SEPTEMBER 27, 2015

By Kamlesh Bhandari, M.Com, FCA & Bala Raja Rajan, B.Com, FCA

PM is campaigning extensively all over the world inviting outsiders to invest in India under "MAKE IN INDIA” banner & FM is finding all ways to bring GST in place by 2016.

All these steps may give some optimistic view :

•  to Economists who believes thatthis will increase the GDP by atleast 1.5%.

•  toconsumers who believes that these steps will decrease the price of the products & services

•  to States who believes their portion of taxes will be collected more than the existing one.

•  to Rulers who believes that this will increase the employment opportunities.

However, from the industry point of view, unless these measures are coupled with the correct action plan by the respective Government departments which falls under Ministry of Finance & Ministry of Commerce things may not be achieved as desired. Recent Central Excise notification No. 32/2015 dtd 4 th June 2015 is one such classic example which hampers the objective of Encouraging the Oil Industry of Blending Ethanol with the Motor Spirit [EBMS]. By virtue of this notification, exemptionis given only to a specific target instead to the whole industry [exemption is given on Ethanol only if the same is supplied to Public Sector Units]. Before going into the nitty-gritty of the issue, let us understand some background on this Ethanol blending.

The objective of the Government in encouraging the Ethanol Blended Motor Spirit is two fold -

1. As part of encouragement of Bio-Fuel Programme ->giving more thrust to the renewable sources of energy than depending on Non-Renewable sources of energy Viz., Oil, Natural Gas, Coal (Fossil fuels) which is largely imported.

2. Support for fixation of higher prices to sugarcane producers -> encouraging the oil industry to buy ethanol from the sugar industries.

Ministry Of Petroleum & Natural Gas is taking various initiativesto achieve the above objective, one of the ways is to exempt the ethanol supplied to oil refineries from excise duties, however, while issuing the notification, it unfortunately is giving exemption only if the supply is made Public Sector Units. In other words, if ethanol is supplied to any private refineries, the same will be subject to excise duty. For a better understanding, the relevant extract of the notification is reproduced below -

Notification No. 32/2015-C.E., dated 4-6-2015

Ethanol produced from molasses exempted when supplied to Indian Oil Corporation Ltd., Hindustan Petroleum Corporation Ltd. or Bharat Petroleum Corporation Ltd., for blending with petrol — Amendment to Notification No. 12/2012-C.E.

In exercise of the powers conferred by sub-section (1) of Section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendment in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Central Excise, dated the 17th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R 163(E), dated the 17th March, 2012, namely :-

In the said notification, in the Table, after Sl. No. 40 and the entries relating thereto, the

following Sl. No. and entries shall be inserted, namely:

To elaborate further, by virtue of this notification, Ethanol produced from Molasses is exempt from Excise Duty of 12.5%, if it is for supplied to Public Sector Oil Marketing Companies namely M/s IOCL, M/s HPCL or M/s BPCL. Hence, if it is supplied to Pvt Oil Companies the said exemption is not available. This new insertion in the Tariff, which extends the exemption of excise duty to PSUs only and not to the oil industry as a whole, is a clear impediment to the main objective of the Central Government, which wants to give thrust to the Renewable Sources of energy and to reduce dependence on import of oil. The said notification has created disparity between PSU Oil Marketing Companies and Private Oil Marketing Companies, which we believe, cannot be the intention of the Government.

Oil industry is expecting an amendment from the Government in this regard, thereby removing the disparity and to that effect the exemption will be available not only to the PSUs but also to the private oil companies.