After initial reluctance, the finance ministry has amended the central value-added tax (Cenvat) rules to allow the excise duty paid on molasses — meant for producing ethanol — to be Cenvatable in the current marketing year that started on October 1, in a big relief to the cash-starved sugar industry that produces ethanol. The move will enable producers to encash the full benefit of the government’s earlier decision to scrap a 12.5% excise duty paid on ethanol in 2015-16.

In April, when the cabinet committee on economic affairs (CCEA) had decided to scrap the excise duty on ethanol in 2015-16, it was assumed that producers would get the full benefit of R5 per litre from such a move. However, since the revenue department was initially unwilling to allow cenvat credit against the excise duty paid on molasses, the effective gains to producers was estimated at just R2 per litre. This was because earlier producers were given Cenvat credits (effectively to the tune of R3 per litre) on molasses against the excise duty paid on ethanol. The latest Cenvat concession on molasses is meant for producing fuel ethanol to be supplied to the oil-marketing companies (OMCs) for the government’s ambitious programme on ethanol blending with petrol.

Sources told FE that following the revenue department’s reluctance to change the Cenvat rules, food minister Ram Vilas Paswan wrote to finance minister Arun Jaitley, saying the intent of the decision by the CCEA in April to remove the excise duty on ethanol was to provide the full benefit to producers to boost their ability to clear cane dues. Paswan also added that even the Cabinet note —circulated before the decision in April —had stated that the full benefit to producers would be to the tune of R575 crore if they supplied 115 crore litres of ethanol to oil-marketing companies for the blending programme, the source said.

Welcoming the finance ministry decision, Indian Sugar Mills Association director-general Abinash Verma said on Thursday the move would benefit 130 ethanol-producing sugar mills in the country by way of increasing 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.

Recently, OMCs have invited expression of interests seeking supplies of 266 crore litres for implementing the proposed 10% ethanol blending with petrol in 2015-16. However, several other barriers are obstructing the implementation of the blending programme. The chief among them are levies imposed by various states on the inter-state movement of ethanol despite it being a central subject, mandatory requirement of various excise permits, often to be submitted manually, and fixed prices of ethanol for supplies to far-away states. The country could achieve only 1.4% ethanol blending with petrol in the last fiscal, even lower than the 2013-14 level of 2%.

The government first proposed the blending of ethanol with petrol at a 5:95 ratio in 2003 and even made it mandatory later. In December 2013, the Sharad Pawar panel mooted doubling the blending limit to 10%, which was re-iterated by the CCEA in April 2015. In August, Prime Minister Narendra Modi directed ministries concerned to look for ways to make the proposed blending programme a reality soon.