Hyderabad, February 1 In a bid to ensure strict adherence to fuel blending norms, the Union Budget has proposed to levy an additional excise duty on unblended auto fuel which will come into effect from October 1.

In her Budget speech, Finance Minister Nirmala Sitharaman said, “Blending of fuel is a priority of this government. To encourage the efforts for blending of fuel, un-blended fuel shall attract an additional differential excise duty of ₹2 a litre from October 1, 2022.” Thus, the industry has been given time to meet the target of 10 per cent for the current ethanol supply year (ESY) December 2021-November 2022.

Pressure on OMCs

But, this comes with a catch. According to the oil industry officials, the government has recently said blending lower than 9 per cent will not be considered in the category of blended fuel. The Finance Minister has now made it clear that anyone selling unblended fuel will attract this additional duty.

While the public sector oil marketing companies are selling 10 per cent ethanol blended fuel in most parts of the country, there are a few places where this is not happening. This move from the government will put added pressure on the OMCs, both in the public and private sector. 

Besides this, the Finance Bill, 2022, has proposed Clause 98 which seeks to amend the Fourth Schedule to the Central Excise Act to insert two new tariff items in Chapter 27 relating to E12 and E15 fuel blends, as new BIS specification has been issued for Ethanol Blended Petrol with percentage of ethanol up to 12 (E12) and 15 (E15) per cent. This amendment will take effect from the date on which the Finance Bill, 2022, receives the assent of the President, it said.

This has put the industry in a fix, which till now was enjoying excise duty tax exemptions for current prescribed blending specifications. The industry is not sure whether this exemption will be available for this proposed specification, too. The categories are treated as manufactured products and thus attract a levy.

Gradual rollout

The government’s roadmap proposes a gradual rollout of ethanol-blended fuel to achieve E10 fuel supply by April 2022 and phased rollout of E20 from April 2023 to April 2025. Currently, 8.5 per cent of ethanol is blended with petrol in India. The Economic Survey said the government was expecting investment up to $5.5 billion in ethanol sector over the next three years.

The government has lowered GST to 5 per cent on ethanol meant for blending under the EBP Programme. 

As of end January, the OMCs have issued Letter of Intents for 385.49 crore litre of ethanol across sugarcane juice, B Heavy and C Heavy Molasses, damaged food grains and surplus rice.