The government is considering resolving the vexed issue of subsidy-related price inversion to allow fertiliser companies avail input tax credit on product sales, said three people aware of the matter.
The protracted issue continues to impact fertiliser producers despite the recent reduction in the goods and services tax (GST) rate of critical raw materials for fertilisers. Companies are saddled with as much as Rs 3,500 crore in stuck working capital, the Federation of Indian Chambers of Commerce & Industry ( FICCI) told finance minister Nirmala Sitharaman in a letter prior to rollout of GST 2.0 from September 22.
"The relief could come in the form of dividends or bonds," one of the persons said, adding that several representations from the fertiliser industry prompted the government to work on solutions.
Unlike most commodities, fertilisers are not sold at free market prices in India. Instead, they are sold below cost to ensure affordability for farmers, with the government giving post-sales subsidies to companies. This subsidy is exempt from GST.
However, what farmers eventually pay to companies is actually lower than the product price as they typically deduct the subsidy which will accrue to the fertiliser producer post sale. The Centre on its part gives GST refund or input tax credit ( ITC) to companies only on the price the farmers pay and not on the actual cost accrued to companies on which they have already paid GST.
"This disparity has led to persistent accumulation of unutilised ITC, blocking critical working capital," FICCI said in its letter, underscoring the strain on manufacturers and importers of phosphatic, potassic, and NPK fertilisers.
The letter recommends that the government clarify refund eligibility under Section 54(3) of the Central GST Act, specifically allowing companies to claim refunds where ITC builds up due to subsidy-linked price inversion.
Without such a clarification, companies warn, working capital pressures could intensify even as the Centre seeks to strengthen the agricultural supply chain.
The government reduced the GST on fertilisers like ammonia, sulphuric acid, and nitric acid to 5% from 18% starting September 22.
The protracted issue continues to impact fertiliser producers despite the recent reduction in the goods and services tax (GST) rate of critical raw materials for fertilisers. Companies are saddled with as much as Rs 3,500 crore in stuck working capital, the Federation of Indian Chambers of Commerce & Industry ( FICCI) told finance minister Nirmala Sitharaman in a letter prior to rollout of GST 2.0 from September 22.
"The relief could come in the form of dividends or bonds," one of the persons said, adding that several representations from the fertiliser industry prompted the government to work on solutions.
Unlike most commodities, fertilisers are not sold at free market prices in India. Instead, they are sold below cost to ensure affordability for farmers, with the government giving post-sales subsidies to companies. This subsidy is exempt from GST.
However, what farmers eventually pay to companies is actually lower than the product price as they typically deduct the subsidy which will accrue to the fertiliser producer post sale. The Centre on its part gives GST refund or input tax credit ( ITC) to companies only on the price the farmers pay and not on the actual cost accrued to companies on which they have already paid GST.
"This disparity has led to persistent accumulation of unutilised ITC, blocking critical working capital," FICCI said in its letter, underscoring the strain on manufacturers and importers of phosphatic, potassic, and NPK fertilisers.
The letter recommends that the government clarify refund eligibility under Section 54(3) of the Central GST Act, specifically allowing companies to claim refunds where ITC builds up due to subsidy-linked price inversion.
Without such a clarification, companies warn, working capital pressures could intensify even as the Centre seeks to strengthen the agricultural supply chain.
The government reduced the GST on fertilisers like ammonia, sulphuric acid, and nitric acid to 5% from 18% starting September 22.
You may also like
Tarun Garg set to be first desi at Hyundai Motor India's wheel in Korean auto major's 3-decade local history
McIlroy's tryst with Delhi: The Northern Irishman makes his India debut at DGC today
Vande Bharat 4.0 to be ready in 18 months: Railways Minister
Trump issues chilling warning to Hamas as Gaza deal on the brink
UK weather maps show exact date brutal -2C bonechiller freezes UK - 16 coldest counties
