e-auction to start on Tuesday amid concerns from tea players

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Notwithstanding the apprehensions of tea industry players about operational matters pertaining to the new pan-India electronic auction system, the central government has decided to enforce the new arrangement from Tuesday.

“There will be no deferment of the pan-India e-auction. We have been consulting them for one-and-a-half years. We have accommodated lot of suggestions, which they have given and have made some changes into the system,” Tea Board of India chairman Santosh Sarangi told IANS.

The new system is expected to enable buyers registered with a single auction centre to participate in the auction process of other centres as well.

Till now, the existing electronic auction process is region- and centre-specific, with restrictive participation of buyers as only those registered at a centre could participate in its auction process.

There are seven auction centres in India – Kolkata, Guwahati, Siliguri, Jalpaiguri, Kochi, Coonoor and Coimbatore. Manual auction of tea in India started in 1861 and the region and centre specific electronic auctions commenced in 2009.

However, Darjeeling tea is coming to the electronic platform for the first time.

According to Tea Board data, about 534 million kg is sold through the e-auction system.

Industry players raised a host of issues concerning the rules of the new auctioning system including the post sales tax and banking settlement, among others. Buyers, sellers and brokers have also sought more settlement banks in the system instead of just one settlement bank – the Bank of India.

“In the pan-India auction, there are a couple of issues on operational matters. E-auction is not that someone is buying from any e-commerce market place. There are Amore complications. We have requested that there should be two or three banks, not one. If one bank fails on some electronic thing, then the system will collapse,” Indian Tea Association Vice Chairman and McLeod Russel whole-time director Azam Monem told IANS.

“We are talking about a common settlement account instead of one bank account, so that buyers can pay to a person who raised the invoice and then he can get the tax input credit wherever required. They (Board) are working on it,” he said.

Among many apprehensions, the industry players sought proxy bidding which is not allowed in the new system.

“Proxy bidding is not allowed. We are allowing associate IDs by which they can engage their associates to bid on behalf of them (buyers). This was thought of as a mechanism to prevent cartelisation and to bring in more players and competition into the system,” Sarangi said.

“Earlier, multiple buyers could designate one person as a proxy bidder. One proxy bidder could represent multiple buyers. In the new system, each buyer will have to participate on his/her own or through his/her associate IDs,” he said.

National Federation of Small Tea Growers of India President Samir Ray said: “Going pan India is desirable. There are groups who control centre specific e-auctions.”

“The pan-India auction is expected to improve price discovery and will also prevent cartelisation,” Darjeeling Tea Association President S.S. Bagaria told IANS.

Monem, who also batted for the system, said there is need for clarity on whether inter-state buyers will be charged central sales tax or state VAT (value added tax).

“Regarding post sales tax, inter-state buyers need to pay the central sales tax which is at two percent or the state VAT – whichever is lower. Many of their concerns will actually be addressed once the GST is rolled out,” Sarangi said.

He said the brokers also had some reservations. With the consent from buyers, sellers and brokers, there is an “informal advance payment arrangement”, where brokers make advance payments to the bought leaf factories or small tea growers (sellers). And finally, dues are settled after brokers sell tea.

This arrangement is prevalent in some centres, not in all, Sarangi said.

“We have asked our software developer – NSE.IT – to examine it. We will examine legal aspects of such credit arrangements and the desirability of such arrangement in the long run. Ideally transaction should be made between buyers and sellers, he said.

Bappaditya Chatterjee / IANS