In a letter to secretary S Narayan, the Nothern Indian Textile Mills' Association pointed out that the restriction on diesel supply on an inter-state basis was depriving the industry of CST benefits. This has resulted in cost escalations because instead of paying 4 per cent tax on CST basis, units now have to pay local sales tax which is much steeper.

The association has asked the ministry to either restore inter state movement or ensure that state governments suitably amend sales taxes to ensure that financial burden of mills doesn't increase.

Speaking to The Financial Express, Nitma secretary K J S Ahluwalia said that when inter-state supply was allowed, often the 4 per cent tax on CST basis was waived by commissioners of export processing zones if the units buying HSD were export-oriented. "But under the new guidelines no such waivers will be possible. Instead, textile units will have to pay much higher percentages as tax."

In the letter, Nitma president H B Chaturvedi argued that it was not possible for textile units to pass on the burden to the consumer because under the WTO regime free imports were being allowed into the country and the market was becoming highly competitive.

Citing examples of the problems that textile units had to face, Chaturvedi said that a unit located in Punjab which earlier used to purchase HSD from IOC's Ambala terminal (only 20 km away from the unit) for captive power generation had to pay only Rs 10.77 per litre and it was also getting refund from the development commissioner of NEPZ, Noida.

Now, due to a stop placed on inter-state supply, the unit is forced to buy HSD from Sangrur Depot, which although was in Punjab but was 225 km away from the unit. The transport cost itself hiked fuel price by Rs 1.13 per litre. Moreover, the unit is now also has to pay a tax of 8.8 per cent on HSD and its refund is not permissible. Textile units have suddenly found themselves in trouble because of the order, Chaturvedi said. He added that a large number of textiles mills were engaged in 100 per cent exports and the sudden increase in costs would affect their competitiveness. "This could have a serious effect on the economy as it could lead to reduced foreign exchange earning, reduced employment and increase in number of redundant factories."