GST from 1 July: Will farmers have to pay higher MRP on old fertiliser stocks worth Rs 9,500 cr?

The rollout of the goods and services tax (GST) starting 1 July has created a panic situation for the fertiliser industry mirroring a similar state of affairs a few weeks earlier with the consumer staple and home appliance manufacturers.

An estimated 65 lakh tonne (lt) of bagged fertiliser material worth around Rs 9,500 crore already has the existing maximum retail price (MRP) printed on it. With the rise in GST rates, will the manufacturers be able to charge farmers the new rates on the old MRP is a question that is perplexing the industry.

Manufacturers in the fertiliser industry are staring at a possible loss of tax on goods to be sold after 1 July. To start with farmers currently pay tax on fertiliser purchases varying between 1.03 percent and 7.03 percent across states. Under the GST regime, farmers will have to pay a higher tax of 12 percent on fertilisers.

Representational Image

Representational Image

"There is no provision at present to pass on the additional tax incidence by charging a higher MRP on the already bagged stocks lying in the godowns of manufacturers and importers, or with wholesalers and retailers. And, farmers are obviously not going to pay anything more than the MRPs marked on the bags," The Indian Express report said quoting industry sources.

Fertiliser sales pick up sharply in July, August and September owing to kharif planting, with sales registering 115-120 lakh tonnes.

With the new tax rates coming through, farmers in the states of Punjab, Haryana and Tamil Nadu will be charged Rs 31 more for every urea bag, while this would be about Rs 17 in most other states.

“How do you make farmers pay more than the MRPs declared on bags? We will not do it; how can we expect the farmer to?” the IE report said, quoting unnamed sources.

As per current rules, MRP can be increased only in the case of fertilisers packed in July and August after putting out necessary advertisements. However, MRPs cannot be changed on materials lying with manufacturers, dealers, importers and retailers before 1 July.

Details show that an estimated 25 lakh tonne of di-ammonium phosphate, 15 lakh tonne each of urea and NPK complex fertilisers, and five lakh tonne each of muriate of potash and single super phosphate can only be sold under the old MRPs, as per the report. So what happens to the Rs 9,500 crore worth of current fertiliser stocks? Will the government be able to find a solution for it under the GST?

Updated Date: Jun 27, 2017 14:00 PM

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