GST Council Meet: Sugar cess leaves a bitter after-taste

Goods and Services Tax (GST) Council on Thursday deferred decision on levying a cess on sugar.

The division in the GST Council came out in the open after West Bengal Finance Minister Amit Mitra said that many states are concerned on the fundamental principle of cess.

The central government’s proposal to impose Rs 3 cess per kg of sugar was to help the mills to clear the due owed to the sugar cane farmers.

“All cesses have been subsumed under GST. Now, if you bring a cess for a particular commodity, there are other candidates as well. For example, for Kerala, I say let's have a cess for rubber. Why sugar alone?” asked Kerala Finance Minister Thomas Isaac.

Bihar Deputy Chief Minister Sushil Kumar Modi defended the sugar cess, “It's a wrong perception that it (sugar cess) is a distortion. It's already written in the law that the GST Council can take a decision to impose cesses. It's not a distortion, compensation cess already exists.”

Under the GST, the government has subsumed all the cess, taxes and surcharge but bringing back the cess will open a plethora of request from other states, which will create more problem for the NDA-government.

“If you impose a cess for sugar, then what stops states (from demanding cess on other products), say in Punjab's case potatoes or cotton. Because farmers are in distress and this (cess) will open the floodgates and distort the sanctity of GST,” said Manpreet Badal, Punjab Finance Minister.

Briefing about the meeting, Union Finance Minister Arun Jaitley said the state finance ministers committee would be announced over the next two days on proposal of levying cess on sugar.

He said, “Considering that the cost of sugar has risen beyond Rs 35 per kg and the market price is between Rs 26 and 28 per kg, the sugarcane farmers are in deep distress and therefore can we impose some kind of cess?”

"Now since this is after GST has been implemented, this is the first suggestion has come up. How are such contingencies to be addressed in the GST regime, are they to be addressed by imposition of cess or are they to be addressed by temporarily increasing the tax or by some alternative method of revenue raising," the Union Finance Minister said.

Once the decision is taken by the GST Council, the government would come out with an ordinance to impose cess on sugar, Finance Secretary Hasmukh Adhia told reporters after the 27th meeting of all-powerful Council held through video-conferencing.

Earlier this week, the Union Cabinet had approved a subsidy of Rs 5.5 per quintal of cane to address the distress situation. The subsidy would be directly transferred to cane farmers.

India's sugar production touched an all-time high of 29.98 million tonnes till April 15 in the current season on higher cane output, leading to a surge in arrears to farmers at over Rs 20,000 crore, according to industry body ISMA.

Sugar output of India, the world's second largest producer, stood at 20.3 million tonnes in the 2016-17 marketing year. The annual domestic demand is estimated at 25 million tonnes.

To clear cane arrears, the association has demanded that the government should provide production-linked incentive to cane farmers as it was done in 2015-16 marketing year. Sugar marketing year runs from October to September.