Tax officials collude in hiding income from paddy by-products

The Comptroller and Auditor General of India (CAG) is conducting an audit of financial dealings between government institutions and rice mills in eight major rice-producing States, amid serious allegations that black money to the tune of Rs. 200 crore is being generated every day through under or non-reporting of earnings from sale of paddy by-products by the millers.

This follows a complaint to the CAG in August 2012 by Odisha-based RTI activist Gouri Shankar Jain. Mr Jain told The Hindu : “It could be a scam involving over Rs.10 lakh crore.” The PMO that also received his complaint, forwarded it to the CAG in February.

Confirming the CAG audit of rice mills, government sources said Mr. Jain’s complaint had been included in the investigations. According to government records, the eight top contributors to the central rice pool at present are Andhra Pradesh, Punjab, Chhattisgarh, Uttar Pradesh, Odisha, Haryana, Tamil Nadu and West Bengal.

In his first complaint to the CAG, Mr. Jain — who has been raising the issue since 2011 as part of the “Kishan Krishi Karj Mukti Andolan” — accused unscrupulous rice millers of hiding the income from paddy by-products (rice bran, husk and rice broken) in collusion with tax assessing officials.

“It was all due to the wrong procurement policy and faulty accounting/billing system... suspicion was aroused when we found that even though the input cost and labour charges had nearly doubled, such millers were willing to work at the 2004-05 rates,” he alleged.

Rice bran is used to extract oil, while husk is used to fuel power plants and apart from human consumption, broken rice is used in breweries, to make laundry starch and other products.

The Central and State governments procure rice through the Custom Milled Rice (CMR) and the Levy Rice mechanisms for public distribution system. Under CMR, government institutions get paddy from farmers at the minimum support price and give it to mills under an agreement; and under the levy system, millers purchase paddy from farmers, mill it into rice and sell it to the government.

Explaining the modus operandi, Mr. Jain said: “Under both schemes, the government collects 68 kg of parboiled or 67 kg of raw rice per 100 kg paddy. There is no clarity about the total quantity and pricing of the rest of the 32-33 kg by-products of paddy, neither in government audited balance-sheets nor in rice millers’ audited accounts.”

The custom milling agreement with the government stipulates that millers will retain the by-products. The fraud remained undetected, Mr. Jain alleged, as State governments seldom sent claims for rice procurements along with the accounts properly audited by CAG-appointed auditors at the end of each season. “This happened because CMR rates would remain provisional, not final as required . In an RTI reply last September, the Department of Food and Public Distribution said the rate for procurement incidentals had not been finalised in most of the States,” he alleged, stating he had studied balance sheets of about 2,500 rice mills.