Tea prices in the country could go up between Rs 10-20 a kilogram if the high level of value added tax (VAT) proposed to be levied on the commodity is not reversed, the industry has warned.

"Tea forms a part of the Wholesale Price Index and any increase in prices due to high VAT tariffs of the commodity will impact inflation," president of Tea Packers Association of India Inder Singhee said.

Inclusion of tea and coffee in the 12.5 per cent VAT segment would have a drastic effect on its affordability among some segments of the society and the maximum retail price of the commodity could go up between Rs 10-20 a kg, he said.

The challenges faced by the two industries are compounded by the fact that they cannot draw any advantage from the input credit system that forms a critical component for successful implementation of the VAT system, he said.

This is because credit from input taxes can only be offset in the states where the products are manufactured.

Production of tea and coffee is restricted to a few Indian states while consumption is national, Singhee said while demanding reduction in the VAT tax slab for tea.

The tea industry is demanding reversal of the decision to classify the commodity under the 12.5 per cent revenue neutral rate category of VAT and that it be put under the 4 per cent category, he said.

Singhee said Commerce and Industry Minister Kamal Nath had assured to recommend a lower tax category of VAT for the tea industry and a final decision had to be taken by the Empowered Committee on VAT.

Singhee said while VAT promises to revolutionise tax structure, tea, which is the common man's beverage, threatens to be seriously affected through a significant rise in end-consumer price.

At present, sales tax levied on tea and coffee is around 8 per cent in most states, he said, adding that the placement of the beverages in the 12.5 per cent category will push up prices further.

This, coupled with the way the VAT structure has been formulated, will push the tax rate of tea and coffee upward of 15 per cent, a statement by the tea industry said.

It said the tea and coffee industries, just about stabilising after a huge downturn, are still facing challenges and battling crisis on a variety of fronts.