MC Exclusive: Council likely to exempt extra neutral alcohol from GST for interim period

ENA, also known as rectified spirit or rectified alcohol, is a high distillate alcohol, free from impurities, typically containing 95 percent alcohol by volume.

The GST Council is likely to exempt extra-neutral alcohol (ENA) meant for industrial use from the current 18 percent levy for an interim period at its October 7 meeting, and inform the Supreme Court that ENA will not be diverted towards human consumption, sources said.

The proposal is aimed at providing a clear stance on issues around the taxability of ENA, which has been under consideration since 2017.

“The GST Council will discuss and place before the Supreme Court that it has no intent to subject ENA for industrial use to human consumption. In the interim, the Council will discuss exempting ENA (both grain-based and molasses-based ENA) from GST when supplied for the manufacture of alcoholic liquors. States will also exempt both forms of ENA from VAT when supplied for industrial purposes,” one of the sources cited above told Moneycontrol.

The Council is also likely to reduce GST on molasses from the current 28 percent to 5 percent, he said.

ENA supplied for industrial purposes is not covered under ‘alcoholic liquor for human consumption’ and therefore is subject to GST at the rate of 18% currently. ENA, also known as rectified spirit or rectified alcohol, is a high distillate alcohol, free from impurities, typically containing 95 percent alcohol by volume.

Currently, there are varying practices across states, with some distilleries discharging GST on ENA and not paying Value-Added Tax (VAT) while some distilleries pay VAT on ENA and do not pay GST. There are also some distilleries paying 18 percent GST on ENA cleared for manufacture of ‘liquor for human consumption', but not paying GST on Grain Neutral Spirits (GNS) when supplying it to an alcohol bottling unit.

“In addition, there are multiple cases of litigation pending in various judicial forums. It is imperative to take a decision since litigation is a time-consuming process and certainty must be provided to the industry for ease of doing business,” he said.

Earlier, a Division Bench of the Allahabad High Court had held that ENA is not covered under ‘alcoholic liquor for human consumption’ and therefore is subject to GST.

At the 43rd GST Council Meeting in 2021, it was decided to maintain the status quo on the taxability of ENA by allowing State Governments to continue levying VAT, but no official clarification was issued in this regard.

The matter regarding the levy of GST on the supply of ENA for the manufacture of alcoholic liquor was referred to the Attorney General of India, who opined that the Centre or states have the power to levy GST on ENA for industrial use.