Tax Exemption Food Processing Industry

Tax Exemption for Food Processing Industry

Tax Exemption for Food Processing Industry

It is due to absence of modern cold storage facilities that India has incurred post-harvest fruits and vegetable losses. Focus on this sector will boost food availability, reduce inflation and increase the overall GDP of economy. India is one of the leading exporter of food products and the Ministry of Food Processing Industry (MOFPI) is implementing a number of schemes to promote this sector. In this article, we review the list of tax exemptions provided for the food processing industry in India.

Service Tax

Services provided in relation to loading, unloading, packing, storage or warehousing of agricultural produce is not taxable under service tax. According to Notification No. 25/2012 dated 20/06/2012 (AS AMENDED), sectors like food processing industries and cold-chain facilitating centers have been given exemption from service tax. The two main areas pertaining to the food processing industry enjoying exemption are:

Services by means of construction, erection, commissioning or infrastructure of original works pertaining to:

  • Post-harvest storage infrastructure for the agricultural produce inclusive of a cold storages for such reasons
  • Mechanized food grain handling system, machinery or equipment, for units processing agricultural produce such as food staff with the exception of alcoholic beverages.

Services by way of transportation by rail or vessel from one place in India to another and by a suitable Goods Transport Agency of the following goods namely:

  • Agricultural Produce
  • Milk, Salt & food grain including flours, pulses and rice.
  • Services by means of loading, unloading, Planning, Storage or warehousing of rice, cotton, ginned or bailed 

Central Excise

In terms of central excise, particular goods intended to be utilized for the installation of a cold storage, cold room or refrigerated vehicle for the presentation, storage/transport of agricultural, apiary, agricultural, dairy, poultry, aquatic as well as marine produce and meat are exempt from central excise. The exemption is subject to condition that the goods are cleared for the intended purpose and the process laid down in the CE (Removal of goods at a concessional rate of duty for the manufacture of Excisable goods) Rules, 2016 according to Notification No. 20/2016 dated 01/03/2016 that is followed.

In addition to the above, there are other exemptions also provided to this industry having a lower percentage of excise duty as follows:

  • Nil excise duty on milk, milk products, vegetables, nuts & fruits, fresh and dried
  • Compared to a standard excise duty of 12% on processed fruits & vegetables carrying a merit rate of 2% without CENVAT or 6% with CENVAT
  • Soya Milk Drinks, flavored Milk of Animal origin also are charged a duty of 2% without CENVAT or 6% with CENVAT

Customs Duty

Government has provided the following exemptions on customs duty to provide an impetus to the food processing industry in India:

  1. Projects for the reason of installation of mechanized food grain handling systems and pallet racking in ‘Mandis’ as well as warehouses for food grains and sugar;
  2. Cold storage, cold room inclusive of farm level pre-cooling or industrial projects for the reasons of preservation, storage or processing of agricultural, apiary, horticultural, diary, poultry, aquatic and marine produce as well as meat.

Click here to know more about the process for starting a food processing business or subsidy for cold chain.

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