Deputy chief minister Siddaramaiah, who holds also the finance portfolio, told reporters that the state exchequer would lose Rs 10 crore following the decision "to safeguard farmers".

Urea is controlled by the centre and no state levy can be imposed on it.

The government's move also meets a major demand of fertiliser manufacturers who had opposed TOT saying, it affected their margins. The manufacturers had said TOT was the main reason for their hesitation to sell in Karnataka.

Siddaramaiah however pointed that neighbouring states like Andhra Pradesh and Kerala levied sales tax (ST) instead of TOT while Tamil Nadu had imposed both sales tax and TOT. Maharashtra was an exception where neither ST nor TOT was levied.

Agriculture minister C Byregowda blamed the centrefor the fertiliser problem in the state, saying that it had not announced subsidy for fertilisers for kharif season.

Byregowda said the Indian Potash Limited (IPL) had written to the state stating that it would not be able to supply potash unless the state government exempted TOT. Byregowda took exception to the letter saying it was not in "good spirit" of federalism.

He said the state required 85,00o tonnes of potash, of which IPL supplied 35,000 tonnes.