The Hindu Business Line : Budget doubles excise duty on sugar

Bitter pill?
Industry fears things could be bitter once State Governments impose VAT or sales tax
Earlier, AED was levied only in lieu of State tax

Chennai , March 2

The Finance Minister, Mr P. Chidambaram, has taken sugar and a range of special items out of the purview of additional excise duty (AED). The move, according to experts, will allow the State Governments to levy value added tax or sales tax on such items.

But they worry that the central excise notifications only add the AED component to the basic excise duty.

The AED revenue, which goes to the State Governments, has simply been added to the basic excise kitty.

For instance, according to sugar industry representatives, with the AED levied on sugar added to excise duty, the excise on sugar has more than doubled.

`No immediate change'

Though there is no immediate change in rupee terms, what would happen once State governments levy VAT or sales tax as applicable, they wonder.

According to Mr N. Ramanathan, Director, Ponni Sugars (Erode) Ltd, free market sugar, constituting 90 per cent of the production, attracted Rs 37 a quintal as AED in addition to Rs 34 as basic excise duty. The Finance Minister has merged the two to levy a basic excise duty of Rs 71. This is in addition to the Rs 14 cess that goes to the Sugar Development Fund. On levy sugar, AED of Rs 21 has been added to the basic excise duty of Rs 17, taking it to Rs 38. An additional Rs 14 is levied as cess.

To illustrate, industry representatives say for the country's normal sugar production level of 180 lakh tonnes, the AED works out to about Rs 666 crore at Rs 37 a quintal for free market sugar. This would have gone entirely to the State Governments. The money now becomes excise duty in addition to the basic excise duty of Rs 612 crore, levied at Rs 34 a quintal.

Possibilities

Tamil Nadu, which produces about 18 lakh tonnes of sugar, earns about Rs 66 crore a year from AED, which has now gone to excise duty. It currently does not levy sales tax on sugar. In addition, with AED removed, the industry faces the possibility of more tax in the form of VAT or sales tax, they say.

Through Excise Notification No. 7/2006 dated March 1, 2006, the basic excise duty on sugar has been hiked, while notification 11/2006 withdraws the AED.

They point out that AED was levied only in the place of State tax and the money was shared among the State governments. If AED is removed in anticipation of sales tax, it should have been abolished rather than getting lumped with basic excise duty, the industry argues. With increased excise and the State Governments expected to impose tax, the end price would increase, they say.