Rice was originally exempt from service tax. However, later the Finance Ministry had said that only paddy is agri-produce, while rice is a processed item.
Presenting the interim budget for 2014-15 fiscal, Chidambram said: "By virtue of the definition of 'agricultural produce' in Finance Act 2012, read with the Negative List, storage or warehousing of paddy was excluded from the levy of service tax. Rice was not. The distinction is somewhat artificial. Hence, I propose to exempt loading, unloading, packing, storage and warehousing of rice from service tax."
The FM's decision comes following pressure from Tamil Nadu Chief Minister Jayalalithaa who had shot off a letter to Prime Minister Manmohan Singh seeking his personal intervention in the issue. She had also also sought to remit and return the already levied service tax since July 1, 2012.
Jayalaithaa had said that the levy of service tax on rice as "discriminatory and completely unjust" against people in south and east where the grain is the staple food.
"The interpretation given by the Ministry of Finance defies logic and common sense. From time immemorial, rice has been regarded as an 'agricultural commodity'," she had said.