In a surprise move, BJP-ruled Haryana has slapped a Rs 2 per litre levy on the supply of ethanol into the state, at a time when Prime Minister Narendra Modi has been vociferously promoting the use of blended petrol and even asking states to go for the blending of ethanol with petrol in 10:90 ratio, sources said.

Haryana has imposed a Rs 1 per litre levy on supplies of ethanol into the state and another R1 for issuing permit for this purpose, with effect from April 1, the sources told FE.

Ironically, in his recent speech in Belgium, Modi had spoken about ethanol production hitting an all-time high in 2015 following his government’s push.

Haryana joins a number of states, including largest ethanol producer Uttar Pradesh and BJP-ruled Gujarat, Maharashtra and Madhya Pradesh, which impose a levy on supplies of ethanol, despite the suggestions from the food ministry to the contrary and opposition by the sugar industry. Sugar mills are the largest producer of fuel ethanol.

Haryana’s move is also ironical due to the fact that the Lok Sabha has already passed a Bill that would make such levies on ethanol supplies by states illegal. The amendment made to the first schedule of the Industries (Development and Regulation) Amendment Act, 2015, will make ethanol a central subject for taxation. The Bill is pending in the Rajya Sabha.

A parliamentary standing committee has also voiced its opposition to such levies. The recent report of the parliamentary standing committee on petroleum and natural gas had suggested: “Since ethanol is not available in all the states, the Committee feels that there should be hassle free inter-state movement of ethanol for blending purposes” and that the Centre may ask states to remove/ease such restrictions.

Levies on inter-state ethanol supply “illegal”

Sugar analysts have been saying the levies on inter-state supplies by states are ‘illegal’. According to the entry 8 of the state list, states can legislate on “intoxicating liquors”, that is on production, possession, transport, purchase and sale of such alcohol. Bringing clarity to the issue, the Supreme Court, in a judgment in the Synthetics & Chemicals vs the state of Uttar Pradesh case, has ruled that once the denaturant has been added to alcohol, it becomes unfit for human consumption and hence “the state legislature has no authority to levy duty or tax on alcohol which isn’t fit for human consumption, as that could only be levied by the centre”.

Making a case for the levies, some states argue that producers may divert alcohol in the garb of ethanol, to which suppliers say the inspector deputed by the state at every distillery may check the substance and clear it. Moreover, it’s the duty of the states to ensure compliance with the Supreme Court verdict and not to contravene law citing difficulty in compliance, they say.

Last year, Union food minister Ram Vilas Paswan had written a letter to states, asking them to scrap the levies. Subsequently, following the prime minister’s directive to boost ethanol blending with petrol, the food department has also asked states to desist from such a move, but in vain.

Apart from reducing reliance on oil imports and cutting pollution levels, the decision was also expected to help cash-starved sugar industry improve liquidity so that its cane dues to farmers — a result of a flawed cane pricing policy by states like Uttar Pradesh — could be cleared at the earliest.