GST Council decides to cede right to tax extra neutral alcohol to states

New Delhi [India]: Union Finance Minister Nirmala Sitharaman on Saturday said that the Goods and Services Tax (GST) Council has decided to exempt Extra Neutral Alcohol (ENA), a key raw material for manufacturing alcoholic liquor for human consumption, from the GST, giving states the exclusive right to tax the item.

Sitharaman, while briefing the media after the 52nd meeting of the GST Council, said that the council has decided to provide clarification on differential tax treatment for alcohol for human consumption and industrial use and reduced the GST rate on molasses to 5 per cent from 28 per cent.

The Law Committee will examine suitable amendments in the law to exclude ENA for use in the manufacture of alcoholic liquors for human consumption from the ambit of GST.

“To reduce GST on molasses from 28 per cent to 5 per cent. This step will increase liquidity with mills and enable faster clearance of cane dues to sugarcane farmers,” the Ministry of Finance said in a statement.

This will also lead to a reduction in cost for the manufacture of cattle feed as molasses is also an ingredient in its manufacture.

“A separate tariff HS code has been created at 8-digit level in the Customs Tariff Act to cover rectified spirit for industrial use,” it said, adding that the GST rate notification will be amended to create an entry for ENA for industrial use attracting 18 per cent GST.

ENA is a key component for many chemicals and is used not just in the manufacture of potable liquor but also for industrial and commercial purposes. ENA, also known as rectified spirit or rectified alcohol, is a high-distillate alcohol, free from impurities, typically containing 95 per cent alcohol by volume.

“GST Council today has ceded that right to tax ENA to the states. If the states want to tax it, they are welcome to do it. The GST Council is not taking a call to tax it, although the right to tax lies here. So in the interest of the states, we have, if I may use the word ceded that right to the states,” Sitharaman said.

The Allahabad High Court had stated that upon the enactment of the 101st Constitutional Amendment, the state had lost its legislative competence to impose taxes on the sale of ENA, a raw product for making alcohol for human consumption.

She further said that this will benefit sugarcane farmers we hope, and this will enable their dues to be cleared faster because more money will be left in the hands of the mills or whoever.

“The council and we all feel that it’ll also lead to a reduction in the cost of manufacturing of cattle feed, which will be a major development…” she added.

The Council also recommended issuing a circular to clarify the admissibility of export remittances received in Special rupee Vostro accounts for ITC as permitted by the Reserve Bank of India. And, in a bid to promote tourism, a suggestion to exempt conditional Integrated GST (IGST) to foreign flag, foreign going vessel when it converts to coastal run was approved.

The statement by the Ministry of Finance further said that the supply of all goods and services by Indian Railways shall be taxed under the Forward Charge Mechanism to allow them to avail of input tax credit (ITC) under GST to help reduce the cost for Indian Railways.