ISMA: Include sugar in additional duties of Excise Act

India the world's largest sugar consumer and second largest producer is a key player in the global sugar supply/demand dynamics. The Indian Sugar Industry is distributed with roughly around 550 sugar factories in India widely dispersed over Maharashtra (37 per cent), UP (27 per cent), Karnataka (13 per cent) and other states with average crushing capacity of 3500 TCD.

The ownership of sugar sector 50 per cent with the private sector and 50 per cent by co-operative and government sector. The two foremost challenges for Indian sugar industry facing are rigid regulations and the cyclicality in production and interestingly both these problems are inter-linked.

The lack of freedom to make decisions on sound commercial basis is amplifying the financial distress for the Industry players. This lead too ever sharper swings in sugar production from year to year.

Indian Sugar Mills Association (ISMA) has come up with pre budget recommendations that are extremely important to the sugar industry and are of immediate concern.

They have proposed to remove the obligation of the sugar industry to supply 10 per cent of its production as levy sugar to Government for its welfare programme.

The reason they lay is that India is the second largest sugar producer in the world and depend mainly on its sugar production and supply of levy sugar for the PDS clearly at a loss (lower than the open market price as also to cost of production) makes the industry less competitive and prohibits payment of good price to farmers.

•           The Association suggests the government to introduce depreciation rate at 80 per cent with further eligibility for additional depreciation at 20 per cent in the first year. The labour power has considerably moved to lucrative avenues like manufacturing and services sector thus there is shortfall in rural labour for farm operations. This has become a problem for sugarcane growers to source adequate and

cost effective labour. The mechanical harvesting is also highly capital intensive. To tackle this issue they have suggested for a suitable tax break and change in depreciation rate.

•           They have recommended the government should clarify that there shall be no pro-rata disallowance of cenvat credit on input material or services merely by reason of production of bagasse that is characterized as a waste product in the schedule attracting nil duty of excise.

•           Central excise collectorates have started demanding service tax on the entire harvesting charges on the ground that its is a service under BPO category. Service tax, even if so paid should qualify for commensurate cenvat credit. They have hence requested that CBEC should issue a specific clarification that assistance rendered by sugar mills towards labour mobilistion without charging for such services is not eligible to Service tax.

•           It is expected that by the end of March 2012, the sugar industry is expected to carry an inventory of about 157.97 lakh ton valued at Rs 37,353 crore (Rs 373.53 billion).

In order to extend the benefit of Section 35AD to such an important crop like sugarcane they have said it is necessary to include warehouses for storage of sugar especially since sugarcane itself cannot be stored.

The association has also proposed the government to clarify that investment in warehouses for sugar is included in Section 35 AD for the benefit of cane farmers.

•           Lastly they have come up with an important suggestion that the government should drop the idea to impose VAT on sugar at 4 per cent because as this will tantamount to increase in taxes on sugar by two times as such sales tax has been merged with basic excise duty.

This cannot be justified and shall be contrary to principle of natural justice. They also want sugar to be again included in the schedule of the additional duties of Excise Act 1957 withdrawing the merger of additional excise duty with basic excise duty.