August 20, 2025
The fertilizer industry is raising a big voice again! For a long time, the sector has struggled with the inverted duty structure (IDS) — a situation where the tax on raw materials is higher than on the final product. This mess causes headaches for companies’ finances and working capital. Now, even if the government brings GST rates for both inputs and outputs to a uniform 5%, the problem won’t disappear. Why? Because fertilizers are sold at subsidised prices, so the GST on output is paid on this lower, subsidised value. But the key raw materials like Ammonia and Sulphuric acid attract a steep 18% GST. This means companies pay high GST when buying inputs, but low GST when selling fertilizers. The result: fertilizer makers end up accumulating Input Tax Credit (ITC) piles, but some state tax offices don’t refund this ITC easily, adding to the confusion and financial stress. An industry executive shared, "As an industry, we plan to seek more clarity and special dispensation around refunds to address the issue, even if rates are brought down.” Another fertilizer company CEO pointed out, “Some state tax authorities do not offer refunds on this, and there is no clear decision on some of the litigations. Hence, more clarity is needed around the IDS framework and associated refunds.” This is no new story. The call to correct the IDS in the fertilizer sector has been ringing for years. The sector hopes to get a solid solution in the upcoming GST reform talks by the Centre. Until then, the battle with IDS continues, making the fertilizer business a taxing affair in more ways than one!
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Tags: Fertilizer sector, Inverted duty structure, Gst rates, Input tax credit, Subsidised prices, Gst refunds,
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