Biodiesel industry in dire straits

Manufacturers of biodiesel are in a paradox caught between a 25 per cent duty on import of raw material (RBD Palm Stearin) and 18 per cent GST on finished goods. The industry has appealed to the Finance Ministry for appropriate remedial measures such as reduction in the GST rate to 5 per cent and amendment to the notification on customs levy.

Tamil Nadu Chamber of Commerce and Industry in Madurai, which has taken up the issue on behalf of the biodiesel industry, has in a memorandum to Suresh Prabhu, Union Minister for Commerce and Industry, said the industry is hamstrung by this double whammy.

Enthused by the National Biodiesel Blending Programme, many entrepreneurs in this space increased their production capacity and a good number of new units also entered the fray.

Biodiesel manufacturers were supplying to Indian Railways and oil marketing companies (OMCs), who were carrying out the blending programme in the last two years.

As both — the inputs and output — were exempt from duties and taxes, the price of the biodiesel was competitive. In April 2017, the OMCs, under the guidance of the Ministry of Petroleum & Natural Gas tendered 26-crore litres of biodiesel.

The manufacturers contracted to import Refined Bleached Deodorized (RBD) Stearin, which is the raw material, considering zero import duty on this product. Moreover, RBD Stearin had to be imported as the domestic availability of the same was insufficient, S Rethinavelu, Senior President of the Chamber, said, highlighting the plight of the industry to the Minister.

Referring to a clarification issued by the CBEC (Central Board of Excise and Customs) in 2015, he said it was observed that “100 per cent biodiesel is an oleochemical derived from vegetable oils or animal fats, and the same was exempted from customs duty vide a notification issued earlier.

“But, in May this year, this notification was amended and customs duty exemption is allowed only to RBD Palm Stearin having Free Fatty Acid (FFA) of 20 per cent or more for manufacture of oleochemicals (manufacture of biodiesel).

“RBD Palm Stearin technically cannot have FFA in excess of 0.2 to 0.3 per cent, as in the process of refining, bleaching, deodarising and fractionating, the FFA content is squeezed out,” Rethinavelu explained and added that RBD Stearin import records over the last two years showed that the average FFA content was only 0.2 per cent.

Due to this anomaly, imported RBD Stearin having FFA within 20 per cent for manufacture of biodiesel attracts 25 per cent customs duty. Further, as raw material and transport account for about 95 per cent of biodiesel cost, this has resulted in cost escalation and closure of biodiesel manufacturing units, he said.

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