Lok Sabha Question No. 744 (UNSTARRED), answered on 2024-07-26
Subject: MRP for Non-Urea Fertilizers under NBS Policy
Ministry: CHEMICALS AND FERTILIZERS
Asked by: Shri Sribharat Mathukumilli, Shri Appalanaidu Kalisetti

## MINISTRY OF CHEMICALS AND FERTILIZERS

## GOVERNMENT OF INDIA DEPARTMENT OF FERTILIZERS

## LOK SABHA

UNSTARRED QUESTION NO. 744 TO BE ANSWERED ON

: 26.07.2024

## MRP FOR NON-UREA FERTILIZERS UNDER NBS POLICY

744. SHRI SRIBHARAT MATHUKUMILLI: SHRI APPALANAIDU KALISETTI:

Will the Minister of CHEMICALS AND FERTILIZERS be pleased to state:

- (a) the  details  of  the  guidelines  issued  by  the  Government  to  evaluate  the reasonableness of Maximum Retail Prices (MRPs) for non-urea fertilizers under the Nutrient Based Subsidy (NBS) Policy;
- (b) the  measures  taken/proposed  to  be  taken  by  the  Government  to  ensure compliance with the guidelines, particularly the process for companies to self-assess and refund unreasonable profits;
- (c) the total amount  of unreasonable profit refunded or recovered by the Government since the implementation of these guidelines;
- (d) the impact of these guidelines on the retail prices of non-urea fertilizers and any changes observed in the market since their implementation specifically in Vishakhapatnam, Andhra Pradesh; and
- (e) the  measures taken/proposed to  be taken by the Government to ensure that farmers in Vishakhapatnam, Andhra Pradesh, are not adversely affected by unreasonable profit margins on non-urea fertilizers and the mechanisms in place for them to report any grievances?

## ANSWER

## THE MINISTER OF STATE IN THE MINISTRY OF CHEMICALS AND FERTILIZERS (SMT. ANUPRIYA PATEL)

- (a)  &  (b): The  detailed  guidelines  dated  15.11.2019  &  18.01.2024  issued  for evaluation of reasonableness of MRP's of Phosphatic & Potassic (P&K) fertilizers by P&K  fertilizer  companies  under  the  Nutrient  Based  Subsidy  (NBS)  Scheme  are  at Annexure  A  and  B respectively.  The  Reasonability  guidelines  dt.  15.11.2019 provides  for  submission  of  final  audited  cost  by  the  companies  based  on  which reasonableness of MRP is evaluated and profit beyond 12% on cost of sales is treated as  unreasonable. The  Reasonability Guidelines dated 18.01.2024  provides for submission of audited cost data by companies and evaluation of reasonableness of MRP  which  is  8%  for  importers,  10%  for  manufactures  and  12%  for  integrated manufactures.
- (c): Till  date  recovery  of  Rs.  99.41  crores  on  account  of  unreasonable  profit  has been done by the Department.

(d) & (e): The guidelines for evaluation of reasonableness of MRP's of P&K fertilizers under the NBS Scheme are applicable to all fertilizer companies under NBS scheme with same impact across the country. An Aadhar based Complaints' Portal is in place to https://complaints.dbtfert.nic.in/Complaint/ to report any grievances.

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## Annexure referred to in reply to part (a) & (b) of Lok Sabha Unstarred Question No. 744 for answering on 26.07.2024

Annexure-'A'

## No. 23011/1/2018-MPR Government of India Ministry of Chemicals & Fertilizers Department of Fertilizers

Shastri Bhawan, New Delhi Dated the  15 th November, 2019

## OFFICE MEMORANDUM

## Sub:Implementation of the Nutrient Based Subsidy (NBS) policy for Phosphatic and Potassic (P&K) Fertilizers .

In continuation of this Division's OM No. 23011/5/2013-MPR dated 3.5.2019 on  the  subject  mentioned,  the  undersigned  is  directed  to  issue  the  detailed guidelines for evaluation of reasonableness of MRP's of P&K fertilizers under the NBS Scheme to be effective from 1.4.2012 as below:

- i. The present format of data collection will continue to be used for collection of cost data from the P&K Companies.
- ii. The online module for online submission of cost data by the companies will be developed by NIC at the earliest.
- iii. After implementation of the online module of data submission, the Companies will be required to submit the final audited cost data once in a year for the previous financial year by August of every year.
- iv. In  case  of  non-submission  of  cost  data  by  the  companies  within  the stipulated time, the further subsidy payment of the company will be stopped till the time the company furnishes the requisite cost data to the Department of Fertilizers.
- v. The  Department  of  Fertilizer  will  complete  the  process  of  examination  of reasonableness for the previous financial year by October of every year.  In case of late submission of the cost data,  DoF will complete the reasonable exercise  within  two  months  of  the  submission  of  the  cost  data  by  the company.
- vi. The profits earned above 12% will be treated as 'unreasonable profit'.
- vii. No deduction of Taxes/ Dividends paid by the companies will be granted while computing the reasonable profit.
- viii. The  unreasonable  amount  of  profit  i.e.  profit  over  and  above  reasonable profit will be recovered from the defaulting companies.
- ix. If a company is habitual defaulter of fixing unreasonable MRPs, matter will be placed before IMC to consider taking action against the company which may include levy of penal interest on the recovery, removable of any grade/ grades  of  fertilizers  of  that  company  or  removal  of  the  fertilizer  company itself from the NBS scheme.
- x. If profit margin of a company for a product is found unreasonable, company will be provided an opportunity to represent/ furnish inputs prior to adjustments from the subsidy payments.  In doing so, any  onetime factor will  also  be  appropriately  considered.    In  such  cases,  company  will  be issued notice to represent/ furnish comments within 14 days.  FICC will be asked to examine the comments received from the company within 15 days and thereafter final decision to be taken by DoF within 30 days of receipt of company's response.  If the company doesn't reply within 14 days, it will be presumed  that  company  has  nothing  to  represent  and  accordingly,  the amount over and above the reasonable profit will be recovered.
- xi. Profit margin will  be  evaluated for each product/ company wise instead of unit wise subject to the condition that the company maintains same MRP for a  particular  product  irrespective  of  the  unit  in  which  it  is  manufactured. However, reasonableness evaluation of indigenous and imported products will be done separately.
- xii. Formula for calculating the reasonableness of MRP will be as below: -

If Net MRP + Subsidy <= 1.12*Cost of sales, profit margin is reasonable.

If Net MRP + Subsidy >1.12*Cost of sales, profit margin is unreasonable.

Here, Net MRP = MRP - Discount - Dealers' Margin

2.      This issues with the approval of Competent Authority.

Sd/(Geeta Mishra) Under Secretary to the Govt. of India Tel: 23386151

To,

Director (CE), FICC,

R. K. Puram, New Delhi.

Annexure referred to in reply to part (a) & (b) of Lok Sabha Unstarred Question No. 744 for answering on 26.07.2024

Annexure-'B'

F.No.23011/9/2023-P&K Government of India Ministry of Chemicals and Fertilizers Department of Fertilizers

205-D, Shastri Bhawan Dated  18 th January, 2024

## OFFICE MEMORANDUM

Subject: Guidelines for evaluation of reasonableness of Maximum Retail Prices (MRPs) of Phosphatic and Potassic (P&K) fertilizers under the Nutrient Based Subsidy (NBS) Policy-Regarding.

In exercise of powers conferred by section 3 of the Essential Commodity Act, 1955, under Fertilizer (Control) Order, 1985 section 25(1) restriction on sale and use of fertilizers as per terms and conditions which are laid down as per govt. policies are prescribed. Accordingly, the govt. has implemented the Nutrient Based Subsidy (NBS) Policy w.e.f. 01.04.2010.

2.  The  undersigned  is  directed  to  refer  to  the  various  OMs/Orders  on  the  above subject issued by this Department from time to time and directed to issue the detailed guidelines  for  evaluation  of  reasonableness  of  MRP's  of  Phosphatic  and  Potassic (P&K) fertilizers under the Nutrient Based Subsidy (NBS) Policy.
3.   The salient features/provisions of the guidelines are as below: -
- i. These guidelines will be effective from 01.04.2023 onwards.
- ii. GST will be excluded from evaluation of reasonableness of MRPs.
- iii. Differential  Profit  percentage  will  be  allowed  for  P&K  Fertilizer  Companies based  on  the  category  to  which  they  belong  i.e.  8%  for  Importers,  10%  for Manufacturers  and  12%  for  Integrated  Manufacturers. (detailed  formula  of calculation along with details of categorisation are at Annexure-I)
- iv. The basis of evaluation of reasonableness of MRPs will be the Total Cost of Sales i.e. is the Cost of Production/Import (except profit on self- manufactured intermediates for manufacturing finished fertilizers), Administrative Overheads, Selling and Distribution Overheads (except promotional expenses), Net Interest and Financing charges.
- v. The Total Cost of Sales will not include the following: any interest beyond the net  interest  and  financing  charges  (ie.Net  Interest  and  Financing  Charges  = Actual interest expenses -Interest Income shown in P&L a/c): GST/IGST paid on inputs/imports of fertilizers which are eligible for input tax credit.
- vi. Deduction  of discount or promotional expenditure except the prescribed Dealer's margin will not be permitted.
- vii. Deduction for Dealer's margin will be allowed to the extent of 2% of MRP for DAP & MOP and 4% of MRP for all other grades of fertilizers under NBS (TSP, MAP, SSP, NPKs & PDM).
- viii. Reasonability  will  be  evaluated  for  all  fertilizer  grades  for  which  subsidy  is received  by  P&K  fertilizer  companies  under  NBS  scheme  on  segment  basis. (i.e. for all the P&K grades taken together for which subsidy has been realized under NBS scheme by the company) However, the 3 categories of Integrated manufacturer, Manufacturer and Importers will be considered as three separate categories/  segments  (i.e.  for  ex.  all  imported  finished  products  would  come under Importers category).
- ix. Companies will report P&K fertilizers under NBS as a separate Segment in their Audited Annual Accounts. However, the 3 categories of Integrated manufacturer, Manufacturer and Importers will be considered as three separate categories/ segments.
- x. Companies will self-assess unreasonable profit earned by them based on Cost Auditor's  Report  alongwith  audited  cost  data  approved  by  the  Board  of Directors (BoD) and refund unreasonable profit to DoF upto 10 th October for the previous  financial  year  (Self-assessment  based  on  the  Cost  auditor's  report) (i.e. for FY 2023-24 upto 10 th October,2024). In case, companies do not refund unreasonable  profit  earned  above  the  prescribed  limit  within  prescribed  time limit, then an interest @ 12% per annum on pro-rata basis would be charged on the refund amount from the next day of end of financial year (i.e. in case of FY 2023-24, the interest would be charged from 1 st April,2024).
- xi. The Cost Auditor's Report alongwith audited cost data approved by the BoD will be submitted in the online module upto 10 th October for the previous financial year (i.e. for FY 2023-24 upto 10 th October, 2024).
- xii. All  companies/cooperatives  (except  SSP  &  PDM  units  which  are  very  small units) under NBS will set-up an Audit Committee (composition as prescribed in Companies Act, 2013) to review  the  Cost  Auditor's  Report  alongwith  audited cost data on reasonableness of MRPs before placing it before the BoD for their approvals.
- xiii. In case of non-submission of Cost Auditor's Report alongwith audited cost data approved by BoD by the companies upto 10 th October for the previous financial year, further subsidy payment of the company will be stopped till the time the company furnishes the requisite cost data to the DoF and a penalty @ Rs. 1000 per day would be charged from next day of time limit specified for submission of cost  data  (i.e.  for  FY  2023-24  penalty  would  be  charged  from  11 th October, 2024 onwards).
- xiv. Examination  of  the  reasonability  of  MRPs  as  submitted  by  the  P&K  Fertilizer Companies shall be completed timely by DoF/ FICC by 28 th February for each completed previous financial year (i.e. for FY 2023-24 by 28 th Februry,2025).
- xv. DoF will place a report on unreasonable profit earned by the companies and recovered by the Department before the IMC.

## xvi. Reporting mechanism by the Companies

In  view  of  Government  vision  of  transparency  and  good  governance,  cost auditor will report following in its report: -

- a.  The updated cost data format will be used for online submission of data (DoF will issue updated cost data format along with auditor report format).
- b.  Compliance by the Company with all the policy parameters issued by DoF in relation to NBS scheme from time to time.
- c. Company has not used  any  other  subsidized  fertilizers  in  production  of  P&K fertilizers under NBS scheme.
- d.  Company has not earned any profit  on  self-  manufactured  intermediaries  for manufacturing finished fertilizers.
- e.  Subsidy  claims  submitted  by  company  to  the  DoF  are  in  line  with  NBS policy/Notification issued from time to time by DoF.
- f. Production/Import of P&K fertilizers figures submitted in IFMS and Cost sheet are  same.  If  any  difference  is  there,  then  reason  for  the  same  alongwith justification has to be given.
- g.  Company  has  submitted  Imported  Goods  (Raw  Material/Finished  Fertilizers) details  (Bill  of  Entry,  Invoice,  Bill  of  Lading  etc.)  in  IFMS  within  7  days  from generation of Bill of Entry.
- h.  Confirmation that the data submitted by the company in IFMS is correct.
- i. Any expansion/ Setup of new plant of Fertilizers (DAP/NPKs, SSP, PDM, Bio Fertilizers, Organic Fertilizers etc.)
- j. Capacity utilization of plants in India.
- k. Total raw material/intermediates viz. rock phosphates, Phosphoric acid, Ammonia,  Natural  Gas,  Urea,  Potash  etc.  consumed  during  the  year  in domestic production of fertilizers under NBS.
- l. Any other information that company/auditor may like to disclose.
- xvii. If  the  scrutiny  of  reasonableness  of  MRPs  by  DoF  does  not  match  with  selfassessment, the company will be provided an opportunity to represent/furnish inputs  prior  to  adjustments  from  the  subsidy  payments.  In  such  cases,  DoF /FICC  will  issue  notice  to  represent/furnish  comments  within  14  days.  FICC (P&K Cost Analysis Cell) will be asked to examine the comments received from the company within next 15 days and thereafter final decision will be taken by DoF within 7 days of receipt of FICC's (P&K Cost Analysis Cell) response. If company does not reply within 14 days, it will be presumed that company has nothing to represent and  accordingly, the  amount  over  and  above  the reasonable profit will be recovered with Interest @ 12 % p.a. on pro-rata basis from  next  day  of  end  of  financial  year  under  examination.  (i.e.  in  case  of  FY 2023-24, the interest would be charged from 1 st April,2024)
- xviii. The unreasonable amount of profit i.e. profit over and above reasonable profit not  refunded  by  the  companies  based  on  self-assessment  or  based  on  the examination  of  DoF,  would  be  adjusted  from  subsequent  subsidy  payments along with interest, if any.
- xix. In  case  of  any  dispute  related  to  implementation  of  guidelines,  the  litigation shall be decided by Courts having jurisdiction in New Delhi.
4.  This issue with the approval of the competent authority.

Sd/(Nirmla Devi Goel) Under Secretary to the Govt. of India Tele 011-23386151

To

P&K Cost Cell, FICC

Copy to DG-FAI, New Delhi for conveying to all the P&K Companies under NBS scheme.

Enclosure to Draft Guidelines dated 18.01.2024

|                                         | Category/Segment                                                                                                                                                                                                                                                                                                                                                                    | Category/Segment                                                                                                                                                                                                                                                                                                                                                                    | Category/Segment            |
|-----------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|-----------------------------|
| Particulars                             | A. Integrated Manufacturers                                                                                                                                                                                                                                                                                                                                                         | B. Manufacturers                                                                                                                                                                                                                                                                                                                                                                    | C. Importers of Fertilizers |
| a. Profit Margin                        | 12% of Total Cost of Sales                                                                                                                                                                                                                                                                                                                                                          | 10% of Total Cost of Sales 8% Sales                                                                                                                                                                                                                                                                                                                                                 | of Total Cost of            |
| b. Equation for Reasonableness Criteria | If Net MRP + Subsidy <= 1.12*Total Cost of Sales, profit margin is reasonable. If Net MRP + Subsidy > 1.12*Total Cost of Sales, profit margin is unreasonable. If is If > of unreasonable.                                                                                                                                                                                          | Net MRP + Subsidy <= 1.10*Total Cost of Sales, profit margin reasonable. Net MRP + Subsidy 1.10*Total Cost Sales, profit margin is If Net MRP + Subsidy <= 1.08*Total Cost Sales, profit margin is reasonable. If Net MRP + Subsidy > 1.08*Total Cost of Sales, profit margin is unreasonable.                                                                                      | of                          |
| c. Total cost of sales                  | Cost of Production/Import (Except profit on self- intermediaries for manufacturing finished Administrative Overheads + Selling and Overheads (Except promotional expenses) + Net Financing Charges/expenses (Actual interest Interest Income shown in P&L a/c). (GST/IGST inputs/imports of fertilizers which are eligible credit will not be included in the total cost of sales.) | Cost of Production/Import (Except profit on self- intermediaries for manufacturing finished Administrative Overheads + Selling and Overheads (Except promotional expenses) + Net Financing Charges/expenses (Actual interest Interest Income shown in P&L a/c). (GST/IGST inputs/imports of fertilizers which are eligible credit will not be included in the total cost of sales.) | Interest and expenses -     |
| d. Dealer's margin                      | Deduction for dealer's margin will be allowed to the 2% of MRP for DAP & MOP and 4% for MAP, TSP, SSP, PDM and any other.                                                                                                                                                                                                                                                           | Deduction for dealer's margin will be allowed to the 2% of MRP for DAP & MOP and 4% for MAP, TSP, SSP, PDM and any other.                                                                                                                                                                                                                                                           |                             |
| e. Discount                             | Deduction of any discount or promotional expenditure prescribed dealer's margin would not be permitted.                                                                                                                                                                                                                                                                             | Deduction of any discount or promotional expenditure prescribed dealer's margin would not be permitted.                                                                                                                                                                                                                                                                             |                             |
| f. MRP                                  | Maximum Retail Price printed on Bag.                                                                                                                                                                                                                                                                                                                                                | Maximum Retail Price printed on Bag.                                                                                                                                                                                                                                                                                                                                                |                             |
| g. Net MRP                              | Net MRP = MRP - Dealer's Margin (2% of MRP for MOP and 4% of MRP for MAP, TSP, NPKs ,SSP, any other) - Indirect Taxes (GST) on MRP                                                                                                                                                                                                                                                  | Net MRP = MRP - Dealer's Margin (2% of MRP for MOP and 4% of MRP for MAP, TSP, NPKs ,SSP, any other) - Indirect Taxes (GST) on MRP                                                                                                                                                                                                                                                  | PDM and                     |

| h. Net Interest and Financing Charges   | No interest would be allowed beyond the Net Interest and Financing Charges/expenses i.e. (Interest and Financing Charges - Interest Income) (interest Income is the income shown in financial statement i.e. P&L account) in Total Cost of Sales.                                                                                                                                                                                                                                                                                                                                                                    |
|-----------------------------------------|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
| i. Evaluation methodology               | Profit margin has to be evaluated for entire P&K fertilizers segment-wise. However, Integrated Manufacturer, Manufacturer and Importer of Fertilizers will be considered as separate segment.( Inter-segment set-off of profit/loss will not be permitted)                                                                                                                                                                                                                                                                                                                                                           |
| A. Integrated manufacturers are         | i. Companies which have/develop capacities in India covering the entire value chain from raw material stage i.e. rock phosphate and Ammonia to finished fertilizers i.e. DAP/NPKs in India; and ii. Companies which utilize 100% of their plant capacities; and iii. Companies which set-up new production facilities for chemical fertilizers, alternate innovative fertilizers (DAP/NPKs, Bio-fertilizers, Organic Fertilizers, PDM and SSP etc.) with capacity of at least 5 LMT; or Invest to increase the existing production capacity by at least 20% or at least 5 LMT, whichever is higher after 01.04.2023. |
| B. Manufacturers are                    | Those entities which are inducted under NBS Scheme with DoF as per guidelines for manufacturing and selling finished fertilizers manufactured in their own factory within India and which does not fall in the category of integrated manufacturers.                                                                                                                                                                                                                                                                                                                                                                 |
| C. Importers are                        | Those entities which are inducted under NBS Scheme with DoF as per guidelines for selling imported finished fertilizers.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             |

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