Wednesday, October 1, 2008


Of course shape counts especially if you are in Karnataka, not in an aesthetic sense but for inviting the taxman to your door! It is amazing that the country is so much obsessed with taxation of the industry, both at the state and central levels that the larger and long term national interests are ignored. This culture has a chain effect, with the industry virtually coming to a stand still during the budget presentation every year, dreading the prospects of more financial burden for themselves as well as the consumers. True, excise duties are reduced or done away with for some time for some products but such action is more of a casual nature with no long lasting impacts on the price front. Repeated pleas from the industry as well as food technologists community to the governments to concede tax exemption for all food products for at least 10 years which would give sufficient time for building the processing sector into viable entity and some consolidation, have so far fallen on deaf ears. The nascent Indian food processing industry is singularly unfortunate in having administrative regimes, not responsive to the varied problems faced by them. It is not that governments do not know how to go about in supporting and boosting the business sector as reflected by the massive incentives being doled out to IT industry year after year which is responsible for the pre-eminence India enjoys to day in this field amongst the comity of nations. But some how their radar does not register other sectors like food processing for attention and action.
The provocation for this piece of critique is the tussle between TTK Healthcare and Karnataka government on Value Added Tax (VAT) to be imposed on Fryum, a dried product ready for frying and making a snack. The government appears to be aggressively fighting with the manufacturer, firm on its stand that Fryum is not like a papad but a different product because it is not 'circular', flat and thin in shape and appearance. Therefore it wants to collect 12.5% VAT, not prepared to entertain exemption under Entry 40 of the First Schedule of Karnataka Vat Act which grants tax free status to papads and similar products. Strangely the High Court concurred with the stand of the state without any technical consultation with experts which now is being challenged in the Supreme Court. It is a tragedy for a country like India that judicial system meant to bring succor to the common man is being used to burden the consumer with more taxes and higher product prices. There are millions of cases, mostly civil, pending since last two decades for which the judiciary could have paid more attention bringing relief to the litigants in stead of frittering away its energy on such silly cases. This action by the government is doubly obnoxious considering that the Apex Court had already ruled earlier in the Gold Finger product marketed by Shivsakthi company, that shape was not a criterion for interpreting taxation rules.   
Examining the case further one cannot escape from the conclusion that the state has erred in pursuing the case further expending public funds, benefiting a few lawyers and its own babus in the process. Assuming that the case is won, the tax so collected will be a peanut compared to the cost of this misadventure while consumer will have to shell out at least 12.5% more to buy the product in the market. If this trend is allowed to continue, the industry in Karnataka will have to pay a heavy price for future innovations, knowing well the attitude of the state administration. If some one produces a square, rectangular, triangular or thick papad, same fate awaits them also. In stead of hand rolled papad, if machine made papads using laminar or extrusion sheeting or pressing technology are marketed, they also will have to face the consequences. Why such a simple common sense does not percolate down the sarkari babudom is beyond comprehension. Situations like this, if allowed to continue, can create a 'Singur' syndrome as being faced by Tata's Nano car project in West Bengal leading to exodus by many of the established food companies from Karnataka.
It is time for Government of India to make a bold declaration that all foods would be exempted from all taxes for 10 years through consensus with states through a policy frame work not disturbed by succeeding governments in future. Redemption of Indian food sector is assured only if such a change in mindset takes place. No glossy reports, no mega parks, no SEZs, no cash dole outs, no platitudes, no back slapping, no incentive schemes and no platform declarations can do what a long term tax exemption policy can achieve within a short period.


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