Government accepted on Friday the long pending demand of the tea industry for abolition of the excise duty but was quick to impose a development cess on the commodity.

Finance Minister Jaswant Singh in the annual Budget also made coffee plantations eligible for income tax deduction of sums deposited in a development account, as in the case of tea.

Singh proposed to abolish the excise duty of Re one per kg on tea and replace it by a cess of Re one a kg, for creating a separate fund for development, modernisation and rehabilitation of the tea plantation sector.

"This measure will not impose any additional burden on the tea industry, but it will redesign the duty to help the industry", the minister said.

Government has also announced a Rs 500 crore (Rs 5 billion) Fund for the benefit of tea, coffee, natural rubber and tobacco growers which will become operational in 2003-04.

An additional duty of customs has been imposed on tea and tea waste at the rate of Re one per kg "for the purposes of the Union".

With domestic tea prices falling precipitously in the past three years, industry had been demanding exemption from excise duty to shore up its bottom-line.

In the last year's budget, the excise duty had been halved from Rs two a kg to Re one per kg.

PTI