The tea industry is in a tizzy over the calculation of goods and services tax, prompting the industry to request the GST Council to consider GST on sale of tea rather than its supply.
When the GST regime kicks in, working capital requirement and interest cost are likely to increase for the tea sector, prompting the industry to make such a request.
At present, the producer doesn’t have to pay tax at the point of transfer of tea from an estate to a warehouse for auction, and there’s no excise duty either. But once the sale is effected, the auctioneer charges VAT at 0.5 per cent to 1 per cent, as applicable in Bengal and Assam.
“Currently, there’s no clarity on how GST will be calculated. But, let’s say, we pay 5 per cent GST on tea when it leaves the estate on a rough estimate that a kg of tea will be sold for Rs 150 per kg. It may so happen that the tea finally fetches a lower price of Rs 140 per kg — it’s not clear what happens then to the GST we had already paid. Similarly, it may fetch a price of Rs 160 per kg at the auctions — then how will GST be calculated?” Azam Monem, chairman, Indian Tea Association, told ET.
The ITA chairman also pointed out that it takes time for tea to get sold at the auctions. “Till such time we will not get input credit and thus our working capital requirement will increase. Subsequently, our interest outgo will also surge. Once there’s clarity on GST, we will have to take up the issue with banks too,” said Monem.
Sale of tea through auctions take at least 4-6 weeks. For instance, if a tea is produced in the last week of April in Assam, it is expected to arrive in the first week of May.
The tea will be sold in the third week of May and the seller will get the money by the first week. The process may get delayed if the tea does not find any buyer.
“That is why we are asking GST on sale of teas in case of inter-state transfer,” Monem explained.