Rice Mill Custom Milling (CMR) Billing & Mandi Fee Exemption: Complete CA Audit Checklist

Rice milling forms the backbone of the agro-industrial economy across Chhattisgarh (Dhamtari, Raipur, Mahasamund, Balod) and Western Odisha (Kalahandi, Sambalpur, Bargarh). However, custom milling for state procurement agencies—such as Chhattisgarh State Civil Supplies Corporation (NAN), MARKFED, or Odisha State Civil Supplies Corporation (OSCSC)—carries intricate statutory accounting, tax, and mandi regulation challenges that frequently trigger departmental scrutiny.

1. Statutory Accounting & Contractual Framework of Custom Milling

Under standard Custom Milled Rice (CMR) agreements:

• Ownership of Paddy & Raw Material: Remains with the State Government / Agency throughout the process. The miller acts as a bailee and service provider.
• Outturn Ratio Mandate: The miller must deliver 67 kg of Raw Rice (or 68 kg of Parboiled/Boiled Rice) for every 100 kg of common paddy allotted.
• Byproducts Ownership: Broken rice, rice bran, and husk generated during milling are retained by the miller as commercial compensation, in addition to the milling charges paid per quintal.

2. GST Implications on Custom Milling Operations

3. Mandi Shulk (Krishi Upaj Mandi Fee) Exemption Compliance

In Chhattisgarh, under the Chhattisgarh Krishi Upaj Mandi Adhiniyam, 1972, mandi fee is levied on notified agricultural commodities purchased or sold within the market area:

• CMR Paddy Exemption: Paddy allotted directly by MARKFED / NAN for custom milling for the central pool is exempt from Mandi Shulk, provided the miller maintains the official allotment order, transit permit (TP / Anugya Patra), and delivery acknowledgment receipts.
• Commercial (Niji) Paddy Purchases: Attracts statutory Mandi fee (plus Krishak Kalyan Kosh cess). The auditor must verify physical gate passes, weighing slips (Dharamkanta parchi), and purchase registers to ensure non-mingling of government paddy with private trade stocks.

4. Key Audit Checklist for Practicing Auditors

When preparing Form 3CD (Clause 35 quantitative records) and conducting bank stock audits for rice mills:

1. Moisture & Driage Verification: Physical verification of allowable driage norms (typically 1% for boiled rice and raw paddy) against state procurement circulars.
2. Electricity Consumption vs Milling Output: Scrutiny of unit consumption per quintal of paddy milled (benchmark: 4 to 6 units per quintal for raw rice; 6 to 9 units for parboiled units with boiler setup). High variances are primary red flags for Income Tax Section 68 / 69C unexplained cash additions.
3. Gunny Bag Stock Reconciliation: Monthly count of new HDPE/Jute bags received, bags utilized for CMR dispatch, damaged bags, and bags sold commercially.
4. Bank Drawing Power (DP) Calculation: Exclusive separation of Government CMR stocks from pledged bank hypothecation stocks. CMR paddy cannot be treated as paid stock for drawing power computations.

For specialized rice mill statutory audit, Mandi fee appeals, and project finance advisory in Raipur, Dhamtari, or Kalahandi, contact CA Rabi Agrawal & Associates.