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Have ethanol duty sops lapsed?

July 06, 2004 07:10 IST

Lower carbon monoxide, less dependence on import of oils and employment to farmers are some of the benefits of Ethanol use in vehicles, said Kannappan, the then minister of state for non-conventional energy sources, inaugurating the conference on Ethanol 2002.

Brazil has been using ethanol as motor fuels for many decades. Continued dependence on oil has many adverse implications such as fuel price fluctuations and its impact on the country's economy, energy, security and CO2 emissions.

India had taken a favourable policy for introducing 5% ethanol in the transport sector with studies to look at the possibility of a 10% blend.

As an additive, ethanol helps petrol burn efficiently. Petrol-ethanol blend can reduce carbon monoxide and hydrocarbon emissions by up to 35-55 per cent. A study conducted by Winrock International, shows that ethanol has the potential to reduce volatile organic compound by 27 per cent, nitrogen oxides by five per cent and particulate matter emissions by as much as 41 per cent.

The source of this wonderful additive is molasses, a sugarcane by-product, which is found in abundance in the country. Experts are of the opinion that consumers are unlikely to bear the price burden of the switch to eco-friendly blended fuel. Interestingly, alcohol is costlier than refinery gate price of petrol to which it is added.

The government was looking at subsidising the product so that consumer gets it at the same price as petrol. Cost price to farmer for production of ethanol today is around Rs 15-18 whereas the refinery gate price of petrol would be around Rs 10-12.

Blending of 5 per cent ethanol to petrol would increase the cost of the blended fuel. The oil industry had demanded a budgetary concession on excise duty of Rs 0.75 per litre on petrol blended with ethanol to help offset some of the additional cost.

Vehicle manufacturers have responded positively to the blended fuel. While 5 per cent ethanol-petrol blend does not adversely affect vehicle engines, only Maruti vehicles are ready for a 10 per cent blend.

Supply of ethanol may not pose a problem, as currently it far exceeds the demand. The petroleum ministry estimates that to supply the entire country with the five per cent blend, it would require 600 million litres of ethanol. But, the installed capacity for ethanol production had reached 2000 million litres.

You may wonder why all this information in a taxation article? We are talking tax, excise to be precise. After the petroleum ministry had given its clearance for blending of petrol with ethanol, the finance ministry did not lag behind. It issued exemption notifications in 2002 allowing various exemptions to petrol used for 5% blending with ethanol and the blended petrol.

These exemptions were given for a specific period and were being renewed. The last surviving notifications were issued in 2003. The exemptions were to lapse on February 29, 2004. But by a notification on February 4 they were extended till June 30, 2004.

As June 30 silently slipped into history these notifications were not extended, which means that all the exemptions available for 5% ethanol mixed petrol are not available from July 1, 2004.

Without these exemptions it is not worthwhile to mix ethanol with petrol because as mentioned earlier ethanol is costlier than petrol at manufacturing stage. But can we afford to neglect our farmers, sugar mills and above all the environment, not to speak of the huge import bill erratic and dangerous to the economy?

We don't yet know whether the notifications were allowed to be intentionally lapsed or it was an unintended lapse of the babudom so busy in the transfer syndrome!

The details of the various notifications giving exemption to ethanol mixing activity are given below. If the lapse was not intentional, it is suggested that in all these notifications the validity may be further extended indefinitely so that this kind of lapse does not recur. In the mean time field formations in Central Excise can perhaps get activated with Show Cause Notices and keep them in the Call Books waiting for a Section 11C Notification.

Notification No	Details	Remarks
14/2003-C.E., dated 1-3-2003	Exempted Motor spirit, when intended for use in the manufacture of 5% ethanol blended petrol, from so much of the duty of excise leviable, under the First and Second Schedules, as is in excess of the duty leviable on motor spirit sold by the manufacturer to an independent buyer.	Was to have lapsed on February 29, 2004 but by Notification No. 12/2004 dated 04.02.2004, extended up to June 30, 2004.
15/2003-C.E., dated 1-3-2003	Exempted ethanol blended petrol manufactured from blending of motor spirit (commonly known as petrol) and ethanol, on which the appropriate duties of excise have been paid, from the whole of the Additional Duty of Excise leviable thereon.	Was to have lapsed on February 29, 2004 but by Notification No. 12/2004 dated 04.02.2004, extended up to June 30, 2004.
16/2003-C.E., dated 1-3-2003	Amended Notification No. 28/2002 so as to (a) prescribe a concessional rate of Rs. 5.70 per litre of Special Additional Excise Duty on motor spirit (commonly known as petrol), when intended for use in manufacture of 5% ethanol blended petrol, and (b) exempt 5% ethanol blended petrol manufactured from blending of motor spirit (commonly known as petrol) and ethanol, on which the appropriate duties of excise have been paid, from the whole of the Special Additional Excise Duty leviable thereon.	Was to have lapsed on February 29, 2004 but by Notification No. 12/2004 dated 04.02.2004, extended up to June 30, 2004.
6/2003-C.E., dated 1-3-2003.	Amended Notification No. 6/2002-Central Excise, dated 1-3-2002 so as to exempt 5% ethanol blended petrol manufactured from blending of motor spirit (commonly known as petrol) and ethanol, on which the appropriate duties of excise have been paid, from the whole of duties of central excise specified in the First and Second Schedules	Was to have lapsed on February 29, 2004 but by Notification No. 12/2004 dated 04.02.2004, extended up to June 30, 2004.

As stated earlier these notifications lapsed on June 30 and were not extended!

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