Sharp differences emerged at the 27th meeting of the GST Council on Friday, with states joining forces in voicing their opposition against a proposal by the Centre to impose a cess on sugar. States such as West Bengal, Kerala and Andhra Pradesh were of the unanimous view that the imposition of cess on sugar militated against the ‘One Nation, One Tax’ concept of the goods and services tax (GST) regime and would, in effect, distort the GST structure and hurt the common man.
West Bengal’s finance minister Amit Mitra said that imposition of cess under GST is only for compensating states and imposition on one commodity such as sugar will open the proverbial ‘Pandora’s box’ for similar demand from other states.
“Why bring in one item called sugar? Why not rubber from Kerala? Why not cotton from the suicide creating states of Andhra Pradesh, why not fruits and vegetables from West Bengal, why not foodgrains on which 14 per cent is given as purchase tax. So why one item? This will distort the entire GST concept that no cesses except for compensation which is a totally different thing. This is not for compensation for all states. This is supposedly for compensation for mills and mills are supposed to give it to the farmers. So, therefore, we fought for three hours, not to distort the fundamental principle of ‘One Tax, One Nation’. Don’t distort it with one item — sugar,” Mitra said after the meeting.
The meeting, which was held via videoconferencing, stretched for about three and half hours as against the expectation of one hour as Council members failed to emerge on a consensus regarding the imposition of cess on sugar. Kerala’s Finance Minister Thomas Isaac also voiced his opposition on levy of sugar cess, saying that he will agree only if a similar treatment is given to rubber. “Sugarcane farmers must be protected. The 3 per cent GST cess will fetch only Rs 7,000 crore. Why can’t it be met from Central budgets rather than through distorting GST. I shall agree to a cess only if a similar treatment is offered to rubber,” Isaac said in a tweet.
Andhra Pradesh finance & planning minister Yanamala Ramakrishnudu has written to GST Council’s chairman against the levy of cess on sugar saying that it will cause additional burden on the common man and is against the spirit of implementing GST that is ‘One Tax One Nation’.
“Rs 6,700 crore is all you are talking about. That is 0.5 per cent of Centre’s entire revenue and Centre’s income tax (revenue) has gone up a lot, so why not compensate from your own resources, instead you want to distort the entire GST process. We have given up, Punjab has given up, Kerala has given up many resources by subsuming of the cess. All of a sudden you open the Pandora’s box and more items will come. Tomorrow I’ll say one item, Kerala will say, Punjab will say, UP will say for some other item,” Mitra added.
On the proposal, Finance Minister Arun Jaitley said a committee will be formed to look into the matter and to consider whether such contingencies need to be addressed by levy of cess or increasing the tax rate.
“Particularly considering that the cost of sugar has risen beyond Rs 35 per kilogram, the market price is between Rs 26-28 per kilogram and the sugarcane farmers are in deep distress and therefore can we impose some kind of a cess. Now since this is after the GST has been constituted, this is the first suggestion which has come up. How are such contingencies to be addressed in the GST regime — are they to be addressed by imposition of a cess or are they to be addressed by temporarily increasing the tax or by some alternative method of revenue raising. These viewpoints were extensively discussed and debated in the Council. It was agreed that keeping all the views that have come up before the Council, a separate group of five ministers within the next two weeks because of the urgency of this matter would make a recommendation to the Council as to what are the avenues of raising revenue to meet contingencies of this kind where the cost of a commodity is much higher than its selling price and therefore, the farmer is in distress,” Jaitley said.
Late Friday evening, the government announced a five-member ministerial panel headed by Assam finance minister Himanta Biswa Sarma to consider issues relating to imposition of cess on sugar under GST. Uttar Pradesh finance minister Rajesh Agrawal, Maharashtra’s finance minister Sudhir Mungatiwar, Kerala finance minister T M Thomas Isaac and Tamil Nadu Minister for Fisheries and Personnel & Administrative Reforms D Jayakumar are the other members. The committee shall submit its report within fifteen days, a government release said.
As per the proposal, the Department of Food and Public Distribution, Ministry of Consumer Affairs, Food & Public Distribution had recommended imposition of cess at a rate not exceeding Rs 3 per kg on supply of sugar over and above 5 per cent GST, collections from which will flow into a separate fund and would be utilised for interventions in the sugar sector and for cane farmers. The GST rate on ethanol was also recommended to be cut from present 18 per cent to 12 per cent.
The revenue collection from the proposed sugar cess is estimated to be about Rs 6,700 crore a year at Rs 3 per kg. The sugar cess was proposed to be a single point cess, imposed only on supply of sugar from sugar mills and imports of sugar. However, all other domestic supplies of sugar, beyond the factory gate, would have been exempted from the proposed cess. The estimated revenue loss, on account of reduction in GST rate from 18 per cent to 12 per cent on ethanol is estimated to be about Rs 350 crore a year.
Prior to introduction of GST, a cess was levied and collected under the Sugar Cess Act, 1982, as duty of excise, for the purpose of the Sugar Development Fund. Through Taxation Laws Amendment Act, 2017 various cesses including sugar cess, being a duty of excise on manufacture, which is subsumed in GST, were abolished with effect from July 1, 2017.