Spices sector

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December 2016 Volume 3, Issue 10
FOCAL POINT
Newsletter from Raju and Prasad Chartered Accountants

Page 3Raju and Prasad Chartered Accountants Page 1
Dear Reader,
Our editorial comments are on the proposed
Taxation Laws (Second Amendment Bill, 2016) and Pradhan
Mantri Garib Kalyan Yojana(PMGKY) Scheme.
This month we have covered Spices Sector in sequence to other
Agro Industries.
We wish all our readers seasons greetings, Merry Christmas &
Happy New Year.
Please give your views and also send this newsletter to your
friends.
Regards
For Raju & Prasad
Chartered Accountants
M Siva Ram Prasad
Partner

Contents
Contents.............................................................................................................................................................2
Editorial...............................................................................................................................................................3
The Taxation Laws (Second Amendment Bill, 2016) .......................................................................... 3
Industry Review...........................................................................................................................................6
Spices Sector ............................................................................................................................................................. 6
Spicy History................................................................................................................................................................................................................. 6
Spices Produced in India..................................................................................................................................................................................... 7
Prospects.......................................................................................................................................................................................................................... 9
Organic Spices...........................................................................................................................................................................................................12
Government Initiatives.......................................................................................................................................................................................13
Problems and Challenges..................................................................................................................................................................................14
Policy Watch................................................................................................................................................. 16
RBI .................................................................................................................................................................................16
Withdrawal of the Incremental CRR .......................................................................................................................................................16
Indirect Tax ..............................................................................................................................................................16
Waiver of Service Tax on card transactions up to Rs 2000...................................................................................................16
Exemption of Excise Duty on Point of Sale Goods ......................................................................................................................16
Exemption of Excise Duty on Branded Gold Coins.....................................................................................................................17
Verdicts............................................................................................................................................................ 17
Direct Taxation .......................................................................................................................................................17
Interest subsidy, power subsidy, etc. are not Income from Other Sources ............................................................17
Rate of royalty is at ALP if it is approved by RBI and Ministry of Industry .................................................................18
Developer constructing Airport and Bridges for Govt. agencies entitled to sec. 80-IA relief................18
►►► PHOTOGRAPH OF THE MONTH ..................................................................................... 19

Editorial
The Taxation Laws (Second Amendment Bill, 2016)
overnment of India introduced The
Taxation Laws (Second Amendment Bill,
2016) on 27th November 2016. The proposal is
to tax persons who have not disclosed their
Income earlier or are now disclosing
unexplained income. This is in line with the
earlier announcement to come with heavy
hand on those who have not disclosed
income or wealth under Income Disclosure
Scheme (IDS) 2016.
G

Raju and Prasad Chartered Accountants
The amendment proposal also gives another
chance to declare undisclosed income under
Pradhan Mantri Garib Kalyan Yojana, 2016
(PMGKY). The proposed amendment
contemplates a tax rate of 30%, Garib Kalyan
Cess of 33% of tax and penalty of 10% of
undisclosed income which works out to about
50%. The person who declares the income
under this scheme has to deposit 25% of the
income declared in Pradhan Mantri Garib
Kalyan Deposit Scheme, 2016 for 4 years which
bears no interest to the depositor. Unlike IDS,
the scheme does not have any deadline to
declare the unexplained income unless it is
scrapped one fine day.
By this amendment there is scope to get more
unaccounted income into the tax net.
Framing in the deposit scheme wherein the
money is kept for 4 years without any interest
to the depositor reduces inflation since money
circulation to that extent is stopped.
Government/Banks will also get debt funds
free of cost. The scheme will be dispute free in
terms of levying any type of penalty since
there is no discretionary power given to tax
authorities.
In case the above scheme is not adopted,The
Taxation Laws (Second Amendment Bill, 2016)
increases the tax rate to 60% on unexplained
income which was earlier at 30%. The Bill also
amends the penalty section 271AAB to enable
levy of penalty in cases where the undisclosed
income was found by the tax authorities in the
event of Search Operations. Also, it introduces
a new section 271AAC which levies a penalty
of 10% in cases of voluntary disclosure of
unexplained income.
The demonetized currency deposits are
allowed up to 30th December, 2016. Most of
the general public have raised doubts
whether demonetized deposits also attract
taxes at higher rates.
Framing in the deposit
scheme wherein the money is
kept for 4 years without any
interest to the depositor
reduces inflation since money
circulation to that extent is
stopped.

Raju and Prasad Chartered AccountantsRaju and Prasad Chartered Accountants Page 5
The analysis of the various circumstances in view of the amendment is as follows-
The deposits during the year out of
demonetized currency will take the colour of
undisclosed income if the source for such
deposits are not clearly explained.
Many people have a wrong notion that
demonetized currency deposits up to 2.50
lakhs are tax free. This may be true to some
extent in case of persons not liable to file
income tax returns such as small traders,
housewives etc. but persons who have been
regularly filing their return of income have to
substantiate that these deposits are out of
their current income or that the deposits are
out of their cash balance and earlier
withdrawals failing which the deposits will be
considered as unexplained income and taxed
at higher rates accordingly.
This is a welcome and inevitable move taken
by the government and acts as a whip on non-
compliant assesses. This also increases the
responsibility on the revenue authorities to be
more vigilant and proactive in order to
recover the taxes from the defaulters/evaders.
M SIVA RAM PRASAD
S.No Circumstances Income
Tax u/s
115BBE
Surcharge
on Tax
Cess Penalty Total
Effective
Tax Rate
1 Unexplained Income is disclosed
voluntarily in Income Tax Return
and advance tax is paid on or
before due date
60% 25% 3%
NIL
77.25%
2 Unexplained Income is disclosed
voluntarily in Income Tax Return
but advance tax is not paid on or
before due date
60% 25% 3%
10% of Income
Tax
U/s.(271AAC)
83.25%
3 Income is disclosed as regular
income in Income Tax Return but
treated as unexplained by Income
Tax Authorities
60% 25% 3%
10% of Income
Tax
U/s.(271AAC)
83.25%
4 Income is admitted after search
and declared in Income Tax
Return
60% 25% 3%
30% of
Undisclosed
Income
U/s.(271AAB)
107.25%
5 Income not admitted after search
and/or not declared in Income Tax
Return
60% 25% 3%
60% of
Undisclosed
Income
U/s.(271AAB)
137.25%
Note: Other penalties, existing income tax may be levied at the discrete of tax authorities.

Raju and Prasad Chartered AccountantsRaju and Prasad Chartered Accountants Page 6
Industry Review
Spices Sector
Spicy History
hether it is saffron in Kashmir or pepper
in Kerala, India is known for a variety of
spices all over the country like its cultural
diversity. Spices are one of the most
remarkable ingredients of Indian cuisine.
Without them, Indian food would be as
ordinary as the others. Spices are also one of
the reasons why Indian food is becoming
popular to people across the globe.
Arthasastra during 3rd century B.C. mentioned
about various spices. Atharvanaveda and
Ayurveda talk about the medicinal uses of
spices. There are historical evidences that use
of spices was in existence in the age of Indus
W

Valley Civilisation. While Susruta-samhita and
Charaka-samhita talked about the medicinal
uses of spices, Vatsayana talked about the
aphrodisiac values of spices.
Indian history and trade is linked to spices.
History records, only Vasco da Gama’s
landing in 1498 at Kerala coast and his return
to Europe with a shipload of various spices, but
there were earlier evidences of Indian spice
trade with South Asian countries, Middle East
countries and China. Spice trade in South Asia
had competition between Portuguese, Dutch
and British. The trade forced to discover sea
routes and wars were fought ruthlessly for
occupying territories for spices.
In 15th century Europeans started the spice
trade and by 16th century British made India
as their trade capital in Asia through East India
Company replacing Dutch monopoly of spice
trade in India. British landed in India for spices
and ended up as rulers.
Spices Produced in India
Spices are in the form of fruits, flowers, leaves,
bark, seeds, roots and bulbs. There are number
of spices available but some are regularly
used in food and some are used in medicinal
preparations and aromatic preparations.

The following table shows parts of the plant which can be used as spice:
S.No Part Used as Spice Spice Number
1 Fruit Cardamom, Pepper, Chilli, Cumin, Fennel,
Celery, Aniseed, Ajwain, Caraway, Dill, Pepper
Long, Star Anise, Tamarind
13
2 Seed Fenugreek, Mustard, Pomegranate, Nutmeg,
Poppy seed
5
3 Rhizome Ginger, Turmeric, Sweet flag, Greater Galanga 4
4 Leaf Coriander, Curry leaf, Mint, Parsley, Hyssop, Bay
Leaf, Lovage, Marjoram, Basil, Allspice,
Rosemary, Sage, Savory, Thyme, Oregano,
Tarragon
16
5 Bark Cinnamon, Cassia, Tejpata, Juniper 4
6 Bulb Garlic, Mace 2
7 Rind Kokam, Camboge 2
8 Stigma Saffron 1
9 Pod Vanilla 1
10 Root Horse Radish, Asafoetida 2
11 Flower Caper, Clove 2
Total 52
Source: Spice Board of India

Pepper, “the king of spices” is commonly used
for flavoring food stuff which is grown in the
Western Ghats usually in the hilly areas and
requires an average rainfall of 200-300 cm.
Cardamom, “the queen of aromatic
spices”are mainly grown in areas where the
climatic conditions are humid, the average
rainfall required for this spice ranges from 150-
300 cm.
Some of the spices have insect repellant
properties, some are used in antimicrobial
activities, alcoholic beverages and also as
natural colouring agents. Many condiments
and oils are extracted out of these spices.
Nearly three-fourths of spices listed in ISO are
produced in India. India is the largest
producer, consumer and exporter of spices. In
recent times organized marketing with brand
names is taking place in spices, spice
powders, spice oil, spice extracts and
oleoresins, etc. and essential oils.
Saffron traditionally known as “Zafran” is one
of the world’s highest valued spice. Saffron
stigmas are graded with colour, bitterness and
aroma. The darker the colour the better it is. It
has been popularized during recent times
mainly due to spread of Kashmiri population to
major cities and also due to its rich source of
minerals such as calcium and iron. Pakistan is
the main competitor for Saffron trade.
Prospects
Most of the states in India produce spices, the
total area under cultivation is 3.12 million
hectares during 2013-14 which has increased
from 1.93 million hectares during 1990-91. The

average growth in production increased from
1.98 million metric tonnes during 1990-91 to
5.94 million metric tonnes during 2013-14 which
is around 9% per annum as per statistics of
Spice Board of India.
Table showing major spice wise area and production in India:
(Area in ‘000 Hectares, Production in ‘000 Tonnes)
Spices
2010-11 2011-12 2012-13 2013-14
Area Production Area Production Area Production Area Production
Chillies 792.1 1223.4 793.92 1448.22 762.43 1437.76 760.45 1492.53
Garlic 200.6 1057.8 171.80 898.44 228.79 1213.41 257.76 1469.05
Turmeric 195.1 992.9 201.82 1001.86 210.51 981.58 188.84 853.09
Ginger 149.1 702.0 125.37 924.42 136.87 713.79 137.99 715.10
Coriander 530.5 482.0 362.14 428.68 397.72 384.81 452.53 338.47
Tamarind 59.6 206.3 52.78 182.08 58.46 189.55 56.78 208.64
Cumin 507.8 314.2 726.40 462.65 868.36 514.57 943.80 598.49
Fenugreek 81.2 118.4 96.30 121.78 110.82 126.46 97.03 110.70
Fennel 61.8 105.4 92.45 144.11 55.74 94.70 38.26 60.13
Pepper 183.8 52.0 175.38 43.00 122.16 57.88 122.29 40.41
Ajwan 25.8 22.2 45.69 28.05 34.56 23.66 27.23 17.85
Cardamom 86.7 15.7 97.75 18.86 92.33 18.94 91.71 21.79
Nutmeg 16.1 11.4 18.41 12.14 18.89 12.73 20.11 13.46
Tejpat/
Cinnamon
2.9 5.0 4.18 5.27 2.77 5.04 2.75 5.04
Clove 2.4 1.2 2.1 1.03 2.08 1.14 2.27 1.21
Total 2940.20 5350.50 2966.49 5720.59 3102.49 5776.02 3199.80 5945.96
Source: Spice Board of India

The major spice producing states are Kerala,
Andhra Pradesh, Gujarat, Karnataka,
Tamilnadu, Maharashtra and Rajasthan. Chilli
is the major spice crop occupying about 24%
of total area under cultivation and 25% of the
total production.
Various Spices have different harvesting periods and also traded either in whole form or in powdered
form as given below:
Commodity Growing States Harvest
Period
Traded Forms Quality
Attributes
Quality
Issues
Clove Kerala,
Karnataka &
Tamilnadu
December-
April
Whole,
Cracked &
Powdered
Size, Colour,
Aroma,
Volatile Oil
Hairs,
Pesticides,
Stems
Cardamom Kerala,
Karnataka &
Tamilnadu
October-
January
Whole &
Powder
Size, Colour,
Aroma,
Volatile Oil
Pesticide,
Aroma,
Colour, Taste
Cinnamon Kerala,
Karnataka &
Tamilnadu
Post
Monsoon
Whole &
Powder
Size, Colour,
Aroma,
Volatile Oil
Mold,
Pesticide,
Ash
Chilli Andhra
Pradesh,
Maharashtra,
Karnataka
February-
April
Whole &
Powder
Size, Colour,
Aroma
Pesticide,
Insects
Fennel Gujarat,
Rajasthan,
Uttar Pradesh
December-
March
Whole Size, Colour,
Aroma,
Taste
Taste, Size,
Insects
Ajwain Rajasthan,
Gujarat
May-June Whole Size, Colour,
Aroma,
Taste
Pesticide,
Insects
Fenugreek Rajasthan,
Madhya
Pradesh,
Gujarat
February-
April
Whole Size, Colour,
Aroma,
Taste
Pesticide,
Allergens
Star Anise Arunachal
Pradesh
July-
September
Whole Size, Colour,
Aroma
Mold,
Pesticides
Source: www.data.gov.in
India accounts for nearly 48 percent of volume
and 43 percent of value in global spice trade.
During 2015-16 a total of 8.34 lakh tonnes of
spices and spice products have been
exported amounting to USD 2842.83 million
which shows an increase while compared to
that of 1990-91 which was USD 130.40 million as
per statistics of FAO and Spice Board of India.

The leading importers of spices from India are
USA, China, Vietnam, UAE, Indonesia,
Malaysia and UK. While Chilli is the most
exported spice in terms of quantity which is
3.47 lakh tonnes and worth USD 605 million
during 2015-16 as per the statistics of Spice
Board of India, other spices, oils and oleoresins
are also in much demand among the exports.
Apart from being the largest exporter of spices
on the globe, India consumes approximately
90% of its spice production each year. The
spices in India are channelized to three broad
clients namely industrial sector, retail sector
and catering sector.
The spices market in India is growing in recent
years on account of increase in purchasing
power and improvement in living standards.
Rising demand for spices is also due to value
added products like spice mixes. The surge in
growth is mainly originated from growth in
chilly and garlic as a segment of spice market.
The growth in this segment has been largely
led by the domestic factors and increase in
global demand.
Organic Spices
Many people today, all over the world, show
interest in organic food since it is free from
chemical contaminants, the demand for
these products is steadily increasing. Spice
Board of India has prepared a document on
production of organic spices during 1998. It
features the organic concepts, principles,
basic standards, production guidelines,
documentation, inspection and certification.
Export of organic spices from India is gaining
ground. The country has recorded exports of
around 2636.87 MT tonnes of organic spices
during 2015-16, valued at USD 3 million as per

the statistics of Agricultural and Processed
Food Products Export Development Authority
(APEDA).
Government Initiatives
To develop and regulate the sector, Spice
Board of India was formed during 1986,
National Research Center for Spices (NRCS)
which is presently
know as Indian
Institute of Spices
Research was also
established in the
same year.
International Pepper
Exchange was
established in 1997
besides Indian
Cardamom Research
Institute (ICRI) was
established in 1978.
Saffron Production and Export Development
Agency (SPEDA) was established in 2015.
Spice Board has specific programmes for
development, it has established crop scientific
Spices Parks in the major production and
market centers in Kerala, Rajasthan, Andhra
Pradesh, Madhya Pradesh and Tamilnadu to
empower the farming community by
providing common infrastructure and
processing facilities which will in turn boost the
sector.
Codex Committee on Spices and Culinary
Herbs (CCSCH) was formed during 2014-15.
During 2015-16 Spice Board of India took an
initiative in developing the digital platform
named “e-Spice Bazaar” which caters to the
needs of spice farmers and
exporters.
Spice Producers Society
(SPS) was formed by the
Spice Board which will
function as bridge
between Board and the
growers. A special
programme for the North
Eastern States has been
setup which provides
techniques for rain harvesting and installation
of irrigation equipments.

Integrated projects by various state
departments were implemented under
Mission for Integrated Development of
Horticulture (MIDH) and Rashtriya Krishi Vikas
Yojana (RKVY) for providing training facilities to
the farmers for improving the quality of their
yield.
Problems and Challenges
Though the industry has been growing and has
a huge market demand across the globe it
faces certain challenges which are as follows:
1. Strong competition for Indian Spice
products due to stringent food safety
norms of various importing countries.
2. The constant use of pesticides, insecticides
and toxin remains is impacting the quality
of spices like any other agro produce.
3. Value added products need more
emphasis on processing technologies.
4. Like any other agricultural crop, spices also
face the pests, epidemics and vagaries of
weather.
5. Existence of strong competitors in the
global market for certain products like
cinnamon, cumin, nutmeg, clove,
cardamom, black pepper, etc.
6. Modern processing technologies,
cultivation and post-harvest techniques
need attention for a better marketing of
the product.

7. Dominance of unorganized sector which
sell in open markets and unbranded
products without quality evaluation.
8. Small land holdings hamper the farmers
from implementing good cultivation
practices, non-coverage of crop insurance
and inability for marketing.
The Government together with the private
sector involvement must overcome these
challenges to make the spices sector one of
the largest in the world.
Team at Raju and Prasad

Policy Watch
RBI
Withdrawal of the Incremental CRR
RBI vide Notification No. RBI/2016-17/174
dated 7th December 2016 has withdrawn the
incremental Cash Reserve Ratio (CRR) of 100
per cent of the increase in NDTL between
September 16, 2016 and November 11, 2016.
This withdrawal shall come into effect from the
fortnight beginning from December 10, 2016.
https://www.rbi.org.in/Scripts/NotificationUser
.aspx?Id=10768&Mode=0
Indirect Tax
Waiver of Service Tax on card
transactions up to Rs 2000
Ministry of Finance vide Notification No.
52/2016 dated 8th December,2016 has
exempted the services by an acquiring Bank ,
to any person in relation to settlement of an
amount up to two thousand rupees in a single
transaction through Credit Card, debit card,
charge card or other payment card service.
“Acquiring bank” means any banking
company, financial institution including non-
banking financial company or any other
person, who makes the payment to any
person who accepts such card.
http://www.cbec.gov.in/resources//htdocs-
servicetax/st-notifications/st-notifications-
2016/st52-2016.pdf
Exemption of Excise Duty on Point
of Sale Goods
35/2016- Central Excise dated 28th November
2016 has exempted the Point of Sale (POS)
devices and goods required for its
manufacture from Central Excise Duty. This
exemption shall be valid till 31st March, 2017.

cbec/excise/cx-act/notifications/notfns-
2016/cx-tarr2016/ce35-2016.pdf
Exemption of Excise Duty on
Branded Gold Coins
36/2016- Central Excise dated 1st December
2016 has exempted the Gold Coins of Purity
99.5% and above, silver coins of purity 99.9%
and above, bearing a brand name when
manufactured from gold and silver on which
originally duty of customs or excise has been
paid.
cbec/excise/cx-act/notifications/notfns-
2016/cx-tarr2016/ce36-2016.pdf
Verdicts
Direct Taxation
Interest subsidy, power subsidy,
etc. are not Income from Other
Sources
-vide decision of Supreme Court Vide Commissioner
of Income tax Vs Meghalaya Steels Ltd
Supreme Court Vide Commissioner of Income
tax Vs Meghalaya Steels Ltd, it was held that
the transport Subsidy, interest subsidy, power
subsidy and insurance subsidy received by the
assessee as reimbursements of manufacturing
cannot be treated as Income from other
sources and are admissible deductions u/s 80-
IB and 80-IC. It is also explained that "income
from other sources" is a residuary head of
income that can be availed only if income
does not fall under any of other four heads of
income and subsidies for reimbursement of
cost incurred in production of goods are
includible under head "profits and gains of
business or profession" and, therefore, cannot
be included under head "income from other
sources".

https://www.taxmann.com/filecontent.aspx?
Page=CASELAWS&multipage=false&id=10101
0000000167335&isxml=Y&search=&tophead=tr
ue&tophead=true
Rate of royalty is at ALP if it is
approved by RBI and Ministry of
Industry
-vide decision of Mumbai ITAT vide Assistant
Commissioner of Income tax 10(2) Mumbai, V. Dow
Agrosciences India (P) ltd,
Mumbai ITAT vide Assistant Commissioner of
Income tax 10(2) Mumbai, V. Dow
Agrosciences India (P) ltd, it was held that
royalties paid by assessee to its Associated
Enterprise were to be considered as arm’s
length price since the payments are in terms
of approval granted by Secretariat of
Industrial Approval (SIA) and also in terms of
Reserve Bank of India. In this case royalties
paid at rate of 8 per cent on export and 5 per
cent on domestic sales were to be considered
as at arm's length rate.
https://www.taxmann.com/fileopennew.aspx
?id=101010000000170687&mode=home&pag
e=
Developer constructing Airport and
Bridges for Govt. agencies entitled
to sec. 80-IA relief
-vide decision of High Court of Jammu & Kashmir
vide Commissioner of Income tax V. TRG Industries
(P) Ltd
High Court of Jammu & Kashmir vide
Commissioner of Income tax V. TRG Industries
(P) Ltd held that where assessee-company,
carrying on business of developer, entered
into valid contract with government and
government agency for constructing bridges
and developing airports and railway system,
deduction under section 80-IA should be
granted on profits and gains arising from such
contract since the assessee satisfies provisions
of section 80-IA(4)(i) applies to an enterprise
carrying business of a developer.
https://www.taxmann.com/fileopennew.aspx
?id=101010000000172123&mode=home&pag
e=
Please see next page
Disclamer
Information in this Newsletter, charts, articles,
or any other statements regarding market or
any other financial information, is obtained
from the sources, which we feel reliable. We
do not warrant or guarantee the timeliness or
accuracy of the information.The reader shall
not take any decision based on the facts or
figures of the newsletter without professional
advice.

►►► PHOTOGRAPH OF THE MONTH
A Pond Heron at Sewri Mud Flats Mumbai
- Clicked by M Siva Ram Prasad
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