The wait for liquor companies to get clarity on the taxation of Extra Neutral Alcohol (ENA), used for distilling alcoholic liquor for human consumption, is getting prolonged as the GST Act is yet to be amended. Companies assert that they are paying Value Added Tax (VAT) in some states and GST in others. Also, they are getting notices for non-payment of GST in some states and for VAT by VAT authorities in other states.
The wait for liquor companies to get clarity on the taxation of Extra Neutral Alcohol (ENA), used for distilling alcoholic liquor for human consumption, is getting prolonged as the GST Act is yet to be amended. Companies assert that they are paying Value Added Tax (VAT) in some states and GST in others. Also, they are getting notices for non-payment of GST in some states and for VAT by VAT authorities in other states.
GST Council, in its meeting on October 7, ceded the right of levying GST on ENA outside GST and empowered the States to levy. It was also said that the Law Committee will examine suitable amendments in law to exclude ENA for use in the manufacture of alcoholic liquors for human consumption from the ambit of GST. However, the committee has not given its draft for the said amendment.
The industry is also expecting a detailed clarificatory circular on this issue. When asked whether there will be any circular regarding GST Council recommendation, a top Finance Ministry official said: “GST Council did not take decision to issue the circular.” Further, he added that the minutes of the GST Council are available in the public domain for everyone which means there should not be any confusion.
ENA is a key input to alcoholic beverages. According to industry sources, the production of one case of Indian Made Foreign Liquor (IMFL) with 12 bottles of 750 ml each, or a total of nine liters, needs four liters of ENA. The alcohol content in IMFL is uniform at 42.8 percent. For India Made Indian Liquor (IMIL), alcohol ranges between 30 percent and 36 percent means less requirement of ENA.
GST Council recommendation came after Allahabad High Court’s ruling in Jain Distillery Private Limited vs Government of UP and similar petitions held: “It is declared, the State lost its legislative competence to enact laws, to impose a tax on sales of ENA, upon the enactment of the 101st Constitution Amendment. Consequently, and upon considering Section 174(1)(i) of UPGST Act, 2017, the impugned Notification dated December 17, 2019, insofar as it seeks to impose UPVAT on ENA, Rectified Spirit and SDS, is ultra vires, both on account of lack of (i) legislative competence and (ii) valid delegation. It is therefore quashed.”
Aggrieved by this ruling, the State Government moved the Supreme Court which is expected to take up this matter next month. Sources in the industry said that since the High Court ruling was not quashed, GST is being levied at 18 percent (9 percent in SGST and 9 percent CGST) in UP while in some States VAT is being levied at different rates.
Now industry is hoping for a detailed mechanism based on amendments in law for the exclusion of ENA used in manufacturing alcoholic liquor for human consumption from GST. They also expect that the mechanism will suggest there will be no additional liability or compliance irrespective of whether one has paid VAT or one has paid GST. They are hopeful that SC will dispose of the petition based on the proposed mechanism.