Excise duty concession on ethanol withdrawn for sugar mills

The mills said the abrupt withdrawal of the exemption would hurt their finances

The central government has withdrawn the excise duty exemption granted to sugar mills on production of ethanol, due to an improvement in their liquidity on account of a rise in sugar prices.

Withdrawal of the excise duty, charged at 12.5 per cent, translated into a Rs 5 a litre advantage for mills over the pre-determined ethanol price of Rs 48.5-49.5 a litre. The mills were unhappy, saying the abrupt withdrawal of the exemption would badly hurt their finances, as most of the ethanol produced in the 2015-16 season (it ends in September) had been contracted after taking into account the concession, which was earlier to go on till November.

Mills sold ethanol to oil marketing companies (OMCs) at Rs 48.5-49.5 a litre at their depots, inclusive of all taxes and duties, in 2015-16. At the mill gate, the same ethanol cost Rs 40-41 a litre. The waiver of excise duty (which cost the government Rs 200 crore) pushed up this realisation by another Rs 5 a litre and the actual realisation would be Rs 45-46 a litre at the mill gate.

In terms of sugar, this translated to a price of Rs 30 a kg. The official justification for withdrawing the concession is that with ex-mill sugar rates are now much above Rs 30 a kg.

In all, around 1,300 million litres of ethanol had been produced in 2015-16 by mills, among the highest in recent years and good enough to meet the Centre’s target of a full five per cent blending with petrol. Of this, around 900 million litres had already been supplied by millers to OMCs. On the balance 40o mn litres, mills have to shell out the extra Rs 5 a litre as excise duty, jolting their financial calculation for the year.

“More than that, in the next sugar season, millers might be wary of entering into contracts with OMCs for supplying ethanol, impacting the government’s ambitious blending programme,” warned a senior industry official.

In a related development, cooperative mills have warned counterparts in other segments from speculative trading in sugar or delaying of sale in anticipation of higher profits. Co-op millers said the current average ex-mill price of sugar at Rs 3,350 to 3,375 a quintal was just enough to cover the cost of production and repayment of soft loans provided by the Centre since 2014.

“This sugar season is estimated to end with a closing stock of around seven million tonnes. Thus, India has sufficient stocks available,” said M G Joshi, managing director of the National Federation of Cooperative Sugar Factories.