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Ethanol buy to knock back OMCs by Rs 95 cr in GST regime

Dilip Kumar Jha / Mumbai 31 May 17 | 07:33 AM

Oil-marketing companies (OMCs) will have to bear an additional burden of Rs95 crore on their books for procuring ethanol this year with the introduction of the goods and services tax (GST).

The three OMCs, Indian Oil Corporation (IOC), Bharat Petroleum Corporation Ltd (BPCL), and Hindustan Petroleum Corporation Ltd (HPCL) had issued tenders for procuring around 2,880 million litres of ethanol accumulatively for the current season, which is ending in November. 

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Owing to the lack of enough cane for crushing, sugar mills have offered a lower amount of ethanol, and OMCs have finalised contracts with sugar mills for 806.9 million litres.

Now, the Centre has proposed an 18 per cent GST on ethanol, and this works out to nearly six per cent higher than the existing levies in many states including Bihar, Uttar Pradesh, Gujarat, and Uttarakhand. 

Most other states have levied a value-added tax (VAT) between 4.25 per cent and eight per cent over and above the excise duty of 12 per cent.

“Considering the 15 per cent average existing levies, OMCs will have to pay additional taxes of at least three per cent on ethanol procurement from sugar mills. This means, on 806.9 million litres of finalised contracts for ethanol procurement, OMCs will have to pay around 

Rs 95 crore more this year," said a senior executive of the industry body Indian Sugar Mills Association (ISMA).

Currently, OMCs pay Rs 39 a litre for ethanol in addition to the existing taxes and levies. The government of Bihar, however, has withdrawn five per cent VAT to encourage distilleries in the state to produce ethanol.

“The procurement price of ethanol is compared to the fixed price paid on molasses at Rs 754 a tonne. In case crude oil becomes cheaper than the ethanol procurement price with the additional six per cent duty, OMCs might need subsidies from the government to promote the use of the green fuel.

Had the government intended to offer subsidies to encourage ethanol blending with petrol, the proposed GST rate could have been less than 12 per cent.

With an 18 per cent proposed GST, the government has indicated no room for subsidy for ethanol procurement.

Hence, the onus of ethanol procurement would lie on the OMCs, which will have to bear the additional burden arisen out of the GST levy," said Deepak Desai, Principal Consultant, ethanolindia.com, a leading e-platform for ethanol information.

Meanwhile, the ISMA is planning to consult government officials to highlight the benefits of ethanol blending and apprise them of the implication of the proposed GST levy.

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