Govt gives tax sops on molasses to boost ethanol production

New Delhi: Sugar mills supplying ethanol to oil PSUs in 2015-16 season starting this month, will be eligible to avail input credit on the excise duty paid on the raw material molasses, a move aimed at promoting 10 per cent ethanol blending with petrol.

Currently, there is a fixed excise duty of Rs 750 per tonne on molasses, a by-product of sugarcane used for manufacturing ethanol, alcohol and other products.

In a latest notification, the Finance Ministry has "amended the CENVAT Credit Rules, 2004 so as to allow input credit of duty paid on molasses in the 2015-16 sugar season used for producing ethanol for supply to the public sector oil marketing companies for the purposes of blending with petrol."

The mills can avail the benefit if ethanol is supplied to Indian Oil Corporation, Hindustan Petroleum Corporation or Bharat Petroleum Corporation, it said.

To encourage ethanol production, the government had in April exempted 12.5 percent excise duty on ethanol. As a result, the sugar industry had initially estimated Rs 5 per litre benefit to the mills on production of ethanol.

However, the actual benefit of the exemption of the excise duty on ethanol was later estimated to be lower at Rs 2 per litre as mills could not avail the benefit of CENVAT credit against the excise duty paid on molasses. Now with this government's notification, mills can avail full benefit of Rs 5 per litre of ethanol.

Welcoming the move, Indian Sugar Mills Association (ISMA) Director General Abinash Verma said, "Today's notification will benefit the 130 ethanol producing sugar mills in the country, by way of increase in their revenue realisation on ethanol supplies."

The industry hopes that this benefit will be continued into next sugar seasons for the benefit of the ethanol supplies in the future, he added.

Although 10 percent blending of ethanol with petrol is allowed, oil marketing companies (OMCs) will achieve 3.5 percent in 2014-15 season (October-September).

ISMA expects that ethanol blending with petrol could rise to 5 percent in 2015-16 season. OMCs have already floated tenders for 266 crore litres for 10 per cent blending. So far, contracts nearly 100 crore litres have been finalised.

The country has an installed capacity to manufacture 450 crore litres of ethanol, of which 240 crore litres of capacity are with sugar factories, while the rest is standalone.