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VAT worries: Tea sales in a limbo

Posted online: Apr 12, 2006 at 0000 hrs

Mumbai, April 11About 65 million kilogram of annual tea sales are in a limbo as the Maharashtra state has levied
12.54 value added tax (VAT) instead of 4% as applicable in other states except Andhra Pradesh. Maharashtra
accounts for 10% of the country’s total consumption of the beverage.

The confusion as to whether value added tax on tea is 4% or 12.5% has created unrest among traders in
Maharashtra. The lack of clarity in this regard has hampered trade, industry bodies said, adding that if 12.5% VAT
was levied, then tea consumption would be badly hit in the state.

The uncertainty began on Apr. 1 when the VAT on tea in the state was revised to 12.5% from the earlier 4%. The
state government used to levy 4% VAT on tea until Mar. 31. However, industry officials said that no notification was
given to the tea traders over the upward revision in VAT rates.

"The finance minister of Maharashtra, in his budget speech (2006-07), indicated that tea would come under Schedule
C and the VAT levied on it would be 4%," said Harendra Shah, president, The Federation of Maharashtra Tea
Traders Association.

"However, when we approached the sales tax commissioner he conveyed to us that VAT would be 12.5% and not
4%." Protesting against this decision, The Federation of Maharashtra Tea Traders Association has called for a strike
today. Also, this industry body in association with Federation of All India Tea Traders Association has threatened to
boycott tea auctions in the country if the state government does not withdraw the hike in VAT rate. Major industry
players like Hindustan Lever and Tata Tea have also supported the cause. Traders complained that it was only in
Maharashtra and Andhra Pradesh that 12.5% VAT was levied, while in other states it was only 4%.

Traders also said if 12.5% VAT was levied, it would eventually translate to a higher price for the consumer, who will
end up paying 16% more on the current price. "Prices could go up by Rs 10-20 per kilogram if 12.5% VAT is
implemented," said Shah. On an average, loose tea in western India is quoted around Rs 120 per kilogram. "Traders
mainly dealing in loose tea will be hit the most as they will be forced to increase their maximum retail price," said
Rakesh Kaushik, president, Tea Packers Association of India.

India’s Maharashtra emerges as highest tea consuming state

India’s Maharashtra state has emerged as the country’s highest tea consuming state, according
to a study comissioned by the Tea Board.

Maharashtra is closely followed by Uttar Pradesh, Gujarat, Rajasthan and Madhya Pradesh.
However, most of these states, including Maharashtra, UP and Rajasthan, slid in the pecking
order when it came to per capita consumption of tea, where Chandigarh, Lakshadweep, Punjab,
Gujarat and Goa ranked the highest, a UNI report said here quoting a study commissioned by the
Tea Board.

According to the study, Bengal and Asom ranked 9th and 14th in share of total consumption.
These states were among the lowest in per capita consumption, even below coffee drinking
states like Karnataka and Kerala.

Total tea consumed in India stands at 755.52 million kilograms, while per capita consumption of
the beverage in India was at 706.1 grams, the study reveals.

Commissioned by the Tea Board, the study was collated and researched by the Indian Institute of
Management, Calcutta, recently.

Maharashtra’s share is at 14.86 percent out of the total Indian tea consumption, followed by
10.35 percent for Uttar Pradesh.

Tea industry officials said that these markets have been strong markets which have prompted
formidable regional brands in Gujarat and Rajasthan and a host of strong national brands to
compete the most in these markets.

But going by per capita consumption of tea, Chandigarh moved up to highest position. Gujarat
has been consistent both on total consumption and per capita consumption levels, the study said.