20 Jul 2017 12:59 IST

How post-GST billing system feud disrupted tea auctions in TN

Buyers, sellers divided on type of contract to be used

The ruckus over the billing system at tea auctions in two centres in Tamil Nadu, apart from being discussed and debated extensively, has brought tea factory operations in the Nilgiris district to a halt.

While members initially said there is “no clear-cut instruction from the Tea Board on the conduct of the auction”, they now seem to be taking the ire out on each other, with the sellers/producers alleging a nexus between buyers and brokers, and major buyers/exporters abstaining from the auction citing “lack of clarity in the billing system”.

The first sale that took place after the GST rollout (both in Coonoor and Coimbatore during the first week of July) proved disastrous. Members of the South India Tea Exporters’ Association (SITEA) said the Tea Board had directed sale of tea through auctions at four centres — Kolkata, Guwahati, Siliguri and Kochi — through registered broker contracts, and through seller contracts at the two centres in TN, at Coonoor and Coimbatore.

(Under broker contract, the broker draws the invoice on behalf of the seller after the auction.)

Buyers said that in Tamil Nadu, sales have been made under seller contract over the past six-seven years. “But under GST, when the Board directs the sale under broker contract in certain centres and seller contract in TN, we are confused, as major producers offer their teas at the auction centres in TN and Kochi as well. Further, the system should be uniform, especially when the Board is working towards a pan-India auction system,” said Hemen Shah, Chairman, SITEA.

The buying community has, over the past several years, gotten used to seller contracts in TN. Sellers have been insisting that the present system should continue, while buyers maintain that there should be uniformity in the billing system under GST.

The commercial taxes department had, on July 12, directed the trade to follow a uniform procedure (in line with the other auction centres), as the “GST Act has uniform implication throughout the country and different procedures for different auction centres would be inadmissible”.

The buying community hailed the communication, while sellers/producers decided to shut factory operations till July 21. The Tea Board organised a meeting of stakeholders in Kolkata on Tuesday to iron out the differences and resolve the issue, but the discussions remained inconclusive with the Board deciding to take a legal opinion on the issue

An industry insider, meanwhile, explained that billing under seller contract is more transparent vis-a-vis a broker contract or as per the Tea Marketing Control Order (TMC), 2003.

The source pointed out that the Commercial Taxes Department in TN raised an audit objection in 2005-06 on the earlier billing system. “At the knock of a hammer, the sale is treated as a local sale. It would therefore be better if the seller raises the tax invoice on the ultimate buyer,” the source quoted the department as saying. “When VAT was introduced, the exporters could claim the tax refund, and this model was accepted by the Board as well,” the source said.

Under GST, in a broker contract, the broker raises a tax invoice on the buyer (at the auction) and the seller in turn has to simultaneously raise one on the broker. This is not in line with the TMCO, which says a broker is only an agent — he is not allowed to buy/sell or shift tea and he cannot claim ownership.

The TN model is compliant with the GST rule and in line with the TMCO as well, the source explained.

Dust sale

Meanwhile, the response to the sale of tea dust at the auction centre in Coimbatore saw more buyers participating. Trade sources told BusinessLine that exporters and big buyers other than Tata and Unilever participated in the sale that took place this afternoon.

Close to 85 per cent of the catalogued quantity of 3.53 lakh kg (of dust) is said to have been taken up at the time of compiling this report. “Exporters who had resisted the Board’s directive participated in the trade,” the source said, adding: “There were as many as 51 buyers this week against 30 at last week’s sale.”