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By:

Rajendra Joshi

3 December 2024 at 9:20:26 am

Sugar industry strains as traders reap profits

Gap between ex-mill prices, retail rates raised questions Kolhapur: The Indian sugar industry is caught in a deepening crisis, with sugar mills struggling to secure remunerative prices for their produce even as traders and middlemen appear to be making substantial profits. While sugar mills are receiving between Rs 4,600 and Rs 4,800 per quintal through recent sale tenders, retail prices have remained as high as Rs 58 per kg. The widening gap between ex-mill prices and retail rates has...

Sugar industry strains as traders reap profits

Gap between ex-mill prices, retail rates raised questions Kolhapur: The Indian sugar industry is caught in a deepening crisis, with sugar mills struggling to secure remunerative prices for their produce even as traders and middlemen appear to be making substantial profits. While sugar mills are receiving between Rs 4,600 and Rs 4,800 per quintal through recent sale tenders, retail prices have remained as high as Rs 58 per kg. The widening gap between ex-mill prices and retail rates has raised serious questions about the role of intermediaries and the effectiveness of the Centre’s efforts to contain sugar prices. The margins available to traders and intermediaries have reportedly crossed 20 per cent, leaving sugar millers perplexed. At a time when both sugarcane growers and mill operators are under financial pressure, the trading chain appears to be benefiting disproportionately. The Centre must examine this growing disparity and take corrective measures to prevent speculative profiteering. Retail sugar prices began rising sharply in August, touching nearly Rs 70 per kg in some markets. The escalation added to inflationary pressures and caused concern among consumers, particularly ahead of the festive season. In response, the Centre introduced a series of measures to improve domestic availability and moderate prices. These included permitting duty-free sugar imports, initially until October 31, a deadline subsequently extended to December 31. The government also directed sugar mills to commence the crushing season from October 15 and tightened monitoring of sugar stocks. In another significant intervention, it modified the ethanol policy, restricting the diversion of sugarcane juice, sugar syrup and B-heavy molasses for ethanol production. Following these measures, sugar mills began witnessing a decline in the prices offered through their sale tenders. Recent transactions have fetched between Rs 4,600 and Rs 4,800 per quintal. Going by the conventional relationship between ex-mill prices and retail rates, sugar should ideally have been available to consumers at less than ₹50 per kg. However, retail prices continue to hover around Rs 58 per kg, pointing to a substantial disconnect between the mill gate and the consumer market. Traditionally, sugar retailing operated on relatively thin margins. Since sugar is an essential commodity, retailers often treated it as a low-margin product to attract customers who would subsequently purchase other household provisions. The margin was sometimes informally equated with the resale value of the empty 50-kg jute bags in which sugar was supplied. This was considered a nominal return for retailers. That traditional pricing mechanism, however, appears to have undergone a significant change. The widening gap between mill-level tender prices and retail rates has created considerable scope for intermediaries to extract higher margins. The critical question is whether the additional amount paid by consumers is reaching the sugar mills or remaining within the trading chain. The issue assumes particular significance in Maharashtra, where the sugarcane pricing dispute has intensified ahead of the new crushing season. Farmers’ organisations have been demanding a minimum price of Rs 5,500 per tonne for sugarcane. Millers, meanwhile, are preparing to agitate for a revision in the Fair and Remunerative Price (FRP) framework and the restoration of a more supportive ethanol policy. The Swabhimani Shetkari Sanghatana, led by Raju Shetti, has taken a firm position that sugar mills should not be allowed to commence operations until farmers receive an acceptable price for their cane. Shetti has also drawn the state government’s attention to the unusually high retail prices of sugar, questioning why consumers continue to pay more even as mills are forced to sell at relatively lower rates. The Centre’s sudden changes to the ethanol policy have further complicated the industry’s financial position. Ethanol production had emerged as an important revenue stream for sugar mills, enabling them to diversify operations, improve cash flows and enhance their capacity to pay farmers. Restrictions on the diversion of sugarcane-based raw materials have weakened this support at a critical juncture. The resulting contradiction is difficult to ignore: farmers are demanding better cane prices, millers are struggling with shrinking realisations and policy uncertainty, while intermediaries appear to be benefiting from the gap between wholesale and retail prices. The government cannot address the sugar crisis merely by regulating mill stocks, imports and ethanol diversion. It must also examine the entire supply chain, identify where the widening margins are accruing and ensure that the benefits of market interventions reach both sugarcane growers and consumers. With nearly Rs 2 lakh crore riding on the sugar economy, allowing intermediaries to thrive while the industry’s primary stakeholders struggle would be a serious policy failure.

DTAA vis-à-vis Domestic Tax Law: A Critical Analysis

Jan 28
3 min read

In India, tax treaties are not mere guidelines—they form part of domestic law and can override statutory provisions when more beneficial to the taxpayer.

In an era of globalised trade, digital services and multinational business models, conflicts between domestic tax laws and international tax treaties have become increasingly frequent. Double Taxation Avoidance Agreements (DTAAs) are intended to eliminate double taxation, allocate taxing rights between countries and provide certainty to cross-border transactions. For India, with its extensive treaty network and growing international economic footprint, the interaction between DTAAs and the Income-tax Act, 1961, is of significant practical importance.


The Income-tax Act, 1961, expressly recognises tax treaties under Sections 90 and 91. Section 90(2) provides that where a DTAA exists, the provisions of the Act shall apply only to the extent they are more beneficial to the assessee. This provision establishes that treaty benefits prevail over domestic law when favourable, while domestic provisions continue to apply where they offer greater relief. Accordingly, DTAAs operate not as an override but as a beneficial exception to domestic tax legislation.


Treaty Supremacy

Indian courts have consistently upheld the binding nature of DTAAs. In Union of India v. Azadi Bachao Andolan, the Supreme Court affirmed that tax treaties entered into under Section 90 form part of Indian law and must be interpreted in good faith in line with international principles. The Court also recognised that legitimate tax planning within the framework of a treaty cannot be disregarded merely on suspicion of revenue loss.


This principle was reaffirmed in the Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT (2021), where the Supreme Court held that payments for off-the-shelf software made to foreign suppliers did not constitute “royalty” under the applicable DTAAs. Despite a broader definition under domestic law, the more beneficial treaty provisions were held to prevail, thereby exempting such payments from withholding tax.


Income, Treaty Protection

Disputes frequently arise in relation to the characterisation of income, particularly in respect of royalties, fees for technical services and capital gains. In DIT v. New Skies Satellite BV, the Delhi High Court ruled that retrospective amendments to the Income-tax Act expanding the scope of “royalty” could not be imported into tax treaties. The judgement reinforced that treaty provisions cannot be unilaterally modified through domestic legislation.


Similarly, in Vodafone International Holdings BV v. Union of India, the Supreme Court emphasised that, in the absence of a specific charging provision under the treaty, India could not tax indirect transfers solely by applying domestic law principles.


PE, Business Profits

The taxation of business profits of foreign enterprises hinges on the existence of a Permanent Establishment (PE). In E-Funds IT Solution Inc. v. ADIT, the Supreme Court held that the mere presence of a subsidiary or outsourcing arrangement in India does not automatically constitute a PE under the DTAA. The ruling clarified that treaty thresholds must be strictly satisfied before taxing foreign business profits in India.


GAAR, Procedural Compliance

While DTAAs provide relief, they are subject to anti-abuse provisions. The introduction of General Anti-Avoidance Rules (GAAR) and India’s adoption of the OECD BEPS framework through the Multilateral Instrument (MLI) empower tax authorities to deny treaty benefits where arrangements lack commercial substance. At the same time, procedural requirements—such as furnishing a valid Tax Residency Certificate under Section 90(4)—remain mandatory under domestic law.


DTAAs and domestic tax law operate in a harmonious and complementary manner. While domestic law provides the charging and procedural framework, DTAAs offer relief from double taxation and certainty in cross-border taxation. In case of conflict, the provision more beneficial to the assessee prevails, subject to anti-avoidance safeguards. For tax professionals, a sound understanding of treaty jurisprudence and recent judicial developments is essential in navigating today’s complex international tax landscape.


(The writer is a Chartered Accountant based in Thane. Views personal.)


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