GST Council Key Takeaways: Human consumption ENA out of GST, tax cuts on molasses, millets

Finance Minister Nirmala Sitharaman

The GST Council on October 7 decided to exempt Extra Neutral Alcohol (ENA), a key raw material for manufacturing alcoholic liquor for human consumption, from the goods and services tax (GST) giving states the exclusive right to tax the item, Finance Minister Nirmala Sitharaman said while briefing the media after the meeting.

The Law Committee will examine a suitable amendment in the law to exclude ENA for use in manufacture of alcoholic liquors for human consumption from the ambit of GST. To be sure, ENA manufactured for industrial purposes will continue to be under the ambit of GST and attract 18 percent tax.

"A separate tariff HS code has been created at 8 digit level in the Customs Tariff Act to cover rectified spirit for industrial use. The GST rate notification will be amended to create an entry for ENA for industrial use attracting 18 percent GST," the finance ministry said in a statement.

This provides a clear stance on issues around the taxability of ENA, which has been under consideration since 2017.

Sitharaman said, though by law, the GST Council had the right to tax ENA as established by the judgment of the Allahabad High Court, the Council today has ceded that right to tax ENA (for human consumption) to states. "If the states want to tax it they are welcome, if they want to leave it as it is, they can. In the interest of states, the Centre has ceded that right to states," she added.

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

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.

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

Other Decisions

The Council also reduced the GST on branded, pre-packaged and labelled millet-based flour to 5 percent from 18 percent, while food preparation of millet flour containing at least 70 percent of the grain in composition by weight, will have nil GST when sold loose without branding, Sitharaman said.

It was also recommended by the Council that GST on molasses be reduced to 5 percent from 28 percent to provide relief to cane farmers for faster clearance of dues and to reduce cost of manufacturing cattle feed.

The age of President and members of the GST Appellate Tribunal (GSTAT) will now be capped at a maximum of 70 years, while the limit for members will be 67 years, Sitharaman announced while briefing on the decisions of the Council. This is a change from the previous age limits of 67 and 65 years, respectively, for the President and members of GSTAT.

Supply of all goods and services by Indian Railways shall be taxed under Forward Charge Mechanism to allow them to avail input tax credit (ITC) under GST to help reduce the cost for Indian Railways, the statement listing decision by the Council, said.

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.