The Ministry of Finance has provided a major relief to sugar mills by clarifying that mills will not be subjected to additional income tax for paying higher sugarcane prices to farmers compared to the Fair and Remunerative Price (FRP) or State Advised Price (SAP). 

The Ministry of Finance’s letter to Chief Commissioners of Income Tax and Director Generals of Income Tax on Wednesday will help ailing sugar mills which are facing a financial crisis, said industry players who said that the relief should be applicable to all cases. 

Higher price

For over the last 30 years, sugar mills paying a higher price to the sugarcane farmers compared to the FRP or SAP are being slapped with additional income tax notices stating that the additional amount paid to farmers was profit gained by mills. In October last year the Central Board of Direct Taxes (CBDT) had clarified that no additional taxes will be imposed on mills paying the additional price to sugarcane than FRP or SAP. 

However, the CBDT’s order mentioned additional tax notices only from 2016. Sugar mills have demanded that the order must be also applicable to tax notices slapped before 2016. “Before taking any action for recovery of demand, the field authorities are directed to take into account Circular No. 18/2021 dated 25th October 2021 and dispose of the pending rectification applications and petitions for stay of demand, if any, in the cases of Sugar Cooperative Mills/ Societies. While disposing of rectification applications/ stay petitions adequate opportunity for healing may be granted” the Ministry stated in the letter, adding that the contents of the letter should be immediately brought to the notice of all concerned for strict compliance. 

‘Mild relief’

“This circular merely throws more light on the earlier clarification dated 25 October 2021 which had explained the meaning of the word ‘Government’. And that clarification dated 25 October 2021 is applicable for cases post year 2015-16. This circular 5 January 2022 does not say anything regarding pending cases prior to the year 2015-16” said one of the top industry players requesting anonymity. He added, “However, instructions to have proper hearing before disposing of the cases and the general tone and reading between the lines are definitely positive and giving mild relief to the ailing coop sugar mills who are spending sleepless nights under the hanging sword of tax demands since the year 1992”.

According to sugar industry players, the IT department and sugar mills have locked horns over tax demand of ₹9,500 crore and sugar mills have demanded Cooperative Minister Amit Shah’s intervention into the matter.