Taxability of service tax - charges from FCI

[Asked by Guest]

R/SIr We are Rice SHeller and We are Milling the Paddy supplied by the FCI (GOVT DEPTT) and we returned the FInished Product as RICe to FCI and for the Services provided we receive from FCI Milling Charges @ 17/- per Qtl. Whether these charges received from FCI are taxable under service tax and if yes please let us know when this service came under the purview of service tax. Secondaly whether this service is exempt from service tax as this service relates to AGRICULTURE. We shall be highly thankful to you. SUNIL MEHTA FCA

[Surender Gupta]

Dehusking of paddy is a manufacturing process and the rice is a finished product emerged from such process. This activity is not liable to service tax under business auxiliary services.

[Madhukar N Hiregange]

The processing charges would be liable under business auxiliary servcies if the process were considered as a process not amounting to manufacture. If the process is a process ofmanufacture then as per the explanantion the same would not be liable to servcie tax. The exemption available under BAS is for processes in relation to agriculture.I have my doubts whether the process of shellig would be considered as a process in relation to agriculture. I think it is a process undertaken after agriculture.

AI Summary

Business auxiliary services: processing of paddy may be taxable unless the activity qualifies as a manufacturing process.
Dehusking and milling of paddy may be treated as a process amounting to manufacture, yielding rice as a finished product and thus not taxable under business auxiliary services. If the operation does not amount to manufacture, the milling charges would be taxable under business auxiliary services, subject to any exemption for processes "in relation to agriculture," which is questionable for post harvest shelling.