FROM JULY 1, farmers will pay a flat 12 per cent goods and services tax (GST) on fertilisers, as against current levies ranging from 1.03 per cent to 7.03 per cent depending on various states.
But the big question that people in the industry are asking is this: How will the higher duty be recovered from farmers for an estimated 65 lakh tonnes (lt) of bagged fertiliser material worth around Rs 9,500 crore, on which the existing maximum retail price (MRP) has already been printed?
July is the peak month for fertiliser sales, with the south-west monsoon covering the country, and kharif planting in full swing — July, August and September together register 115-120 lt of sales.
“So, you have a situation where more than half the material to be sold in the main kharif season would comprise bags with MRPs not incorporating the new GST rate. There is no provision at present to pass on the additional tax incidence by charging a higher MRP on the already bagged stocks lying in the godowns of manufacturers and importers, or with wholesalers and retailers. And, farmers are obviously not going to pay anything more than the MRPs marked on the bags,” said industry sources.
Sources cited the example of neem-coated urea, for which the current MRP, exclusive of taxes, is Rs 5,628 a tonne or Rs 281.40 per 50-kg bag. Currently, fertilisers attract a central excise duty of 1.03 per cent, and Value Added Tax (VAT) plus local levies varying from zero in Punjab, Haryana, Tamil Nadu and Kerala to 5-6 per cent in other states.
With GST, all these imposts would be subsumed within a single 12 per cent rate. The effective duty increase recoverable through a higher MRP would, then, be between 5 per cent and 11 per cent. Farmers in Punjab, Haryana and Tamil Nadu will end up paying nearly Rs 31 more for every urea bag, while this would be about Rs 17 in most other states.
“How do you make farmers pay more than the MRPs declared on bags? We will not do it; how can we expect the farmer to?” sources said.
The Legal Metrology (Packaged Commodities) Rules, framed by the Department of Consumer Affairs, allow the affixing of individual stickers on packages for altering price declarations, but extend only to reduction and not increase in MRPs.
Even in cases where MRPs can be revised upwards to the extent of an increase or imposition of a new tax — subject to communication through advertisements in one or more newspapers and notices to dealers and departments concerned — they apply only to commodities that were “pre-packed in the month in which such tax has been revised or fresh tax has been imposed or in the month immediately following the month aforesaid”.
Simply put, the existing rules would permit MRP increases only for fertilisers packed in July and August after necessary advertisements. But they do not allow for changes in MRPs of material packed before July 1 and lying as stock with manufacturers (after clearing the factory), importers, dealers and retailers.
These stocks — estimated at 25 lt of di-ammonium phosphate, 15 lt each of urea and NPK complex fertilisers, and five lt each of muriate of potash and single super phosphate — can only be sold at the old MRPs.
“This could cause confusion, as you will have the same fertiliser selling at different MRPs depending on whether it is old stock or from production after July 1. Also, there may be disruption to sales because neither manufacturers and importers nor the trade can absorb the burden of increased tax incidence. The only solution is to amend the Legal Metrology Rules to specifically allow sale of fertiliser stock lying with manufacturers, importers and the trade as on June 30 at a price higher than the MRP to the extent of the extra duty payable due to GST,” said industry sources.
The fertiliser industry’s case is seen as unique because the duty incidence on its products would go up post-GST; this is not so in most other industries. “Also, we produce round the year, whereas our sales are concentrated over six months. That makes our stock problem different,” said sources.