The Attorney General (AG) has come out in favour of imposing a cess on sugar, over and above the Goods and Services Taxes (GST). The move, if implemented, will benefit sugarcane farmers but hurt consumers as retail prices are likely to go up.

“The Supreme Court upheld the Constitutional validity of the Act governing cess under GST. Accordingly, the AG has replied with a ‘yes’ to the reference on sugar cess,” a senior government official told BusinessLine .

Based on the AG’s view, a Group of States’ Finance Ministers (GoM), which has the Finance Minister of Assam, Himanta Biswa Sarma, as convenor, will formalise the proposal. But the final decision on it can be taken only by the GST Council.

Earlier, the GoM had said that it is not in the favour of such cess, but had also stated that it will wait for the opinion of AG before moving further.

The AG’s opinion found its base in one of the five issues considered while disposing a petition to discuss Constitutional validity of the Compensation to States Act, 2017. The apex court had clearly said that “levy of compensation to States’ cess is an increment to GST which is permissible in law”. In its meeting on May 4, the GST Council had decided to form a GoM as there was no consensus on the proposal of sugar cess.

The proposal envisages imposition of cess at a rate not exceeding ₹3 per kg on supply of sugar (over and above GST at 5 per cent). The mop-up will be used to create a fund, which will enable the Centre to make prompt interventions to protect the interests of farmers, in view of the extreme cyclical nature of the industry. The Centre expects to get ₹6,700 crore through this cess.

The proposal was mooted by the Ministry of Consumer Affairs. Sugar mills owed farmers ₹19,000 crore (as on January 31, 2018), which has came down to ₹11,700 crore by the end of September 30, 2018. Dues were at around ₹9,500 crore last year. Experts blame oversupply and the consequent subdued factory-gate sugar prices for the doubling of dues.

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