The proposal to introduce a cess on sugar has been green-lighted by the Law Ministry, leaving it to the Group of State Finance Ministers to take a final view on the matter. The cess will come into effect only if and when the GST Council approves it.
The State FMs will meet on Sunday to discuss the matter.
“Cess is different from GST. It used to be an additionality during the VAT (Value added Tax) regime; so it (the cess) can be applied,” a senior government official told BusinessLine, elaborating on the Law Ministry’s assessment that was sent to the Finance Ministry.
It is also expected that the Finance Ministry will now file a special leave petition in the Supreme Court as there is an interim order on a petition challenging the constitutional validity of the Goods and Services Tax (Compensation to States) Act, 2017. The legislation authorises the imposition of a cess. The Law Ministry has also advised the Finance Ministry to seek the advice of the Solicitor General.
The issue was referred to the Law Ministry as unlike other cesses, which are levied on specific items and are used to compensate States for losses under GST, the sugar cess has a different purpose.
The proposal envisages the “imposition of cess at a rate not exceeding ₹3 per kg on supply of sugar” (over and above GST at 5 per cent). The mop-up will be used to create a fund, which will “enable the Centre to make prompt interventions to protect the interests of farmers, in view of the extreme cyclical nature of industry.” The Centre expects to get ₹6,700 crore through this cess.
The proposal, introduced at the GST Council on May 4, met with opposition from Andhra Pradesh, Kerala and West Bengal, following which a Group of State FMs was constituted to consider the various issues involved.
The proposal, mooted by the Ministry of Consumer Affairs, comes at a time when sugar mills owe farmers ₹19,000 crore (as on January 31, 2018). Dues were around ₹9,500 crore last year. Experts blame oversupply and the consequent subdued factory-gate sugar prices for the doubling of dues.
Before the GST introduction, a cess was being collected under the Sugar Cess Act, 1982, as excise duty for the purpose of a Sugar Development Fund. The money thus collected was used to help the industry on various fronts, including settling farmer dues. This cess was subsumed in the GST