Sugar industry stakeholders have largely welcomed the 5 per cent GST rate applicable to them, but they await the fine details of the tax structure.
Cooperative sugar mills in Maharashtra, one of the largest sugar producers in the country, want clarity on whether the sugar cess that the Centre levies on all sugar mills will remain. The cess is levied at ₹124 per quintal.
Sanjeev Babar, Managing Director of the Maharashtra State Cooperative Sugar Factories Federation Ltd, told BusinessLine that the earlier incidence of sugar cess of ₹124 per quintal along with Central Excise Duty of ₹71 worked out to a total incidence of ₹195 per quintal.
The 5 per cent levy under the GST regime translates to about the same amount, rendering the exercise tax-neutral, from the mills’ point of view.
Industry sources said consumers in Tamil Nadu and Andhra Pradesh may get cheaper sugar as the VAT charged by the two States being phased out.
Little clarity
However, there is no clarity on the sugar mills’ demand for the aboliton of the sugar cess, Babar said. If the cess continues to be levied on top of the 5 per cent GST, sugar will get expensive, he added.
Dashrath Parekar, a sugar expert from Kolhapur, said that if the 5 per cent GST streamlines the business of the sugar mills, it would be welcome.
Farmers will also support such a move, he said.
Sweetener in Tamil Nadu
In Tamil Nadu, the industry particularly welcomed the beneficial impact, with the phase-out of the VAT effectively halving the tax on sugar.
GST on sugar is lower at 5 per cent as compared to the current effective rate of 10 per cent including Basic Excise Duty of ₹ 71 a quintal (100 kg), cess of ₹124, and VAT of 5 per cent.
In the short term, however, there could be a contraction in sugar demand from Tamil Nadu mills as buyers will wait for GST to kick in rather than shell out the higher VAT rate in the State, felt A Vellayan, Chairman, Murugappa Group, which is among the largest players in sugar with mills spread across South India.
N Ramanathan, Managing Director, Ponni Sugars, said the GST will help phase out VAT on sugar, which had rendered mills in Tamil Nadu uncompetitive. But there could be issues relating to input tax credit on some of the downstream waste products and byproducts.
Devil in the details
Complexity arises in the case of sugarcane fibre, bagasse, and press mud, which do not attract VAT, but face 5 per cent under GST. Ramanathan felt that duty applicability under GST on bagasse will have to be tested. Even the Supreme Court has upheld the premise that bagasse is not “manufactured”, but only emerges as waste.
Also, steam and power produced from bagasse is partly used for manufacturing taxable goods (including paper); the balance is for producing electricity, which is outside the GST framework. Therefore, input tax credit complexity will persist, he felt.
Similarly, sugarcane for seed is nil-rated in GST, but when used for making sugar, it attracts 5 per cent. The procedure for this will also have to be worked out; additionally, input tax credit for electricity production from cogeneration will pose complication, he felt.