The Hindu Business Line : Duty on molasses to cost mills extra Rs 200 crore

THE 2005-06 Union Budget decision to double the excise duty on molasses to Rs 1,000 per tonne will cost the sugar industry an extra Rs 200 crore on an annual basis.

Sugar mills in the country crush on an average 180 million tonnes (mt) of sugarcane every year, which, at a molasses recovery rate of 4.5 per cent, yields roughly 8 mt of molasses. Assuming 50 per cent of molasses goes for industrial purposes (on which users can claim Modvat credit) and the remaining towards potable liquor use (on which Modvat credit facility does not exist), the levy of Rs 1,000 per tonne duty would contribute excise revenue of Rs 400 crore.

As against this, the existing Rs 500 per tonne levy would have generated only Rs 200 crore for the Government. The Finance Minister, Mr P. Chidambaram, justified the move to double excise duty on grounds that molasses prices had increased significantly in the last couple of seasons and the Government was entitled to partake a share of the higher revenues accruing to the sugar industry.

While molasses prices averaged Rs 800-1,000 per tonne in the 2002-03 sugar season (October-September), they have since then strengthened to Rs 3,000-3,500 per tonne in the current season.

The Director-General of the Indian Sugar Mills Association (ISMA), Mr S.L. Jain, however, decried the move to double the excise duty, by pointing out that the proposed specific duty of Rs 1,000 per tonne translates into an ad valorem rate of over 33 per cent even at current prices, which is unprecedented for any commodity.

Interestingly, till 1995-96, molasses was being assessed at an ad valorem rate of 20 per cent, after which a specific levy of Rs 500 per tonne was imposed in the 1996-97 Union Budget, when Mr Chidambaram himself happened to be the Finance Minister. Now, he has doubled the specific levy that he had originally imposed.

The industry has also criticised the simultaneous decision by the Finance Minister to bring down the customs duty on molasses and industrial ethyl alocohol from 15 per to 10 per cent. "The move would exert a downward pressure on domestic molasses prices, which, along with the doubling of the excise to Rs 1,000 per tonne, will hit sugar mills badly", said Mr C.B. Patodia, Adviser to the Birla Group of Sugar Industries.

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