New Delhi: The Modi government’s move to slap a cess on sugar to help sugar mills and sugarcane farmers tide themselves over a crisis appears to have been stymied – at least for now.
At the GST Council meeting on Friday the majority of members favoured the imposition of a cess but states such as Kerala and Bengal resisted the move, arguing that the imposition of a cess on a particular commodity went against the broad principle under which the goods and services tax regime was created. The GST had subsumed a range of state and central levies and cess – which makes the imposition of a levy on a specific commodity untenable.
Finance minister Arun Jaitley told reporters after the meeting that a majority of the states had favoured the levy of the sugar cess. But the Opposition and farm economists see the imposition of a sugar cess as a sop to the sugarcane farmers ahead of the Karnataka elections.
The GST Council on Friday decided to refer to a five-member committee of state finance ministers the proposal of levying a cess on sugar. Another panel of state finance ministers would deliberate on incentivising digital payments.
Revenue secretary Hasmukh Adhia said a sugar development ordinance may come up following an approval from the GST Council, which will be later ratified by Parliament.
“If the council approves the levy of cess on sugar, it will be through the ordinance route,” Adhia said.
Industry officials said the cess, if approved by the Council, will be levied at the mill-gate when a wholesaler or bulk buyers such as beverage and confectionary makers purchase the sweetner.
Maharashtra, Karnataka and Uttar Pradesh are the major sugar growing states. There are about 5 crore cane growers and over 400 sugar mills.
Jaitley claimed that the sugar industry was going through a major crisis because the cost of production had crossed Rs 35 per kg, while the commodity was being sold in the markets at an average price of Rs 26 to 28 per kg.
Kerala finance minister Thomas Issac argued that by the same logic a cess ought to be imposed on rubber.
This is the first time that the GST Council has met to consider whether or not the imposition of a cess is warranted to deal with contingent situations. Jaitley said the states had divergent views with some arguing that alternative mechanisms could be considered, including a budgetary exercise.
Bengal finance minister Amit Mitra pointed out it would be wrong to bring in a new cess on top of the GST.
However, Bihar finance minister Sushil Modi said the GST legislation provided for the imposition of a cess in the event of a natural disaster. “So, there is a provision for a special cess built into the legislation and, therefore, the argument that a specific cess would vitiate the GST regime was spurious.” There was no need to amend the legislation because of this pre-existing provision in the law, he added.
Sumit Dutt Mazumdar, former chairman of the CBEC, said: “It was expected that the states will not agree to the cess as cesses by nature are usually retained by the central government and do not accrue to states.”
“The idea of levying a sugar cess is a retrograde step,” said KPMG India partner Harpreet Singh.
India is the second largest sugar producer after Brazil, and the Centre is keen to placate the 50 million cane growers, who are an influential political lobby.
Karnataka holds state elections next week, while a national election is due by early next year.