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A large Indian dairy processor running a Punjab dairy whitener plant with approximately 11 lakh litres of daily raw milk inflow — split 60 percent direct-farmer procurement across thousands of Bulk Milk Chillers and 40 percent cooperative-federation supply — must reconcile per-farmer 24-hour settlement runs, plant-level GRNs in SAP MM, vendor invoices from cooperative federations, Section 194Q code 1031 TDS aggregation at PAN level, Section 143 CGST job-work movements to a co-packer network, and Rule 89(5) inverted-duty refund claims driven by 5 percent output GST on HSN 0402 against 18 percent input GST on HSN 3923 packaging. Manual reconciliation across the fat/SNF-graded settlement register, the MIGO/MIRO postings in SAP MM, the co-packer challan chain, and the Form GST RFD-01 refund file loses PAN-level aggregation, over-states the closing balance at co-packers on ITC-04, and leaves the processor exposed to a Section 143(3) deemed-supply trigger on a stuck co-packer batch and a Section 73/74 GST notice on a mis-computed inverted-duty refund.
Build a per-day, per-plant, per-source reconciliation register keyed by three axes — the BMC/route settlement, the SAP MM GRN, and the vendor invoice — with the fat/SNF profile carried as an attribute at every stage. Aggregate purchase value at supplier PAN level and cross the Section 194Q ₹50 lakh threshold flag transparently for cooperative federations and packaging vendors, with the payment code 1031 deduction switched on the moment the threshold is crossed. Track every plant-to-co-packer Rule 55 delivery challan pair (outbound and return-inward) and run the Section 143 1-year clock against the original dispatch; alert the operations team at 270, 300, and 330 days. Compute Rule 89(5) inverted-duty refund on a rolling monthly basis with the amended-formula Net ITC excluding input services and capital goods per Notification 14/2022-CT. Feed the ITC-04 half-yearly filing from the challan register and cross-foot against the co-packer physical stock take at period-end.
Vendor master with GSTIN, PAN, section-390-TDS-eligibility flag (agriculturist under Section 40 Sl. 1(f) exempt versus cooperative federation and packaging vendor above ₹50 lakh threshold under Section 393 Sl. 8 code 1031); BMC/route master with the fat/SNF grid effective date and per-litre rate; SAP MM integration to pull MIGO/MIRO daily; co-packer master with GSTIN, TDS payment code 1023 (principal-supplied material) and rate slab (1 percent Ind/HUF or 2 percent other resident); Section 143 CGST 1-year clock configuration with alert thresholds at 270/300/330 days; ITC-04 filing frequency setting (half-yearly for above ₹5 crore aggregate turnover); Rule 89(5) refund cycle configuration with the amended-formula Net ITC exclusion for input services and capital goods (Notification 14/2022-CT); GST rate table for HSN 0402 output (5 percent) and HSN 3923 packaging input (18 percent); NEFT/RTGS/IMPS payment-file reconciliation feed from the bank.
A day-end and month-end reconciliation pack: (a) BMC-level fat/SNF settlement register reconciled to plant-lab re-test, with adjustment queue; (b) per-farmer PAN aggregate against the Section 194Q ₹50 lakh threshold with code 1031 deduction flag; (c) SAP MM MIGO/MIRO posting cross-tied to vendor invoice with variance queue; (d) per-day plant-to-co-packer Rule 55 challan register with Section 143 clock ageing; (e) Rule 89(5) inverted-duty refund draft under the amended formula with Statement-1A supporting; (f) ITC-04 half-yearly draft with three-column split (dispatches, returns, direct-supply-from-co-packer) and closing balance reconciled to co-packer physical stock take; (g) NEFT/RTGS return-file reconciliation with rejected-leg exception queue for the 24-hour re-route commitment.
A finance controller at a large Indian dairy whitener processor closes the day on 30 June with the following open items across the Punjab plant: approximately 11 lakh litres of raw milk inflow received across the 24-hour window, of which 60 percent moved through direct-farmer Bulk Milk Chiller (BMC) routes and 40 percent through the state cooperative federation channel; approximately 47,200 individual farmer settlements posted to bank accounts inside the 24-hour commitment window with 187 rejected legs held for same-day re-route; 138 vendor invoices from cooperative federations across two states cross-checked against MIGO postings in SAP MM; 14 open Rule 55 delivery challans running the plant-to-co-packer bulk-powder transfer, three of which are past the 270-day mark on the Section 143 CGST 1-year clock; and a Rule 89(5) inverted-duty refund draft for the quarter running approximately Rs 2.3 crore against the 5 percent output GST on HSN 0402 and 18 percent input GST on HSN 3923 laminated packaging. This is Nestle India dairy whitener supply chain reconciliation at production scale, and the discipline that closes the day cleanly separates a category-leading dairy processor from a Section 73/74 GST notice and a broken 24-hour farmer-payment public commitment.
The reconciliation in one paragraph
A dairy whitener processor operating a large single-plant hub in Punjab or Haryana receives raw milk through two parallel channels — direct farmer procurement via BMCs and Village Collection Centres, and cooperative federation supply through the state federation’s chilling network — and converts the pooled inflow through evaporator and spray-dryer trains into bulk milk powder or dairy whitener base. The bulk output moves to a co-packer network under Section 143 CGST job-work discipline, where retail-pack conversion into 200g pouches, 400g cartons, 1kg jars, and 4kg institutional packs happens under Rule 55 delivery challans. Every one of these movements creates a settlement, a document, a book entry, and a tax consequence — a per-farmer settlement inside a 24-hour cycle, a plant-level Goods Receipt Note in SAP MM, a Section 194Q code 1031 threshold check at supplier PAN level, a Rule 55 challan chain to the co-packer with a Section 143 1-year clock, an ITC-04 half-yearly filing, and a Rule 89(5) inverted-duty refund claim driven by the 5 percent output rate on HSN 0402 milk powder against the 18 percent input rate on HSN 3923 laminated packaging. The reconciliation controller’s job is to prove, every day and every quarter, that all these books tie.
What the dairy whitener supply chain looks like in India
Illustrative dairy processors running this operating pattern at national scale include GCMMF (Amul) at its Anand hub, Mother Dairy Fruit & Vegetable across its northern hubs, Nestle India at its Moga plant in Punjab (its largest dairy processing facility in India, feeding the Everyday dairy whitener, Milkmaid condensed milk, and Cerelac dairy portfolio), Britannia Dairy in its curd and cheese lines, Parag Milk Foods at its Manchar plant in Maharashtra, Heritage Foods across Andhra Pradesh and Telangana, Hatsun Agro Product across Tamil Nadu (the Arokya brand), and Kwality Ltd in its northern collection network. Regional cluster geography — Anand (Gujarat) and its dairy cooperative belt; Moga (Punjab) and the northern liquid-milk-shed; Karnal (Haryana) and Kurukshetra; Godhra (Gujarat) and the tribal dairy belt; Chittoor (Andhra Pradesh) and the southern dairy belt; Erode and Coimbatore (Tamil Nadu) — determines whether the direct-farmer / cooperative-federation mix skews one way or the other. A plant in the northern liquid-milk-shed typically runs the 60/40 direct-farmer-to-cooperative-federation mix described in this article; a plant in the Gujarat cooperative belt runs closer to 20/80, with the cooperative federation supplying the bulk of the daily inflow.
The dairy whitener SKU itself sits inside HSN 0402 for GST purposes (milk and cream, concentrated or containing added sugar or other sweetening matter), attracting a 5 percent output GST rate under the notified rate schedule. The FSSAI Milk and Milk Products Regulations 2011 classify dairy whitener as a distinct category from full-cream milk powder, skimmed milk powder, and whole-milk powder, with its own fat, moisture, and protein specification. This category classification matters for the reconciliation because the plant-to-package conversion yield depends on the fat/SNF profile of the day’s inflow, and the settlement discipline back to the farmer runs off the same fat/SNF measurement.
The regulatory overlay — Section 143, Rule 89(5), Section 194Q, and the FSSAI grid
Section 143 of the CGST Act 2017 authorises the movement of inputs and capital goods from a registered principal to a job worker without payment of tax, subject to a return period — one year for inputs, three years for capital goods, measured from the date of original dispatch. For a dairy whitener processor sending bulk milk powder to a co-packer, the 1-year clock starts from the plant’s outbound Rule 55 delivery challan and runs until the retail-pack finished goods return to the plant (or ship directly to a designated buyer under the ITC-04 direct-supply column). Sub-section (3) is unforgiving — if the finished goods do not close inside 365 days, the original dispatch is retro-deemed a supply as of the dispatch date, and GST becomes payable at the rate applicable on that date with interest running from the same date.
Rule 89(5) of the CGST Rules governs the refund of unutilised input tax credit on account of inverted duty structure. Where the output GST rate on the supply of goods is lower than the input GST rate, a portion of the accumulated ITC remains unutilised even after full offset, and Rule 89(5) permits a refund of that unutilised balance. The formula, as amended prospectively by Notification 14/2022-Central Tax dated 5 July 2022, is: Max Refund = (Turnover of inverted-rated supply × Net ITC) / Adjusted total turnover, minus tax payable on the inverted-rated supply. Applications filed on or after 5 July 2022 use the amended formula; applications filed before use the pre-amendment version. Post-amendment, Net ITC excludes input services and capital goods, aligning with the Supreme Court’s refinement in Union of India v. VKC Footsteps India Pvt. Ltd. (2021) 10 SCC 674. For a dairy whitener plant with a 5 percent output rate on HSN 0402 and an 18 percent input rate on HSN 3923 laminated packaging, the Rule 89(5) refund is a material working-capital reconciliation and the RFD-01 filing must be supported by Statement-1A reconciling turnover, Net ITC, and adjusted total turnover for the claim period.
Section 393 Sl. 8 code 1031 of the Income-tax Act 2025 (successor to Section 194Q) requires a buyer whose aggregate turnover exceeded Rs 10 crore in the preceding financial year to deduct TDS at 0.1 percent on the value of goods purchased from any resident seller exceeding Rs 50 lakh in a financial year, aggregated at seller PAN level. For a dairy processor buying from cooperative federations and packaging vendors, the Rs 50 lakh threshold is crossed rapidly and code 1031 deduction is a routine monthly cycle. For the direct-farmer channel, the individual farmer PAN typically stays below the threshold (a farmer supplying 100 litres per day at Rs 40 per litre grosses Rs 14.6 lakh per year, well below Rs 50 lakh), and the Section 40 Sl. 1(f) agriculturist treatment applies — but the PAN-level aggregation must be monitored transparently because a large multi-family farmer supplying multiple BMCs can cross the threshold silently.
Co-packer conversion charges attract TDS under Section 20 Sl. 4 code 1023 (successor to Section 194C where the principal supplies the raw material). For a dairy whitener supply chain the principal ships bulk milk powder to the co-packer under a Rule 55 challan, and the co-packer charges for pouch-filling, labelling, and cartonning — TDS is deducted on the conversion charge only, at 1 percent (Individual/HUF co-packer) or 2 percent (other resident co-packer). The job-work TDS discipline explained in the textile cluster applies verbatim to dairy co-packing.
FSSAI’s Milk and Milk Products Regulations 2011 govern the specification of dairy whitener as a distinct category. The regulatory overlay matters for the reconciliation because every plant-lab re-test of a BMC tanker load is graded against the FSSAI specification, and settlement adjustments back to the farmer are made against the fat/SNF grid effective for the day.
A worked example — a Punjab dairy whitener plant close-out for one day
Illustrative — the following figures represent the operating pattern of a Punjab dairy whitener processor of the scale that a large integrated brand-owner operates. Public disclosures do not reveal internal settlement or plant-level yield data; cross-verify against your own settlement register, MIGO extract, and RFD-01 supporting statement before action.
A Punjab dairy whitener plant closes the operating day on 15 April 2026. Daily raw milk inflow: approximately 11 lakh litres, split 60 percent direct-farmer (6.6 lakh litres across approximately 4,700 BMCs and Village Collection Centres) and 40 percent cooperative federation (4.4 lakh litres across two state federations). Plant-lab average fat: 4.1 percent; average SNF: 8.4 percent. Farmer settlement rate (illustrative published grid): Rs 44.50 per litre at 4.1 fat / 8.4 SNF equivalent. Cooperative federation transfer price (illustrative pooled rate): Rs 43.20 per litre.
Direct-farmer settlement pack: 4,700 BMCs, 6.6 lakh litres, settlement value approximately Rs 29.4 crore. Payment file (NEFT batch to the settlement bank, cut-off 06:00 the following morning): 47,200 individual farmer credits, 187 rejected legs held for same-day IFSC/account re-verification and re-route inside the 24-hour public commitment. Section 194Q PAN-level aggregation for the year-to-date: 43 individual farmer PANs above the Rs 50 lakh threshold flagged for code 1031 deduction at 0.1 percent on the excess purchase value.
Cooperative federation invoice pack: 4.4 lakh litres at Rs 43.20 per litre = approximately Rs 19.0 crore. Two federation invoices (Punjab federation and Haryana federation contribution) posted via MIRO in SAP MM against the two vendor masters. GST at 5 percent on HSN 0402 on the raw milk equivalent = approximately Rs 95 lakh input tax credit accrued. Section 194Q code 1031 aggregation for the year-to-date: both federation PANs already crossed the Rs 50 lakh threshold in Q1; code 1031 deduction at 0.1 percent on the day’s purchase = approximately Rs 1.9 lakh deducted, remitted to TRACES with challan CIN and picked up in the following month’s TDS return cycle.
Spray-dryer conversion for the day: pooled raw milk equivalent of 11 lakh litres yields approximately 92,500 kg of dairy whitener base (illustrative conversion yield of approximately 8.4 percent by weight, function of the day’s fat/SNF profile). The bulk base is transferred to a bagging line and then dispatched to the co-packer network under Rule 55 delivery challans.
Plant-to-co-packer dispatch pack: 14 outbound Rule 55 challans issued to five co-packer partners across the northern belt. Illustrative single challan: JW-DW/26-27/00241, HSN 0402, quantity 6,500 kg dairy whitener base, declared taxable value Rs 22.75 lakh (illustrative declared value for movement), sent to co-packer at Kundli (Haryana) for 200g pouch conversion. Section 143 CGST 1-year clock starts 15 April 2026, expires 14 April 2027. The co-packer processes and returns 24,800 finished 200g pouches (approximately 4,960 kg net of the 4kg overwrapping-and-carton conversion loss) on 30 April 2026 under co-packer challan CPK-DW/26-27/00089, HSN 1901.90 (or as re-classified for the retail pack), or ships directly to the modern-trade regional distribution centre under the ITC-04 direct-supply column. Co-packer conversion charge for the batch: Rs 2.28 lakh (Rs 35 per kg on the 6,500 kg base), plus 5 percent GST. TDS under Section 20 Sl. 4 code 1023 at 2 percent (co-packer is a partnership firm) = Rs 4,560 deducted, remitted, and cross-checked against Form 26AS at the co-packer PAN.
Rule 89(5) refund cycle for the month: total inverted-rated turnover on HSN 0402 dairy whitener finished-goods sales approximately Rs 82 crore; Net ITC (excluding input services and capital goods per Notification 14/2022-CT) approximately Rs 14.7 crore, of which laminated packaging (HSN 3923 at 18 percent) contributes approximately Rs 4.3 crore; adjusted total turnover approximately Rs 92 crore. Applying the amended formula: Max Refund = (82 × 14.7) / 92 − tax payable on the inverted-rated supply (5 percent on Rs 82 crore = Rs 4.1 crore) = Rs 13.10 crore − Rs 4.1 crore = approximately Rs 9.0 crore refund claim for the month, filed via Form GST RFD-01 with Statement-1A within two years of the relevant date.
The chain closes cleanly for the day and for the co-packer batch inside the Section 143 1-year window. The 24-hour farmer-payment commitment is honoured for 99.6 percent of the settlement lines; the 187 rejected legs are re-routed within the same day. Now consider the failure mode: a co-packer with a rejected batch and a machinery downtime pushes the return-inward past the 1-year mark. Applying the same Section 143(3) mechanic explained in the textile job-work chain article, the original dispatch value of Rs 22.75 lakh is retro-deemed a supply as of 15 April 2026; GST at 5 percent = Rs 1.14 lakh payable, plus interest at 18 percent per annum from the dispatch date to the date of payment, plus a Section 122 penalty exposure if not self-reported. The reconciliation platform’s alert at 270 days from dispatch would have flagged this batch on approximately 10 January 2027, giving operations 95 days to bring the un-completed state back to the plant or close the deemed supply.
Common reconciliation breakages
Five breakages recur across dairy whitener processors and each maps to a specific control failure.
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Fat/SNF discrepancy at BMC versus plant-lab re-test. Every tanker load is graded twice — first at the BMC/route level (Milkoscan or equivalent), and again at the plant lab on arrival. A discrepancy above the tolerance band triggers a settlement adjustment. Processors that do not carry the plant-lab re-test back to the BMC-level settlement register break the farmer settlement discipline and open a manual exception queue that grows silently.
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Section 194Q PAN-level aggregation missed. Individual farmer PANs typically stay below the Rs 50 lakh Section 194Q threshold, but a large multi-family farmer supplying multiple BMCs (each with its own settlement register) can cross the threshold silently at PAN aggregate. Processors that do not aggregate at PAN across all BMC routes miss the code 1031 deduction and expose themselves to disallowance under Section 40(a)(ia) of the Income-tax Act 2025 at year-end assessment.
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Rule 89(5) Net ITC mis-computation. Post-amendment (Notification 14/2022-CT dated 5 July 2022), Net ITC in the Rule 89(5) formula excludes input services and capital goods. Processors that continue to include input services in the Net ITC (a common error carried over from the pre-amendment formula) over-state the refund claim and expose themselves to a Section 74 SCN with penalty.
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Section 143 1-year clock reset error at the co-packer. Some processors believe that re-dispatch after an intermediate return-inward re-starts the 1-year clock. It does not. The clock runs from the original plant-to-co-packer dispatch of the bulk base. Intermediate returns and re-dispatches do not reset it; the clock ticks against the input in whatever state it is in.
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NEFT/RTGS rejected-leg queue not closed inside the 24-hour commitment. A rejected settlement leg (invalid IFSC, closed account, name mismatch) that is not re-routed and re-posted inside the 24-hour commitment window breaks the public promise and creates a farmer-side goodwill exposure that is disproportionate to the value of the rejected leg. The reconciliation platform’s exception queue must close every leg inside the same operating day.
How a reconciliation platform handles this
A purpose-built dairy processing reconciliation platform ingests the BMC/route settlement register, the plant-lab re-test file, the SAP MM MIGO/MIRO postings, the cooperative federation vendor invoice, the plant-to-co-packer Rule 55 challan register, the co-packer return-inward file, the NEFT/RTGS payment batch and return file, the GSTR-1/2A/2B/3B monthly filings, the Form 26AS credit at supplier PAN, and the Form GST RFD-01 refund draft, and produces a per-day and per-month reconciliation pack that closes the loop from BMC to bank credit and from spray-dryer output to co-packer finished goods. The platform runs the Section 143 CGST 1-year clock against every open plant-to-co-packer dispatch and surfaces the exposure at 270, 300, and 330 days from origin, giving operations enough runway to bring un-completed states back to the plant before the deemed-supply trigger. It aggregates Section 194Q code 1031 threshold at supplier PAN level across all BMC/route sources so no multi-family farmer PAN slips below the deduction net silently. It computes the Rule 89(5) inverted-duty refund on the amended-formula basis with Net ITC correctly excluding input services and capital goods, and produces the Statement-1A supporting for the RFD-01 filing. Match rate improvement of 51 to 88 percent on the BMC-to-bank-credit and challan-to-dispatch reconciliation, combined with ISO 27001:2022 posture and DPDP Act 2023 aligned data handling for the individual-farmer PII, is what makes the platform a plant-scale infrastructure investment rather than a spreadsheet substitute.
Cross-cluster bridges and where to read next
The dairy whitener chain in this article sits inside the broader agro-processing reconciliation surface. For the fat/SNF-graded milk procurement settlement pattern common to every dairy processor, read the dairy reconciliation for fat/SNF milk procurement walkthrough. For the cooperative federation settlement pattern that governs 40 percent of a Punjab plant’s inflow and up to 80 percent of a Gujarat plant’s inflow, the Mother Dairy cooperative settlement reconciliation article covers the federation-tier settlement mechanics. For the modern-trade side of the dairy business — cheese, curd, and yoghurt — see Britannia Dairy cheese and curd modern-trade reconciliation. The Rule 89(5) inverted-duty refund cycle specific to dairy post the September 2025 GST rationalisation sits in dairy inverted-duty refund under Rule 89(5) post GST 2.0. The cluster-level overview is at agro-processing reconciliation India — nine sub-verticals master. For the Section 194Q code 1031 mechanic in its cross-cluster form, see the TDS payment code 1031 walkthrough. And the PLISFPI claim mechanics for dairy processors that fall inside the scheme’s named beneficiaries is covered in the PLISFPI claim mechanics reconciliation cornerstone. The commercial pillar for the entire agro-processing cluster is agro-processing reconciliation software India; the broader authority is reconciliation software India.
The five FAQs below address the operational questions Indian dairy processing controllers ask most often when implementing structured dairy whitener supply chain reconciliation.
Content authored by practitioners with experience at Amazon India, Intuit QuickBooks, and the Tata Group. Meet the team →
- ▸ Section 143, Central Goods and Services Tax Act 2017 — Job work procedure. A registered principal may send inputs to a job worker without payment of tax and bring back the inputs (or send them to another job worker) within one year, and capital goods within three years. If inputs are not received back or supplied out within the prescribed period, the original dispatch is deemed a supply on the date it was sent out and GST becomes payable retrospectively with interest. Rule 45 read with Rule 55 governs the delivery challan format (Form GST INS-01) and ITC-04 the periodic filing.
- ▸ Rule 89(5), Central Goods and Services Tax Rules 2017 (as amended by Notification 14/2022-Central Tax dated 5 July 2022) — Refund of unutilised input tax credit on account of inverted duty structure. Maximum Refund = {(Turnover of inverted-rated supply × Net ITC) / Adjusted total turnover} − Tax payable on such inverted-rated supply of goods. Notification 14/2022-CT dated 5 July 2022 amended the formula prospectively — applications filed on or after that date use the amended formula; applications filed prior use the pre-amendment version. Net ITC now excludes ITC on input services and capital goods, aligning with the statutory constraint in Section 54(3) as refined by the Supreme Court in Union of India v. VKC Footsteps India Pvt. Ltd. (2021) 10 SCC 674.
- ▸ Section 393 Sl. 8 code 1031, Income-tax Act 2025 (successor to Section 194Q) — Tax deducted at source on purchase of goods. A buyer whose aggregate turnover exceeded ₹10 crore in the preceding financial year deducts TDS at 0.1 percent on the value of goods purchased from a resident seller exceeding ₹50 lakh in a financial year. Payment code 1031 applies for the deduction. The threshold applies aggregate per single seller PAN — a dairy processor buying from thousands of individual farmers under Rule 1(1)(f) tax-exempt sales generally does not cross the ₹50 lakh threshold at the individual farmer level, but crosses easily for cooperative federations and packaging vendors.
- ▸ Section 40 Sl. 1(f), Income-tax Act 2025 (successor to Section 194N and dairy-farmer exemption carry-over) — Agriculturist exemption. Sales of milk and milk products by a farmer being an agriculturist to a purchaser attract distinct treatment from a purchase of goods from a commercial supplier — the co-operative-society and farmer-supplier route continues to be recognised separately for statutory withholding purposes and for the FSSAI 2011 milk-quality classification. Section 194Q code 1031 aggregation is computed at PAN level; individual farmer supply lines below ₹50 lakh remain outside the deduction net even where the plant-total inflow is large.
- ▸ Food Safety and Standards (Milk and Milk Products) Regulations, 2011, FSSAI — Standards for milk powder, dairy whitener and infant milk substitutes. Dairy whitener (partly skimmed milk powder with added sugar and/or vegetable fat under specified conditions) is a distinct category from full-cream milk powder and skimmed milk powder, each with its own moisture, fat, protein and lactose specification. Every plant-level receipt of raw milk is graded on the fat and Solid-Not-Fat (SNF) axes, and the plant-to-package conversion yield is a function of the fat/SNF profile of the day's inflow.
- ▸ Section 20 Sl. 4 codes 1023 and 1024, Income-tax Act 2025 (successor to Section 194C) — TDS on job-work charges. Payment code 1023 applies where the principal supplies raw material to the job worker — for dairy whitener supply chains, this is the standard treatment when a processor sends bulk milk powder or dairy whitener base to a co-packer for retail-pack conversion. Code 1024 applies where raw material is not supplied by the principal. Rates: 1 percent (Individual/HUF resident payee) or 2 percent (other resident payee) on the conversion charge only, excluding the raw material component.