Sugar price may shoot up once again

NEW DELHI: The price of sugar could shoot up once again, this time on account of the government, with the Finance Bill proposing to omit the commodity from the Schedule of Additional Duties of excise (goods and Special Importance) Act, 1957.

The change, which will come into effect on enactment of the Finance Bill, will empower state governments to impose VAT on sugar at a maximum 5% rate, in addition to the existing excise duty. Currently, that stands at Rs 38/qtl for levy sugar and Rs 71/qtl for free sale sugar, the level at which it has remained since 2006.

An exercised sugar industry has now written to food minister Thomas and the finance ministry urging that the provision be withdrawn at the earliest. "We'll have to pass on the hike in price on account of the VAT, which is different for different states, to the consumer at a time when the market price is already much lower than the production price," Indian Sugar Mills Association (ISMA) director general A Verma told ET.

According to ISMA , if states choose to levy the maximum of 5% VAT on sugar in addition to the existing excise duty, the total levy (excise plus VAT) on free sale sugar (on an assumed price of Rs 3000/qtl) could be as high as Rs 221/qtl. Of this, VAT alone could total up to Rs 150/qtl.

Verma contends that in case state governments do decide to impose maximum VAT rate on sugar (5%), it would be tantamount to doubling taxes on sugar, a development that could impact retail price for sugar in the home market by Rs 1.50/kg if the Finance Bill is passed without addressing the issue.

Ironically, this comes at a time when the Centre has yet to allow free export (under OGL) of sugar, ostensibly for fear of sugar prices shooting up at home on account of a potential short supply A decision is expected to be taken on March 17, when a meeting of the empowered group of ministes (EGoM) on food is expected here. Yet, inexplicably, close to 11 lakh tonnes of sugar has been allowed for export under the Advanced License Scheme ( ALS ))..

The platform of private sugar mills has aleady taken this up with the food minister besides shooting off a letter to the Revenue secretary. "Since the addtiional excise duty has already been merged with the basic excise duty, VAT on sugar, if levied, will totally be in addition to the existing excise duty of Rs 38/qtl and Rs 71/qtl for levy and free sale sugar resepctively, " the sugar industry letter has emphasized.

Under the provisions of the existimg Additional Duties of excise (goods and Special Importance) Act, 1957, additional excise duty on sugar was payable at Rs 17/qtl on levy sugar and Rs 37/qtl on free sale sugar. However, after the government came out with Notification No. 7/2006-Central Excise dated March 1, 2006 under which the additional excise duty on levy and free sale sugar was merged with the basic excise duty and the total rate of excise was fixed at Rs 38/qtl for levy sugar and Rs 71/qtl for free sale sugar.