MYSTERIOUS WAY TO EXTRACT TAX ON GREEN TEA LEAVES

The tea garden lands of Assam have been playing a prominent role in the agricultural, industrial and commercial aspects in the State scenario. The State is blessed with the flow of incoming revenue derived out of tax on sales, tax on agricultural income, tax on specified land, apart from the land revenue, revenue on electricity duty, revenue on professions, trades, employments etc. tax. Though the Assam tea has been facing an acute competition in the global commercial market, the good name of the Assam tea is still being maintained, as a whole.
Some pertinent question in relation to the measures of tax, adopted in Assam has apparently been visible and it is necessary to make an analysis on the same.
Exemption of tax on Green tea leaves
The First Schedule of the VAT Act has specified series of goods, exempted from tax under Section 9 of the VAT Act and hence no tax is leviable on the sales of such goods made within the State of Assam. The sales of such goods made in the course of inter-State trade or commerce are as well to be treated as tax free. Entry 41 of the said Schedule laid -down that ‘Unprocessed green leaves of tea’ is exempted from tax. The ‘Tentative Commodity List of Vatable Goods’, finalized by the Empowered Committee, contained also that ‘Unprocessed green leaves of tea’ is exempted from tax under the VAT Act.
.Concept of Specified Land Act
Clause (3) of Article 246 read with entry 49 of List-II (State List) in the Constitution vested powers to the State Legislature to make law in respect of ‘Tax on Land and Building’. In exercise of the said powers, the Legislatures of Assam enacted the “Assam Taxation (On Specified Lands) Act, 1990” (Lands Act), which came into effect from the 1st January, 1990.
The preamble of the Lands Act laid down that it is a tax imposed on certain categories of land. The levy of such tax is to be made on the annual productivity of such specified lands. The specified lands includes, inter-alia, the tea garden lands and the annual productivity of the green tea leaves on weight (in Kilogram) basis is the measuring scale for the purpose of levy of tax on such tea garden lands.
In the original Act effective from the 1st January, 1990, the rate of tax was fixed at 50 paise per Kilogram. The validity of the Lands Act was challenged by a number of tea gardens and tea organizations before the Gauhati High Court and the Supreme Court of India. During the pendency of the cases, however, a Memorandum of Understanding (MOU) was signed between the Government of Assam and the various tea organizations and the rate of tax was reduced from 50 paise to 18 paise with a retrospective effect from the 1st January, 1990. The Lands Act was amended from time to time and with effect from 31st March, 1997, the tea garden lands, the aggregate area of which did not exceed four hectares, were exempted from payment of such land tax.
The numbers of tea estate in Assam and the production of green tea leaves in such tea estates, as were projected in the Statistical Hand Book of Assam, 2007 are, as below:
Year Nos. Quantity produced (in weight)
2002- 43272 43,33,27,000 Kg.
2003- 43293 43,47,59,000 Kg.
2004- 43296 43,56,49,000 Kg.
2005 - 47,41,37,000 Kg.
The numbers of tea gardens and the productivity of tea thereof must have gone to a much higher side during these long five or six years, which particular is, however, not available readily. The collection of tax under the Lands Act was ascertained from the tax department sources, which is as below :
2002-2003 – Rs. 52.93 crore
2003-2004 - Rs. 56.17 “
2004-2005- Rs. 45.29 “
2005-2006 - Rs. 52.18 “
2006-2007- Rs. 53.68 “
The revenue yield from the green tea leaves under the Lands Act seems to be not upto the mark and due taxes were not likely to have been paid by a number of tea gardens.
Some of the tea estates, the numbers of which are exhibited above, do not have any tea manufacturing units (industrial units). Those tea garden units use to make sale of the green tea leaves to the tea industrial units for manufacture and sales of black tea. The numbers of tea manufacturing units in Assam are roughly in between 750 and 800. Some tea gardens, as it could be learnt, made bifurcation or trifurcation of the original units and made the same smaller ones so as to enjoy the benefit of exemption of taxes, as provided in the amended Lands Act of 1997 effective from 31st March, 1997. A huge loss of revenue is thus being incurred annually since 1997-98.
Proposal to levy Cess on the bought- tea leaves in Assam
While presenting the Budget for the 2008-2009 in the House of Legislature of Assam on the 10th March, 2008, the Chief Minister of Assam submitted as proposal before the House for levy of Cess on the green tea leaves. The portion of the speech is reproduced hereunder:
“A large number of bought-leaf factories have come up in Assam. These bought –leaf factories purchase green leaf and manufacture tea. However, unlike established tea companies, these bought-leaf factories do not contribute any revenue to the State Exchequer. They are unable to maintain quality of tea. At present, these bought-tea factories and some established companies who manufacture tea from bought-leaf do not pay any Cess on green tea leaf purchased by them. I propose to levy Cess at therate of 20 paise per kilogram of green tea leaf purchased by them. This rate is much lower than the rate at which the established tea companies pay Cess. The established tea companies pay Cess at the rate of 32 paise per kilogram of green tea leaf in Brahmaputra Valley and 29 paise per kilogram of green tea in Barak Valley. I propose to raise a Development Fund from the revenue collected for development of small and marginal tea growers, welfare of the tea labourers in organized sector and improvement of quality of Assam tea.”
‘Cess’ means a tax or duty. A cess or duty is not generally levied on the sale or purchase of goods for which separate enactment, namely; the VAT Act is there. It is generally levied other than on the sale or purchase of goods. The Budget proposal of the Chief Minister of Assam contained that a Cess would be levied on the sale of green tea leaves at the rate of 20 paise in the rupee. The proposal did not indicate specifically the Act under which such Cess was proposed to be levied.
Tax measures under Lands Act
The Legislatures of Assam by an amendment of the Lands Act ( Assam Act IV of 2009) incorporated some provisions in the Lands Act and the same was given effect from the 12th day of February, 2009. The amendment reads as:
Section 6A-“ Every person engaged in manufacture of tea and responsible for making any payment or discharging any liability on account of any amount purported to be the full or part payment of sale price or consideration for purchase of green tea leaf, shall, at the time of credit to the account of or payment to the seller of such amount in cash, by cheque, by adjustment or in any manner, whatsoever, deduct tax calculated at the rate 20 paise per kilogram and deposit the same in the State Exchequer in such manner as may be prescribed.”
(The rate of such tax was enhanced to 25 paise per kilogram with effect from 29.04.2010.)
The said amendment provided also : (i) the ways and means for deduction of tax at source and deposit thereof and to issue a tax deduction certificate to the sellers of the green tea leaves by the purchasers; (ii) submission of return and statement of deduction of tax by the purchasers; (iii) interest for non-deduction and non deposit of the deducted tax at the rate of 1.5 paise per month; (iv) imposition of penalty for any violation of the provisions of the Lands Act and (v) institution of case in the court of law for any offence.
Levy of tax on the sales of green tea leaves- controversial
In the amendment of Lands Act, the authority of law under which such amendment was made has not been quoted. It also maintained silence as to the authority under which the tax was levied on the sale or purchase of such green tea leaves in the said Lands Act, contrary to the basic principle of levy of tax on the tea gardens lands on the productivity of green tea leaves as the measuring scale.
The question of law as has been cropped up in such exercise are discussed below :
(1) The item green tea leaf is exempted from tax, as exhibited in the First Schedule of the VAT Act. Hence, no tax is leviable on the sale or purchase of such green tea leaves under the VAT Act, which was enacted under the authority of clause (3) of Article 246 read with entry 54 of List II (State List) in the Seventh Schedule of the Constitution;
(2) No other Constitutional authority was provided to levy tax on the sale of such green tea leaves, sold by the producing tea garden to the manufacturing tea gardens;
(3) The main theme and ideology of the Lands Act is that, a tax is leviable under the Act, on the annual productivity of the green tea leaves, produced. The said Act provided no scope to levy of tax on the sale or purchase of green tea leaves, which ,in fact, are exempted from the sales tax under the VAT Act, governing the principle of levy of tax on the sale or purchase of goods in Assam ;
(4) When the aggregate area of the tea garden lands held by a person does not exceed four hectares, no tax is leviable on such lands, implying thereby that the annual productivity of green tea leaves in respect such tea garden lands, are not to be reckoned for the purpose of taxability under the said Lands Act;
(5) The new measure of tax on the sales of green tea leaves incorporated in the Lands Act from 12.02.2009 obviously created a clash and conflict with the provisions VAT Act as well as a portion of the Lands Act;
(6) The tax deduction on the weight of the green tea leaves (on the basis of kilogram) has a direct clash with the principle of levy of tax on the sale or purchase of goods, where value consideration gains the momentum;
(7) The new measure of levy of tax seems to be something unforeseen and extra-ordinary, as the newly inserted Section 6A was a measure to deduct tax at source, while liability to pay tax on such sales of green tea leaves was not given berth in the amended Lands Act;
(8) The term ‘sale’ has not been defined in the Lands Act and the basic principle of levy of tax on the sales of green tea leaves also not accommodated in the Lands Act and it seems to some extent as extra-ordinary exercise of territorial jurisdiction;
(9) The basic ingredients required for the levy of tax on the sales of green tea leaves has not been incorporated in the Lands Act;
(10) The amended Act incorporated the levy of ‘tax’ on green tea leaves is contrary to proposal of levy of ‘Cess’, as reflected in the Budget speech of the Chief Minister of Assam.
The entire matter relating to levy of tax on green tea leaves seems to be controversial and review is necessary by the Government.
Solution suggested
This zig-zag process of levy of tax may have a far-reaching ill consequence to the revenue generation of the State. Since the intention of the Legislature of the State to safe guard the revenue of the State by way of levy of tax on the green tea leaves sold to the bought-leaf factories for manufacture black tea and to make sale, therefore, the Government may consider the following suggestions for the greater interest of the revenue of the State:
(i) That, the exemption tax in respect of the aggregate area of the specified lands held by a person a person not exceeding four hectares of land, as occurred in clause (a) of Section 5 of the Lands Act, may be revoked or withdrawn;
(ii) The lands, held by a person not exceeding four hectares of land, are also to be brought under the purview of tax- net of the lands Act and the provision of the said Act has to be applied in all cases;
(iii) The liability to make payment of tax, submission of returns will rest with such tea garden land owners, as envisaged in the Lands Act and the rules, framed thereunder.
However, in order to ensure that proper payment of tax has been made by such land owners, it may made as a condition that the green tea leaves handed over to the tea manufacturing factories, such land owners are to adduce proof that the tax due to State Exchequer has been paid. In alternative, such manufacturing factories may be authorized to deduct the requisite tax, while making payment green tea leaves for manufacturing or other allied purposes. The appropriate wordings will be’ the green tea leaves placed with the tea factories for manufacture or other allied purposes instead of the words ‘sale or purchase of green tea leaves’.

(Mrinal Kanti Chakrabartty)
“ Rudra Bhawan”
R.G. Barua Road, 10- Lakhimipath, Guwahati-781024

TEA GARDEN HEAD OFFICES SHIFTING TO ASSAM IS IMPERATIVE

The Assam Legislative Assembly adopted an unanimous resolution on 2nd April, 2002 demanding that the big tea companies, having tea gardens in Assam, are to shift their Head Quarters to Assam so that the local youths can get preference in appointment and other ancillary facilities. For that purpose, it decided to send a team of State Legislatures led by the Speaker of the Assembly to put pressure on the Government of India for mobilization of the process. It is not known what was the ultimate out-turn, but there is reason to believe that that it was simply a castle in the air.
There are about 800 tea gardens in Assam having there industrial base side by side. The big tea companies have their Head Offices at Kolkata, will be not less than 90% of such industrial based gardens, existent in Assam. The functioning of the gardens are carried on by remote control devices from Kolkata and the local management in Assam are kept in the dark about the modus-operandi in relation to the sales and purchases exercise effected from the gardens, employment avenue and other allied matters. They are to remain practically cipher in all respects. There can not question of ‘what’ any ‘why’. In true sense, the Head offices owe little allegiance to the State, bother a little for the development and welfare of the people of Assam, They use and utilize the soil of Assam, as the grazing grounds of the company for production and manufacture of tea keeping the aim in view to enrich and enlarge their assets and fiscal resources. Several moves were already made requiring the tea companies to shift their Head Quarters from Kolkata to Assam, but it reached to the deaf ears without any positive and fruitful reactions.
The tea lobby, as it appears, is very much powerful in Assam. They play the pivotal role in the elections scenario vis-a-vis installation of the party Governments to power and even dare to make imposition over the functioning of the Government. The Government in power, it seems from experience, can not over rule their imposed counsels or to be tough to them thereby to invite any displeasure. Neither the Government of Assam nor the Government of India is keen to force or make any imposition to the tea companies to shift the Head offices to Assam. This, they feel, may be abusive in as much as it would make way to curb the fundamental rights, guaranteed by the Constitution of India. The only way, as we believe, is that there should be effective dialogue, assertive pressures and keen pursuance by the mass people of Assam to yield any productive yields.
Avenue of employment :The Head offices of the tea companies formulate the recruitment policy of the respective gardens and make proper implementation of the same through the machineries installed in Assam. In such exercise, the youths of Assam are mostly deprived of any executive, technical or other important assignments in the tea gardens. There is no proper and proportionate representation of the youths of Assam in the Head offices of the tea companies, which are being run at the cost of earnings, derived from the soil of Assam. In that way, they project their indifference and callousness and obviously fail to discharge their obligations not only to the State but to the mass people of Assam. The acute unemployment problems could have been minimized to a great extent had the tea companies extended their healthy and sympathetic gesture to do away with the same.
Purchases of goods :The tea gardens of Assam are not empowered to purchase any goods in Assam. The Head offices make it a prevalent practice to purchase the motor vehicles, machinery, plants, equipment, production and packing materials and other requisites at Kolkata or some other places to the best of their best choice. It was pointed out in the Legislative Assembly at the relevant time that out of such 256 items purchased from places out side the State of Assam, the purchase value of tea bags alone came to Rs. 32 crore in a year. The way of such divergent trade activities adopted, is, no doubt, quite detrimental to the interest of the usual trade practice vis-à-vis healthy growth of economy in the form of revenue in Assam.
Entry tax :A measure of tax on the entry of goods was introduced in Assam by way of enactment of the Assam Entry Tax Act, 2001.The said Act was subsequently repealed consequent upon some legal controversies and a fresh law was enacted from 1st June, 2008. If such items embodied in the entry tax net of Assam, are imported on purchase for use or consumption by the tea gardens, the revenue generation is likely to be ensured and the heavy drainage of revenue in the name of purchase in other State is expected to be averted. It is felt that the tea companies will ultimately prefer to exercise a reverse course of action vis-a vis to purchase such goods, as are available in Assam to make wide flow of revenue to the State Coffer. Of course, the goods, which can not be had in Assam are to be purchased from places out side Assam and there is no other alternative to that.
The tea garden owners are extracting money from Assam soil and making investments of the heavy profit amount, earned thereof, in places out side the State. A dearth of interest is always in sight in their minds for the development and prosperity of Assam. In economic spheres too, the State fails to get the legitimate revenue on this pretext or that.
It is high time that the Government is to assert its stand and impress upon the tea gardens, augmenting the resources from the soil of Assam to be aware of their obligation and allegiance for the development of Assam, which is still maintaining acute backwardness, compared to others States in the Indian sub-continent. The voice of the people will equally be a basic way of action in compelling such tea companies to change such modus-operandi in the long run.

(Mrinal Kanti Chakrabartty)
“Rudrs Bhawan”R.G. Barua Road, Lakhimipath
Guwahati-24