications are required to be provided
in the Act, especially for exempted income like dividends etc. where no
expenditure at all been incurred for earning such income so that the
discretionary powers could be applied only with facts of the case.

5. INCLUSION OF ORTHODOX PRODUCTION SUBSIDY SCHEME

WITHIN THE AMBIT OF SECTION 10(30)

In computing total income under the Income Tax Act, 1961 of an

assessee who carries on the business of growing and manufacturing tea,
in India, the amount of any subsidy received from or through the Tea
Board under the Scheme for Replantation or Replacement of tea bushes
or for Rejuvenation or Consolidation of areas used for cultivation of tea is
not included as part of total income as per the provision of Section 10(30)
of the said Act.
To encourage production and meeting the export demand of orthodox
teas, the Central Government has introduced ‘Orthodox Production
Subsidy Scheme’ from 1st January 2005. The scheme, through Tea

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Board, provides for subsidy to the tea growers and manufacturers in
India to boost production of high quality orthodox teas.

The Association requests inclusion of the Orthodox Production Subsidy

Scheme also under Section 10(30) thereby making eligible for exclusion
orthodox subsidy from the total income as applicable in the case of
Replantation/Replacement/Rejuvenation subsidy. The Orthodox
Production Subsidy, as in the case of Replantation/Rejuvenation
Subsidy, is revenue in nature and is also disbursed through the Tea
Board. Hence Orthodox Production Subsidy should be justifiably entitled
to be exempted from total income under Section 10(30) of the Income Tax
Act, 1961.

6. TAX ON DISTRIBUTED PROFITS OF PLANTATION COMPANIES

(DIVIDEND DISTRIBUTION TAX U/S. 115-O)

Agricultural income was not within the purview of legislative competence

of Parliament and the activities of plantation companies which
substantially includes agricultural operations starting from cultivation to
plucking of green tea leaves in the case of tea and from cultivation to
picking of coffee fruits in the case of coffee and from cultivation to
tapping field latex from trees in the case of rubber. Considering the
legislative intention of treating the agricultural income from outside the
income-tax net by the Parliament, it is submitted that the plantation
companies be distinguished from other corporate entities, to discharge
the dividend distribution tax liabilities and be restricted proportionately
to the extent of 35% as provided for, by the respective Rule 7A & 7B
applicable to Manufactured Rubber and Cured Coffee and to the extent
of 40% as provided for by the respective Rule 8 of the Income Tax Rules,
1962.

Accordingly, suitable amendments to the provisions of Section 115-O of

IT Act is required to be made for payment of dividend distribution tax
since the computation of income from manufacture of rubber, coffee and
tea are partially agricultural and partially business and accordingly are
addressed to tax as per Rules 7A, 7B and 8 of the Income Tax Rules.
Since the Dividend Distribution Tax payable is in the nature of additional
tax the computation of such dividend by a plantation company should
also be subject to application of Rule 7A, 7B and 8.

7. COMPUTATION OF BOOK PROFIT U/S. 115JB

The amendment brought through with retrospective effect from
01.04.2001 for adding back the “amount or amounts set aside as
provision for diminution in the value of asset” need clarifications/
modification in the Explanation provided under the relevant section, as
the adjusted book profit for working out the tax on minimum alternate
tax includes the ‘amount or amounts set aside to provisions made for
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meeting liabilities, both ascertained and unascertained liabilities’, to
avoid the recurring nature of litigation, since provision for ascertained
liabilities has specifically been taken out of the Explanation 1 © under
section 115JB of the Act.
Suitable provisions are required to be inserted par with the normal
provisions of the Act to enable the assesses, to reduce their minimum
alternate tax (MAT) liabilities, by allowing the income/expenditure which
are otherwise eligible for exemption under normal provisions of the Act
for computation of regular income tax, since the intention of the
Government is to grant tax credit for MAT when tax is due under normal
provisions of the Act.
Since the income from sale of rubber trees in rubber plantations are
exempted from levy of income tax under normal provisions of the Act
such exemptions are equally needed to be provided for computation of
MAT, in justification of the intention of the Government.

8. DEPRECIATION SCHEDULE BETWEEN COMPANY LAW AND THE

INCOME-TAX LAW:
To increase the depreciation rate uniformly to a higher rate from the
present rate of 15% in several instances, which can be a boost to the
capital goods sector, which in turn will bring down both the effective tax
rates and substantially dilute the MAT.

B. INDIRECT TAXES
9. EXTENSION OF IMPORT DUTY CONCESSION
The concessional import tariff extended to plantation sector was
discontinued. Since the modernization of plantation sector is dependent
on the latest technology and machineries, it is requested that the
concessional import tariff be extended to the plantation sector, along
with full excise/CVD exemption.

We shall be grateful if the below listed machineries used in the

plantation sector are considered for a concessional rate of import duty.

S.No. Description of Machinery EXIM Code

Machineries for Tea Plantation Sector
1. Automatic & semi-automatic fresh 84.76
brew tea vending / dispensing
machines
2. Chain Saws 84.67
3. Versatile Hedge Trimmers 84.33
4. Earth Augers/Soil Augers 84.32
5. Telescopic Pruners (Power driven & 84.33
manual)
6. Tea bagging machine 8422 30 00
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 7. Tea packaging machine 8422 30 00
8. Color sorting machine 8433 60 00
9. Tea leaf cutting rolling machine 8438 80 40
10. Mechanical Harvestor 8433 59 00
11. Tea pruning machine 8201 60 00
12. Mist blower 8414 59 20
Machineries for Coffee Plantation Sector
1. Coffee grinder 8509 40 90
2. Coffee roasting machine 8516 79 90
3. Coffee processing machine 8433 60 00
4. All Terrain Vehicles
Machineries for Rubber Plantation Sector
1. Slab cutter 8424 81 00
2. Shredder 8441 80 00
3. Solid pump vibrating screen 8413 70 96
4. Plastimeter/PRI ageing oven 8514 10 00
5. Mooney viscometer 9027 80 10
6. Latex centrifuge testing 8421 11 00
7. Mechanical stability time apparatus 9024 80 99
8. Rubber Tapping Equipment/ 8433
Implements/Knife

10. NR IMPORTS: A NEED FOR A SAFEGUARD DUTY

The NR prices [RSS IV] after reaching a high of Rs.243 per Kg in April
2011, has registered a sharp decline and reached Rs.102 per kg. in
December 2015. The main reason for the decline in the domestic price
was on account of increased imports of NR to India, thereby the
consuming Industry was able to keep away from the domestic market. In
absolute terms, imports has increased from 77,762 tonne in 2008-09 to
4,42,130 tonne during 2014-15 (See Graph 1). Imports as a % of
production had increased from a very low figure of 1.42% in the year
2000-01 to a figure of 68.55% in the year 2014-15. Imports as % of
consumption had increased since 2009-10 and kept increasing to reach
43.31% of consumption in 2014-15. The surge in imports was noted from
Vietnam [6839%], Indonesia [819%] and Thailand [171 %] since 2008-09.
These three countries, Indonesia [43.1 %], Thailand [25.6 %] and
Vietnam [21.3 %], together account for 90 % of the total imports during
2014-15,

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The increased imports of NR and thereby un-remunerative prices
resulted in producers not tapping, at many instance, not being able to
even pay for the tappers wages and incur other direct expenses, which
has caused a drop in production. The situation if allowed to continue,
will make India fully dependent on foreign countries for this strategic raw
material. Thus it is absolutely essential to levy safeguard duty to; a] to
protect the livelihood of small producers and b] to protect National
Interest of the country by maintaining its natural Rubber Production
capacity Intact.

11. EXEMPT CESS ON TEA EXPORTED

The avowed policy of the Government of India is to grant relief from all
domestic taxes on products that are exported. Moreover, cess on tea is
exempted for Export Oriented Units vide Notification No. S.O.977(E)
dated 1st September 2004. But this facility is been denied to the other
exporters of tea resulting in discrimination. Accordingly, it is requested
to exempt cess on all teas exported.

SERVICE TAX
12. RATE OF SERVICE TAX
Rate of service tax need to be restructured by reducing the present rate
from 14% as the services covered are voluminous and a reduced rate of
tax would ensure compliance by all concerned.

13. NATURAL RUBBER BE INCLUDED UNDER THE DEFINITION OF

AGRICULTURAL PRODUCE
Exemption from levy of service tax on services provided for transport,
storage of ‘Agricultural Produce’ etc. be specifically be covered to ‘rubber’
as well since both ‘tea’ and ‘rubber’ are categorized under the definition
of ‘Agricultural Produce’ under Service Tax to avoid possible litigation.

14. PLANTATION ASSOCIATION BE BROUGHT UNDER

AGRICULTRUAL SUPPORT SERVICES AND BRINGING IT UNDER
NEGATIVE LIST
The basis of imposing service tax has changed with effect from
01.07.2012 and the tax payable is now on all the activities except those
specified in negative list. The services relating to agriculture or
agricultural produce by way of agricultural operations directly related to
production, supply of farm labour, process activities, renting, loading,
unloading, packing, storage and warehousing, agricultural extension
services etc. are specifically been provided for exemption from levy of
service tax by including such services in the negative list.

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However, there are other basic activities incidental or ancillary to
plantation sector which squarely falls under ‘agriculture support
services’ which also includes representation of the plantation sector
through collective Forums of Organizations like ‘Planters Association’ to
take up the interest and growth aspects of the sector before the State
and Central Government Agencies. The collective representation through
an organized nonprofit association to promote and protect the interest of
the plantation industry is a must for survival of the agricultural industry.
Since the services relating to the development of agriculture or
agricultural produce have direct nexus with the agricultural operations,
these services are necessarily be brought under the category of exempted
services by listing them either under the ‘Negative List concept, or under
the ‘Mega Exemption Notification’ List, in justification of the ground
realities.
The concept of mutuality even after the amendment made through clause
(a) of Explanation 3 to section 65B(44) for bringing to service tax the
membership fee etc. are also be taken up since the association still could
be distinguished from other associations, as the objects and activities
concerned are purely for protecting and developing of the agricultural
sector.
In order to avail the exemption intended to provide by the Central
Legislature for agriculture, all activities related to the plantation sector,
other than those specifically mentioned should also be brought under
exempted category, to minimize the cost of taxation on agricultural sector
to overcome the disastrous situation presently exists.

GOODS AND SERVICE TAX (GST)

15. EXEMPTING PLANTATION COMMODITIES FROM CGST UNDER

THE DUAL GST STRUCTURE
It is envisaged that there would be a dual GST structure i.e. a Central
Goods & Services Tax (CGST) and State Goods and Services Tax (SGST)
with both the Central and State Governments levying GST on the same
transaction. It would be relevant to point out in this connection that Tea
is currently exempt from Central Excise and Additional Excise Duties.
Similarly, other plantation commodities like Coffee, Natural Rubber and
Spices were never included under the Central Excise, as they are mostly
agricultural in nature.

Accordingly, it is submitted that Plantation Commodities are not

presently subject to Central Excise Duty. It should be exempted from the
levy of CGST under the proposed Dual GST structure.

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16. RATE OF STATE GST
Under the prevailing VAT regime, Plantation commodities, viz., tea,
coffee, natural rubber and spices are subject to VAT @ 5% across all
States. It is gathered that apart from a few select products like life
saving drugs, fertilizers, agricultural implements etc which may remain
exempt from GST, there may be a two rate structure – a lower rate for
necessary items and items of basic importance and a standard rate for
goods in general.
We request that plantation commodities be placed as necessary
item/item of basic importance with a rate aligned to the prevailing VAT
rate of 5%.
17. GST ON IMPORTS
As per the scheme of things under GST, the imports also come under
GST purview. The proposed GST on imports will make imports more
competitive and deny a level playing field for the domestic industry. If
IGST on imports is available as a credit to a trader as against the existing
system, which does not allow countervailing duty and special additional
duty credits, imported goods will get a competitive advantage, seriously
sabotaging the Make [Grow] in India initiative.

19. INPUT CREDIT ON INTEGRATED ACTIVITIES

Coffee and Tea are grown and manufactured to make it marketable and
fit for human consumption. In the plantation sector, there is a peculiar
situation wherein there are assessees who carry both growing and
manufacturing activities as an integrated activity.

The growing of tea and coffee is considered as agricultural activities and

no input credit is allowed on goods purchased for growing and cultivation
of tea and coffee. This implies that input taxes that were levied at the
growing stage can’t be set off against the final market product. This no
doubt, would result in cascading of taxes and we request this anomaly to
be set right and seamless input credit mechanism be made available for
the dealers/assessees who grow and manufacture tea and coffee as an
integrated activity.

20. LEVY OF SALES TAX AT THE POINT OF SALE

As per the GST, “IGST” is levied at the point of stock transfer. This
means when tea is produced in Tamil Nadu and stock transferred for
auctions to be held at Kochi, IGST will to be levied in Tamil Nadu. As
teas are sold under auction, the price discovery occurs only at the point
of sale and not at the point of manufacture. Hence, we request levy of
IGST may be ‘at the first point of sale’ and not ‘at the first point of
manufacture’.
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C. GENERAL
21. SHARING OF SOCIAL COSTS
One of the main reasons that the Indian plantation sector is not able to
withstand the competition from other producing countries is on account
of high cost of production which is directly linked to the social costs
which is not there in any of the other competing producing countries.
The Inter-Ministerial Committee (IMC) constituted by the Government of
India to look into the various issues relating to plantation sector in India
had submitted its report in 2003, with a main recommendation of
sharing of social costs between the employer (50%) and the Central/State
Government (40:10). This recommendation was very constructive and if
implemented will go a long way to give relief to the plantation sector. Shri
SN Menon Committee appointed to study the Competitiveness of Indian
Tea Industry also has recommended sharing of social cost by the
Government. Moreover, with India’s entering into Free Trade Agreement
(FTA) with Association of South East Asian Nations (ASEAN) will have
deleterious effect on the Indian plantation sector. While there are
compulsive reasons for the Government to go in for Trade Agreements
with other nations/regions, the interests of the domestic industry also
should be taken care off, especially with respect to the sectors like
plantations on which large number of people are depending on. The least
the Government could do is extending a helping hand by sharing the
social costs of the plantations which in the case of other sectors are
borne by the Government or its agencies.

******
Encl:

BM/UPASI-PBM-2016-17

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