Karnataka sugar mills, govt differ on purchase tax

Sugar mills in Karnataka have opposed the state government’s proposal to convert the payment of purchase tax by them into interest-free loan for a period of three years.

This idea was mooted by the government to mills who are not able to pay the arrears amounting to Rs 160 crore for 2007-08 of additional cane price (ACP) to farmers. The mills had requested the government to step in and pay this to farmers as they are not able to do so.

At a meeting held On Thursday in Bangalore between sugar mills and the Karnataka sugar minister, the mill owners are understood to have conveyed the decision.

During the governor's rule in the state in February 2008, the mills had agreed to pay Rs 160 per tonne as additional cane price for 2007-08. Most of the mills have so far paid Rs 100 per tonne as ACP for the year to farmers and the remaining Rs 60 is yet to be paid. The balance works out to Rs 160 crore.

At a meeting convened by state minister for sugar S S Thangadagi with the representatives of farmers' associations and sugar industry representatives, here On Thursday, the minister promised farmers he would direct sugar mills to pay the arrears by deferring the payment of purchase tax by the mills for the current year. The meeting was attended by nearly 30 farmer leaders, officials from Mysugar, Karnataka State Federation of Cooperative Sugar Factories Limited and South Indian Sugar Mills Association (SISMA).

However, the sugar mills have rejected the government proposal for conversion of purchase tax into interest-free loan and its deferment for three years stating that it would be a burden on them. According to sugar industry sources, the cash outgo towards the payment of additional cane price would work out at Rs 160 crore as against the payment of purchase tax for the current year which will be around Rs 108 crore for the year 2008-09 (assuming that the industry crushes 18 million tonnes this year).

“We are not in favour of the conversion of purchase tax into interest free loan and deferment because we will have to pay it after three years. And it will be an extra burden for us to pay the difference amount of Rs 52 crore and we prefer to pay the purchase tax instead,” the sources said.

In November 2008, the state cabinet had decided to convert the purchase tax payable by sugar mills for the current year into interest-free loan. However, the government order in this regard is yet to be passed as the commercial tax department was yet to clear it.

It is learnt the commercial tax department has given its clearance for the cabinet proposal and the matter is pending before the state finance department, the sources told Business Standard.