Food Processing

OUTLINE

  • India has 39 million Hectares of Gross Cropped Area in 2012-13(P), 10 million Hectares of Net Irrigated Area in 2012-13(P), and 127 agro-climactic zones
  • 42 mega food parks being set up with an allocated investment of USD 2.38 billion
  • A rich agriculture resource base, India was ranked No. 1 in the world in 2013 in terms of production of Arecanut, Bananas, Castor Oil seed, Chickpeas, Chilies & dry Peppers, Ginger, Lemons & Limes, Mangoes, Mangosteens, Guavas, Millet, Okra, Papayas, Pigeon peas, Buffalo meat, Fresh whole milk of buffalo and goat, Ghee, Butter Oil of Cow Milk, Ghee of Buffalo Milk, Sesame Seed
  • India ranks second in the world in the production of Anise, fennel, coriander, beans-dry, cabbages and other brassicas, cauliflower & broccoli, Eggplants (aubergines), Garlic, Groundnuts with shell, Lentil, Onions dry, Peas green, Potatoes, Pumpkins, Squash and Gourds, Rice/Paddy, Safflower seed, Sugarcane, Tea, Tomatoes, Wheat, Meat-goat, Milk whole fresh cow. Further, India is at the third position in the production of Cashew nuts, with shell, Coconuts, Lettuce and chicory, Nutmeg, mace and cardamoms, Pepper (piper spp.), Rapeseed
  • 42 Mega Food Parks (MFP) are being set up with an investment of USD 2.38 billion. The parks have around 1250 developed plots with basic enabled infrastructure that entrepreneurs can take on lease for the setting up of food processing and ancillary units. As on 25.07.2016, out of 42 MFP projects, 8 projects have been operationalized
  • The cost of skilled manpower is relatively low as compared to other countries
  • Attractive fiscal incentives have been instated by central and state governments and these include capital subsidies, tax rebates, depreciation benefits, as well as reduced custom and excise duties for processed food and machinery
  • 134 cold chain projects are being set up to develop supply chain infrastructure. As on 22.07.2016, out of 134 Cold Chain Projects, 87 projects have been completed

Consumption in India is driven towards packaged and ready-to-eat foods.

Favorable economic & cultural transformation: a shift in attitudes & lifestyles, consumers are experimenting with different cuisines, tastes, and new brands. There is an increase in awareness and concern for wellness and health, high protein, low fat, whole grain and organic food.

Exports of food items have been rising steadily, the main export destinations being the Middle East and South East Asia.

FDI POLICY

  • 100% FDI is permitted under the automatic route in food processing industries
  • 100% FDI is allowed through government approval route for trading, including through e-commerce in respect of food products manufactured or produced in India.

SECTOR POLICY

  • Food processing is recognised as a priority sector in the new manufacturing policy in 2011
  • Government has set up a special fund called “Food Processing Fund” of approximately USD 300 million (at Rs. 67.25 to 1 USD) in National Bank for Agriculture and Rural Development (NABARD) for extending affordable credit to designated food parks and the individual food processing units in the designated food parks. As on 31.05.2016 about a quarter of the fund as term loan has been sanctioned to 12 mega food parks projects
  • Reserve Bank of India has classified loan to food & agro-based processing units and Cold Chain under agriculture activities for Priority Sector Lending (PSL) subject to aggregate sanctioned limit of USD 15.38 million per borrower from the banking system. It will ensure greater flow of credit to entrepreneurs for setting up of food processing units and attract investment in the sector

FINANCIAL SUPPORT

  • Services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables have been exempted from Service Tax (Full Exemption Ref. Service Tax notification No. 25/2012- Service Tax dated 20th June 2012 as amended by Notification 3/2013 dated 1st March, 2013 and 6/2015 dated 1st March 2015 issued under Section 93 Chapter V of the Finance Act, 1994- Power to grant exemption from service tax).
  • Exemption to transportation of ‘food stuff’ by rail, or vessels or road will be limited to transportation of food grains including rice and pulses, flours, milk and salt only. Transportation of agricultural produce is granted full exemption (Ref. Service Tax notification No. 25/2012- Service Tax dated 20th June 2012 as amended by Notification 3/2013 dated 01.03.2013, and 612015 dated 01.03.2015 issued under Section 93 Chapter V of the Finance Act, 1994 – Power to grant exemption from service tax).
  • For generating more employment, an amendment regarding eligibility threshold of minimum 100 workmen has been reduced to 50, is made in the provisions of section 8OJJAA of the Income-Tax Act (w.e.f. 01.04.2016).
  • The entry “waters, including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavoured” in the Seventh Schedule to the Finance Act, 2005 related to levy of additional duty of excise @ 5% has been omitted.

Income Tax:

Deduction in Expenditure:

Deduction for expenditure incurred on investment is allowed if the investment is wholly and exclusively for the purpose of any specified business (details given below). However, this deduction is allowed only for the investment made in the previous year and prior to commencement of its operations.

  • Business allowed 100% deduction (provided the tax payer has commenced its business on or after 01.04.2016)
    • Setting up and operating a cold chain facility (not available for expansion of the unit)
    • Setting up and operating warehousing facilities for storage of agriculture produce (not available for expansion of unit) (Section 35-AD of the Income tax Act, 1961)
  • Business allowed 100% deduction
    • Bee-keeping and the production of honey and beeswax
    • The setting up and operation of a warehousing facility for the storage of sugar. (Section 35-AD of the Income Tax Act 1961, deduction for expenditure incurred on investment is allowed if this investment is wholly and exclusively for the purpose)

Deduction of tax from profit:

  • This tax incentive is available as 100% tax exemption for the first five years’ of operation, and after that, at the rate of 25% of the profits being exempted from tax; 30% in case of a company. This benefit is available only for 10 years for new units (i.e. not formed by splitting up or by way of reconstruction of an existing business) in the business of processing, preservation and packaging of fruits or vegetables, meat & meat products, poultry, marine or dairy products provided such business had commenced on or after 01.04.2001. (Under Section 80 IB (IlA) of the Income Tax Act, 1961)
  • If any business relating to meat, meat products, poultry, marine products or dairy products has started after 01.04.2009, the above benefit would be available, but not to the unit operating in such business before 01.04.2009. (Under Section 80 IB (IlA) of the Income Tax Act, 1961)

Service Tax:

Negative List

  • Service tax is not leviable on items contained in the Negative List. Services including processes carried out at an agricultural farm including tending, pruning, cutting, harvesting, drying, cleaning, trimming, sun drying, fumigating, curing, sorting, grading, cooling or bulk packaging and such like operations which do not alter the essentials characteristics of agricultural produce but make it only marketable for the primary market. The following services are covered under exempted category from service tax:
    • Construction, erection, commissioning or installation of original works pertaining to post-harvest storage infrastructure for agriculture produce including cold storage for such purposes. (Ref. Service Tax notification No. 25/2012 – Service Tax dated 20.06.2012 as amended by Notification 3/2013 dated 01.03.2013 and 6/2015 dated 01.03.2015 issued under Section 93 Chapter V of the Finance Act, 1994 – Power to grant exemption from service tax)
    • Mechanised food grain handling system, machinery or equipment for units processing agricultural produce as food stuff excluding alcoholic beverages. (Ref. Service Tax notification No. 25/2012 – Service Tax dated 20.06.2012 as amended by Notification 3/2013 dated 01.03.2013 and 6/2015 dated 01.03.2015 issued under Section 93 Chapter V of the Finance Act, 1994 – Power to grant exemption from service tax)
    • Services of loading, unloading, packing, storage or warehousing of agricultural produce. (Ref. Service Tax notification No. 25/2012 – Service Tax dated 20.06.2012 as amended by Notification 3/2013 dated 01.03.2013 and 6/2015 dated 01.03.2015 issued under Section 93 Chapter V of the Finance Act, 1994 – Power to grant exemption from service tax)
    • Services of pre-conditioning, pre-cooling, ripening, waxing, retail packing, labeling of fruits and vegetables. (Ref. Service Tax notification No. 25/2012 – Service Tax dated 20.06.2012 as amended by Notification 3/2013 dated 01.03.2013 and 6/2015 dated 01.03.2015 issued under Section 93 Chapter V of the Finance Act, 1994 – Power to grant exemption from service tax)
    • Services provided by National Center for Cold Chain development under Department of Agriculture, Cooperation and Farmers Welfare, Government of India by way of knowledge dissemination. (Ref. Notification No. 9/2016 – Service Tax dated: 01.03.2016)
    • Services provided by a goods transport agency, by way of transport in a goods carriage of agricultural produce, foodstuff including flours, tea, coffee, jiggery, sugar, milk, products, salt and edible oil, excluding alcoholic beverages. (Ref. Notification No. 3/2013 – Service Tax, Para (1-V) Dated: 01.03.2013)

Customs Duty:

  • Government has extended Project Imports’ benefits to the following projects:
    • Projects for the installation of mechanised food grain handling systems and pallet racking systems in ‘mandis’ and warehouses for food grains and sugar
    • Cold storage, cold room (including for farm level pre-cooling) or industrial projects for preservation, storage or processing of agricultural, apiary, horticultural, dairy, poultry, aquatic and marine produce, and meat
    • Consequently, all goods related to Food Processing, imported as part of the project, irrespective of their tariff classification, would be entitled to uniform assessment at concessional basic Customs Duty (Ref. Notification No.12/2012 – CUS dated 17.03.2012)
  • Concessional Basic Customs Duty as presently available under project imports for cold storage, cold room (including for farm level pre-cooling) also extended for ‘cold chain including pre-cooling unit, pack houses, sorting and grading lines and ripening chambers’ from 10% to 5%
  • Customs Duty on Hazelnuts has been reduced from 30% to 10%. (Ref. Notification No. 12/2013 – Customs dated: 01.03.2013)
  • Customs Duty on De-hulled Oat Grains has been reduced from 30% to 15%. (Ref. Notification No. 12/2013 – Customs dated: 01.03.2013)
  • Customs Duty on Refrigerated containers has been reduced from 10% to 5%. (In the Budget 2016-17)

Central Excise Duty:

Food Products:

  • Nil excise duty in milk, milk products, vegetables, nuts & fruits – both fresh and dried
  • Against a standard excise duty of 12%, processed fruits and vegetables carries a merit rate of 2% without CENVAT or 6% with CENVAT
  • Soya milk drinks, flavoured milk of animal origin also carry a duty of 2% without CENVAT or 6% with CENVAT
  • Excise duty on waters including mineral waters and aerated waters, containing added sugar or other sweetening matter or flavored has been changed from 18% to 21% in budget 2016-17

Food Processing Machinery:

  • Excise duty on machinery for the preparation of meat, poultry, fruits, nuts or vegetables and on presses, crushers and similar machinery used in the manufacture of wine, cider, fruit juices or similar beverages and on packing machinery is reduced from 10% to 6% in budget 2014-15.
  • All refrigeration machinery and parts used for the installation of cold storage, cold room or refrigerated vehicles for the preservation, storage, transport or processing of agricultural, apiary, horticultural and marine produce as well as dairy and poultry, are exempt from excise duty. (Ref. Notification No. 12/2014- Central Excise dated: 11th July, 2014).
  • Pasturing, drying, evaporating etc. machinery used in Dairy sector is exempted from excise duty. (Ref. Notification No. 12/2012-Central Excise dated: 17th March, 2012).
  • Excise Duty on Machinery including refrigerated containers has been reduced from 12.5% to 6%. (In the Budget 2016-17).
  • Nil excise duty on capital goods and spares thereof, raw materials, parts & material handling equipments for cargo vessel of various kinds including refrigerator vessels for the transport of meat, fruit or the like. (Ref. Notification No, 12/2016- Central Excise, Dated: 1st March, 2016).
  • Nil excise duty on floating factories of all kinds (for processing whales, preserving fish or the like), whale catchers. (Ref. Notification No. 12/2016- Central Excise, Dated: 1st March, 2016).
  • Nil excise duty on trawlers and other fishing vessels. (Ref. Notification No. 12/2016- Central Excise, Dated: 1st March, 2016).
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