GST Council plans amendments to alcohol tax laws to enable dispute settlement

New Delhi: The GST Council is considering changes to GST legislation governing extra-neutral alcohol (ENA), a very pure alcohol used in liquor manufacture but not for direct consumption. These amendments seek to clarify that ENA should not be subject to GST, potentially providing much-needed relief to the spirits business by avoiding dual taxes.

The liquor industry would gain from the Council's proposed plan, which would allow state and federal tax authorities to forgo collecting past-due taxes in addition to the legislative adjustments. This action is a component of a larger initiative to settle ongoing tax disputes and expedite the taxation procedure. 

A committee of officials has recommended revisions that the GST Council will evaluate at its meeting on Saturday in the nation's capital. According to two people familiar with the Centre-state conversations, this committee was charged with crafting legislative modifications to ensure that ENA remains outside the GST regime - a decision that was initially made during the GST Council's 52nd meeting on October 7 of last year.

The proposed revisions clarify that ENA is exempt from GST under section 9 of the Central and state GST statutes, thereby preventing ambiguity in tax implementation. Although it does not specifically reference ENA, this clause currently allows for GST on goods and services other than alcohol for human consumption. It is anticipated that this clarification will lessen the tax burden on the alcoholic beverage industry by preventing the same commodity from being taxed under multiple taxation streams. States will update their own SGST statutes, while the Center will propose changes to the CGST and IGST Acts in Parliament.

Since the start of the indirect tax reform in 2017, ENA, which is produced by fermenting and distilling grain or molasses, has been traditionally thought to be outside the GST framework. But inconsistent application has left manufacturers perplexed and struggling. According to experts, the planned modifications will simplify the liquor industry's taxation and give manufacturers assurance. According to Rajat Mohan, executive director of accounting and advisory firm Moore Singhi, "ensuring that ENA is taxed only under the excise duty regime and bringing clarity to the GST laws to that effect will bring relief to the industry and help in reducing litigation as the taxation of this commodity will become uniform across the country.

IP The International Spirits & Wines Association of India (ISWAI) secretary general, Suresh Menon, stressed the significance of maintaining ENA under the state excise and VAT framework. This might raise manufacturing costs and have an impact on sales and state tax revenues because it would enable producers to keep using VAT credits, which would not be feasible under the GST.

Menon clarified that the levy of GST would have been an additional expense in the absence of the tax credit option, thereby putting producers under cost pressure and negatively impacting sales and tax collection to the state exchequer. He went on to say that the suggested legal changes will shield consumers from higher expenses while helping the states and the spirits sector.

The spirits market is segmented into three groups: integrated producers who purchase molasses with GST, those who manufacture their own molasses and do not pay GST on the raw material, and those that brew liquor from grain without paying GST on the raw material. Due to this variability, there have been previous legal disputes over unequal manufacturing costs and differing state interpretations of the GST's applicability. Menon stated, "A long-pending issue for the industry will receive much-needed closure with the proposal to close past tax periods without demand or refund."

"At its 52nd meeting, the GST Council decided that states would impose taxes on the ENA utilized in the production of alcoholic liquor intended for human use, even though they possessed the statutory authority to tax excess neutral alcohol. Payal Thaker, a partner at the consulting firm BDO, stated that the actual legal application of this decision via suitable amendment was still pending. "It is expected that the GST Council would address this in the upcoming GST Council meeting," she stated.

The GST Council will also take up a proposal to transfer the Competition Commission of India's (CCI) present management of GST-related profiteering matters to the GST Appellate Tribunal. According to another source, the CCI has asked the government to transfer this duty, claiming that its main duty is to maintain market competition rather than get involved in pricing disputes.

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