The Hindu Business Line : Zero excise duty mooted on molasses for cattle feed

The Union Agriculture Ministry is understood to have recommended removal of excise duty on molasses used for manufacture of cattle feed. The move is aimed at cushioning domestic dairies from soaring prices of feed ingredients, leading to increased milk production costs.

Molasses currently attracts a flat specific basic central excise duty of Rs 750 a tonne. Together with the 2 per cent education cess and one per cent secondary education cess, the total excise incidence comes to Rs 772.50 a tonne.

On top of this, States levy value-added tax (VAT) on the commodity, which varies from 4.5 per cent in Uttar Pradesh to 12.5 per cent in Gujarat, 20 per cent in Maharashtra and Karnataka and 30 per cent in Tamil Nadu. Some States such as Maharashtra charge a lower four per cent VAT on molasses supplied to chemical units.

UNIFORM VAT

“The Agriculture Ministry has proposed that there be no excise on molasses used by cattle feed manufacturers. It has also sought a uniform 4 per cent VAT, though it remains to be seen whether this would be acceptable to the States,” sources told Business Line. Even with regard to excise duty removal, the final call would be taken by the Finance Ministry, they pointed out.

Molasses is as a by-product of cane crushed by sugar mills, with its production varying year to year. During the 2006-07 sugar season (October-September), a record 13.11 million tonnes (mt) was produced, which is expected to fall sharply to around 6.8 mt this season. Prices have, as a result, gone up significantly.

“We are now paying around Rs 8,500 a tonne, as against Rs 5,000-5,500 during this time last year. A significant portion of this is constituted by excise, VAT and freight, whereas the basic ex-factory cost of molasses is Rs 4,500-5,000 a tonne,” a leading Tamil Nadu-based animal feed manufacturer said.

Roughly 15 per cent of the total molasses produced in the country is estimated to go into feed manufacturing, with the remaining going to distilleries and alcohol-based chemical industries.

Molasses is used by feed manufacturers mainly as a binder, so as to sell the product in pellet form that makes it both compact as well as palatable to the animal. Molasses contains 45-50 per cent sugar, making it a high energy value ingredient in concentrated cattle feeds. On tonne of feed pellet contains roughly 50 kg of molasses.

Taking an average 10 mt annual production, the Rs 772.50 a tonne effective excise incidence on molasses would yield roughly Rs 775 crore for the Centre. “Providing end-use excise exemption for feed manufacturers will not result in any significant revenue loss. But then, there is also the possibility of molasses for feed units getting illegally diverted to distilleries and other user industries”, the sources added.

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