Sitharaman’s push for blended fuel: pay taxes if you sell unblended fuel

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To ensure strict compliance with fuel blending standards, the EU budget has proposed to levy an additional excise duty on unblended automotive fuel which will come into effect on October 1.

In her budget speech, Finance Minister Nirmala Sitharaman said, “Fuel blending is a priority for this government. To encourage fuel blending efforts, unblended fuel will be subject to an additional differential excise duty of ₹2 per liter from 1 October 2022.” Thus, the industry has had time to achieve the 10% target for the current ethanol supply year (ESY) December 2021-November 2022.

Pressure on MOCs

But that comes with a catch. According to oil industry officials, the government recently said that blends below 9% would not be considered under the blended fuel category. With the proposal in her speech, the Minister of Finance has now made it clear that anyone selling unblended fuel will be subject to this additional excise duty.

Although public sector petroleum marketing companies sell fuel blended with 10% ethanol in most parts of the country, there are a few places where this does not happen. This decision by the government will put additional pressure on CMOs, both in the public and private sectors.

In addition, the Finance Bill 2022 proposes Section 98 which seeks to amend the Fourth Schedule of the Central Excise Act to insert two new tariff items in Chapter 27 relating to E12 and E15 fuel mixtures , as a new BIS specification has been released for Ethanol Blended Gasoline with up to 12 (E12) and 15 (E15) percent ethanol. This amendment will take effect from the date on which the 2022 finance bill receives the assent of the president, he specifies.

This has put the industry in a difficult situation, which until now has benefited from excise duty exemptions for the current prescribed mixture specifications. Industry does not know if this exemption will also be available for this proposed specification. Categories are treated as manufactured goods and are therefore subject to a levy.

Gradual deployment

The government’s roadmap proposes a phased rollout of ethanol fuel to achieve E10 fuel supply by April 2022 and a phased rollout of E20 from April 2023 to April 2025. Currently, 8.5 % of ethanol is blended into gasoline in India. Monday’s economic survey said the government, which is aiming for a 20% blend by 2025, is planning investments of up to $5.5 billion in the ethanol sector over the next three years.

The government lowered the Goods and Services Tax rate from 18% to 5% on ethanol for blending under the EBP program. Recently, the Minister of State for Petroleum and Natural Gas, Rameswar Teli, in a written response to a question posed to the Lok Sabha, said that the measures taken by the government to reduce dependence on imported gasoline included a number of policy initiatives aimed at increasing domestic crude oil production by generating quality geoscience data and easy access to it, allocating new exploration acreage, accelerating production from new development acreage and focusing on maximizing production from existing production acreage.

The purchase price of ethanol produced from sugarcane raw materials such as C&B heavy molasses, sugarcane juice, sugar and sugar syrup is set by the government and from food grain feedstock by OMC PSUs on an annual basis, he said. .

He encouraged the use of biofuels in the country by the notification of the National Biofuels Policy (NPB) – 2018 which allows the use of several feedstocks for the production of bioethanol for an increased supply of ethanol to be blended with gasoline. Encouraging initiatives on the supply side of ethanol have prompted the government to advance the target of 20% ethanol blended in gasoline in the country from 2030 to 2025-26, the minister said, adding that the government had also notified Pradhan Mantri JI-VAN Yojna for promoting the production of second-generation (2G) ethanol from cellulosic and lignocellulosic, including routine petrochemicals in the country by providing financial support.

In late January 2022, OMC issued Letters of Intent (LOI) for 385.49 crore per liter of ethanol for all sources including sugar cane juice, B Heavy and C Heavy molasses, damaged food grains and excess rice, among others. Out of the total letters of intent issued, the total quantity under contract was 362.02 crore litre, while the quantity of ethanol received by OMC was 58.62 crore litre. Indian Oil Company, the largest fuel retailer, issued LOIs of 171.53 crore litre, followed by Bharat Petroleum Company at 112.31 crore liter and Hindustan Petroleum Corporation Ltd at 101.65 crore litre.

(With contributions by Vishwanath Kulkarni)

Published on

February 01, 2022

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