The value of the contraband has been estimated at over Rs.100 crore in the international market.
The brown sugar was discovered hidden under a consignment of almonds that arrived in a truck from Pakistan-administered Kashmir at the Salamabad trade facilitation centre near Uri town, customs and police sources said.
It was packed in 114 packets hidden under the almonds.
The receiver of the almonds was a trader in Bandipora district.
The seizure was made during a routine check of the items.
Police sources said the truck has been detained and would not be allowed to cross over to Pakistan-administered Kashmir unless legal procedures are completed.
Cross-LoC trade between parts of Kashmir began in October 2008. The trade takes place four times a week through the Salamabad centre in the Kashmir valley and the Chakan-Da-Bagh crossing point in Jammu region.
At present, trade is allowed in only 21 items, including fruits, vegetables, pulses, handicrafts and footwear.