A Group of State Finance Ministers, looking into a proposal to impose cess on sugar, has decided to seek the Law Ministry’s opinion on the levy. The proposal envisages imposing cess at a rate not exceeding ₹3/ kg over and above the GST at 5 per cent.

The group, under the Chairmanship of Assam Finance Minister, Himanta Biswa Sarma, met here on Monday. “The first question is whether the GST Council at all has the power to impose cess. We have decided to refer that to the Law Ministry,” Sarma told reporters. The group will also seek a report from the Food Ministry on the final utilisation of the proceeds from the levy.

Kerala Finance Minister, Thomas Issac, who is a member of the group, said the GoM would discuss the alternatives to levying the cess as well as how the Centre was meeting the need to support the sugar industry in the past. “There was a cess, but that cess was inadequate. It was in the range of ₹500-2,000 crore in last three years, prior to the GST rollout. So how was the residual support been garnered. All this would be presented to the committee. We will discuss it,” he said.

The proposal of levying cess on sugar was brought before the 27th meeting of the GST Council held on May 4. However, it was deferred because of differences. States such as Andhra Pradesh, Kerala and West Bengal opposed the cess. Keeping this in mind, a GoM was formed to consider issues relating to imposing the levy. The group will meet again on June 3 in Mumbai.

The question of legality arises as the GST laws prescribe cess on select items such as car, luxury items and tobacco. Cess can be levied up to the rate of 25 per cent over and above the highest GST slab of 28 per cent. Cess collected is used to compensate States for revenue loss under GST. Since sugar cess has an entirely different purpose, opinion from the Law Ministry is being sought.

According to the proposal prepared by the Food Ministry and placed before the GST Council, “collections from this will be utilised for interventions for the welfare of the sector in general and farmers in particular, keeping in view the extreme cyclic nature of the industry”. As per estimates, the levy of cess could fetch about ₹6,700 crore to the government.

Sugar Cess Act

It may be recalled that prior to the 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 (SDF). Money collected under the fund was used to help the industry in various ways, including providing financial assistance to the mills for settling farmers’ dues. However, the cess was subsumed in the GST with effect from July 1, 2017. At present, no separate fund is available which can be utilised for effecting interventions for the welfare of the sector in general and farmers in particular, necessitating the need for a new cess.

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