Setback for sugar mills, distillers as excise duty re-imposed-:- Equity Research

The government’s decision to re-impose excise duty has come as a setback for sugar mills and distilleries just when their cash registers were beginning to ring again.   The excise duty of 12.36 percent on ethanol from molasses was withdrawn for the 2015-16 season to provide relief to cash strapped sugar mills, which owed Rs 20,000 crore to cane farmers. The relief was supposed to be effective till November 2016. At 12.36 percent, distilleries and sugar mills will now have to pay Rs 5 per litre to the government. A combination of the government’s fixed price policy and excise duty exemption led to near doubling of production of ethanol to 130 crore litres over the last nine months. Of this, 40 crore litres have been booked, but are yet to be sold to sold to oil marketing companies, the main customers for ethanol. On this unsold stock, the mills will have to shell out Rs 200 crore as excise duty. It is not the duty as much as the inconsistency in government policy that has irked distillers and sugar mills. The repercussions could be felt in the coming months as the new season for ethanol starts from December. A double whammy of lower sugar cane production and scrapping of ethanol subsidies could spell pain for distilleries and sugar mills.