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January 8, 2002. 11.30 am.

January 8, 2002.

Broiler 'Scam' and Scapegoats: Fox is still in hiding !

Raghavan Kadanad*

Thiruvananthapuram: The broiler controversy, which has created a lot of hue and cry in Kerala, has turned a full circle with the latest amendment, effected on the original notification, withdrawing the tax exemption granted to poultry farms run on land taken on lease, mortgage, licence, or any other arrangement. Though it seems to have set aside the controversial clarification order issued on 27 September last, the amended notification (SRO7/2002/4/1/2002) is bound to have serious consequences, both economic and legal, because of its retrospective nature and insistence on having 'own farm', instead of farms run on leased land, for tax exemption.

The very fact that the government resorted to changes in the notification of SRO1090/99, SROs.291/00 and 877/00 issued during the LDF rule underlines that the problem was not that of the clarification order of 27 September as such, but that of the original notification itself which had loopholes. Even the breach of privilege notice served by an opposition leader does not stand in the context of the latest amendment made in the original notification. What is more important is that the amendment has come as a death warrant for thousands of poor poultry farmers in Kerala who do not really 'own land' but will have to pay tax @ 8 per cent with effect from 1/4/2000. It may be noted that the majority of the farmers in the state, whether in poultry or in cultivation of paddy, vegetables etc., do farming on leased land or by some other arrangement. This is equally applicable in trade and business where only a few have their own land. In effect, the 'scam' has only added fuel to fire in the broiler business of the poor farmers.

The controversy surrounding the tax exemption given to poultry farms on leased land in Kerala had taken a new turn when the state Finance Minister, in a surprise move, took the officials to task for not informing him of the clarification issued on 27 September last. The Minister's move was obviously to absolve himself of the controversial order, but fixing the responsibility of the same, in a bad taste, on the shoulders of the officials has apparently stirred a hornet's nest, for it gives an impression that there is something fishy about the whole thing and that a few in the bureaucracy played a 'dirty' role in the whole episode. The leaders of both the ruling front and opposition have been in a frenzied mood to grill the Finance Minister and that explains his U-turn on the controversy. The prime targets in the bureaucracy are Mr.Somasundaram, Commissioner, Commercial Taxes, and Mr. Anil Kumar, Deputy Commissioner, who have been known for their integrity and honesty in the comity of corrupt officials in the department. Even the Minister knows that without some scapegoats, at least in the bureaucracy, he cannot get out of this controversy.

It is natural that the government's position threw a lot of suspicion in the minds of the people in the absence of convincing explanations as to the legal-technical as well as the policy implications of the question under fire. Evidently, the controversy tended to divert the attention of the people from another big muti-crore 'scam' involving a section of the sales tax officials and poultry farmers across the Kerala-Tamil Nadu check posts which has really drained the exchequer for long. Both the LDF and UDF governments wilfully ignored the rampant corruption in the state border areas.

The 'broiler scam' emerged when corruption was attributed to a clarification order issued on 27 September upon a submission by M/s. Unique Hatcheries (UH), Palakkad, under section 59A of the Kerala Sales Tax Act. The Commissioner clarified that a hatchery owning a poultry farm in a leased land can register the farm as a branch of the hatchery under section 13 of the Act and that the chicks hatched in the hatcheries of the UH and reared in the farms inside Kerala on leased land will be entitled for tax exemption. The clarification order did not have retrospective effect. However, the first clarification issued by the Commissioner upon a submission by the UH stated that the poultry farm owned by the applicant for the purpose of notification SRO.1090/99 and as such sale of poultry will attract tax @ 8 per cent. The claim of UH was rejected on the ground that the farm was never owned by the applicant and that in order to get the benefits of exemption under notification it is mandatory that the farm be legally owned by the persons who claimed exemption.

In the second clarification of 27 September, the Commissioner noted that the lease on land (previously it was lease on building) entitled the applicant to claim that she would fall under the term 'poultry farm' because the lessee would possess the land and "do with it whatever she pleases subject to the restrictions imposed by the terms of the lease agreement". Unfortunately, the entire corruption charges were traded on the basis of a wrong interpretation of the second clarification order. The major argument was that it provided room for big firms in Tamil Nadu to reap the windfall in Kerala under tax exemption and that the state exchequer has lost more than fifty crores due to this order. It was a gross exaggeration and misrepresentation of facts. The truth of the matter is that the government had not given tax exemption to the chicken brought from other states, including Tamil Nadu. Nor has it extended the exemption to the contract farming in Kerala run by outsiders through their agents in Kerala. The benefit of exemption was made available only to those farms that own land in Kerala by lease or possession. It was this exemption that the state government has now revoked with retrospective effect spelling disaster for the poor poultry growers in the state.

It was in early 1990s that tax was imposed on chicken sold in Kerala. The LDF government, however, relaxed this to benefit the poultry farmers in the state while continuing to impose tax @ 8 per cent to chicken brought from other states. The Commissioner issued only a clarification on poultry farms run on a leased land in Kerala. It was apparently made on legal grounds, which would have benifitted the hatcheries and farms legally run within the state. The general feeling was that the state exchequer lost a 'colossal' amount due to this clarification issued on 27 September (which did not have any retrospective effect), the implication of which is that the state was drawing a huge amount, till then, by way of tax imposed on chickens brought from other states. The ground reality is that much of the taxes to be collected at the check posts continued to have gone out of the state exchequer's way due to rampant corruption at the entry points. The real loss to the state's revenue came from the manipulations at the border areas. When the LDF government announced tax exemption to the poultry farms in Kerala, a few began to set up small farms across the check posts and secured sales tax registration.

Under the KGST registration, these Kerala poultry 'farmers' inside the border areas of the state began to issue 'bills' and other documents to the illegal traders of broiler chicken from Tamil Nadu on commission. When the vehicles carrying the Tamil Nadu chickens reached the check posts, they used to produce bills and other documents to prove that they were reared in Kerala and, hence, eligible for tax exemption. The tax officials at the check posts who knew all these illegal acts allowed them to continue this practice for long, the loss of which would certainly surpass the figures projected by the opposition and the poultry growers association. The 'revenue' of this illegal trade has suddenly come to a halt because the broiler firms from other states would be in a position to set up poultry farms in Kerala through legal channels on the strength of the clarification order of 27 September. The corruption charges shot into limelight in this background.

It was natural that some suspected a foul play here, particularly when a Deputy Commissioner in northern Kerala, who is also a prominent KGOU leader of the UDF, under whose jurisdiction the Unique Hatcheries comes, went in for fresh behind-the-scene bargains. The 'broiler scam' assumed a new dimension when the corrupt officials in the sales tax department began to manipulate the whole issue to their narrow self-interests. The Finance Minister itself would have come under pressure in such a scenario of behind-the-scene bargain and political manoeuvres by both politicians and bureaucrats. Unfortunately, the poor poultry farmers of Kerala are now under pressure to bear the entire burden of a 'non zero-sum game' played by schemy politicians and tax officials. The question before both the UDF and the LDF is how long they can sustain a policy of protectionism in inter-state trade while the leaders of both fronts are all for rolling out red carpet for big bushiness and foreign capital with all incentives thrown open to them in the era of globalisation. (The author was a Delhi-based tax consultant)

(c)keralamonitor.com 2002

 

 


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