NEW DELHI: Liquor companies struggling with varied tax demands on supplies of extra neutral alcohol (ENA) used for manufacturing liquor for human consumption may soon get a relief from the government, say sources.
The GST department is likely to issue definitive instructions around the budget, suggesting a possible “as is, where is” approach for tax payments made until 2023, where companies have complied with either GST or VAT. The issue emanated after the GST Constitutional Amendment Act excluded liquor from the GST regime. This led to confusion over the taxability of ENA, which is processed to manufacture alcoholic liquor for human consumption.
In absence of clarity, varying taxation practices were adopted across states, with some levying GST and others VAT. The confusion was compounded after Allahabad HC in 2021 ruled that states have no legislative right to tax alcohol. The same has been challenged in the Supreme Court.
However, the GST Council in its October 2023 meeting clarified that extra-neutral alcohol or distilled alcohol used to manufacture liquor would be kept outside the ambit of GST.
The sources say before the SC ruling in this matter, the government could issue an instruction that state tax departments would have to accept whatever taxes (GST or VAT) the suppliers of ENA have paid so far, given they have complied with the law.
“GST Council has provisionally addressed the issue, but there remains a need for guidance on retroactive application of these tax provisions. Resolving this matter before SC verdict is crucial to prevent further complications in decision-making processes,” says Rajat Mohan, executive director, MOORE Singhi.