New Delhi: A ministerial panel has sought the attorney general’s view on imposing additional cess on sugar before advising the GST Council, which will take the final decision.

The centre had proposed a cess of up to 3 per kg on the supply of sugar, over and above the 5% goods and services tax (GST). The additional revenue would flow into a separate fund that could be used to pay the dues of sugarcane farmers. The proposal was politically sensitive, given that farmers in BJP-ruled states of Uttar Pradesh and Maharashtra would be eligible for two-thirds of the dues. Non-sugarcane growing states, such as Kerala and West Bengal, were not in favour of the sugar cess, given that they could be hit by a price increase.

Assam finance minister Himanta Biswa Sarma, who heads the ministerial panel, said it will make recommendations to the GST Council only after receiving legal advice on whether the cess legislation will be tenable.

The panel, however, was open to a 1% agriculture cess on luxury products, the proceeds of which could be utilized to deal with unforeseen events in the farm sector, said one person privy to the discussions, requesting anonymity. The panel is also in favour of cutting GST on ethanol, which is blended with automotive fuel, from 18% to 12%.

The ministerial panel is of the view that there was no urgency for a cess as the minimum support price (MSP) for sugar was fixed at 29 per kg by the Union cabinet last month, and the arrears to cane farmers have come down by nearly 5,000 crore to 18,000 crore.

“Considering this positive development, we do not think there is a case for levying cess on sugar at the moment," PTI reported quoting Sarma.

Experts said introducing new cesses goes against the principle of GST, which had subsumed all existing cesses. “When we are progressing towards further simplification and rationalization of GST, it may not be a good idea to introduce new cesses. Ensuring better tax compliance is a better way of raising revenue without complicating the GST structure with cesses," said R. Muralidharan, senior director, Deloitte India.

The panel’s recommendations will be placed before the GST Council at its next meeting on 21 July. To impose a cess on sugar, a new legislation may be needed.

The panel comprises Uttar Pradesh finance minister Rajesh Agrawal, Maharashtra finance minister Sudhir Mugantiwar, Kerala finance minister Thomas Isaac and Tamil Nadu fisheries minister D. Jayakumar.

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