GST Council ‘cedes right’ to states on taxing neutral alcohols: FM

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In a relief to the liquor industry, the Goods and Services Tax (GST) Council, during its 52nd meeting in the national capital, on Saturday, decided not to levy tax on Extra Neutral Alcohol (ENA), a crucial raw material for producing alcoholic beverages—for human consumption– giving states the exclusive rights to impose a tax on it.

However, neutral alcohol intended for industrial purposes remains under the GST purview, attracting an 18 per cent levy. The Council further specified that converting barley to malt, regardless of its end-use, will be subjected to a 5 per cent GST, not 18 per cent.

“The GST Council has today ceded the right to tax the ENA, used for human consumption, to the States, keeping the issue of healthy Centre-states relationship in mind. If the States want to tax it, they are welcome to do it,” Finance Minister Nirmala Sitharaman said while briefing media post Council meeting.

Citing Allahabad High Court judgment on the issue stating that the state had lost its legislative competence to impose taxes on the sale of ENA, Sitaraman said that Council is not taking a call to tax it, although the right to tax lies with it.

“The Council’ law committee will examine suitable amendments in law to exclude ENA for use in manufacture of alcoholic liquors for human consumption from the ambit of GST,” according to the statement issued after the GST Council meeting.

“Ceding the right to tax ENA to the states despite the Allahabad HC decision speaks very highly of the cooperative federalism that GST has enabled,” said M.S Mani, partner, Deloitte India.

Other important determinations included reducing the tax rate on molasses from 28 to 5 per cent, which Sitharaman believes “will be beneficial to sugarcane farmers and reduce cattle feed costs”.

Additionally, the Council settled on zero tax for millet-based food preparations containing a minimum of 70 per cent millets when sold loosely, while a 5 per cent levy will apply to pre-packaged forms. The Council also highlighted that 2023 is recognised as the International Year of Millets.

Among the key resolutions taken during its meeting, the Council has also allotted the industry additional time until January 24 to appeal orders passed till March 23, subject to a pre-deposit of 2.5 per cent of the total disputed amount.

In efforts to boost tourism, foreign vessels are now exempted from Integrated GST for coastal runs.

Tweaks  in appointment rules for the forthcoming GST appellate tribunal (GSTAT) were also deliberated upon. The age limit for its President is capped at 70 years and 67 years for its members. Eligibility criteria for appellate tribunal members now include advocates with up to 10 years of experience. The move will pave the way for the tribunal to get operationalised in the current fiscal itself.

The Council also cleared air on taxability regarding a host of issues including personal guarantee offered by directors to the bank and similarly corporate guarantee provided for related persons.

It has clarified that there will be no tax on the personal guarantee offered, while there will be 18 per cent tax on 1 per cent of the total loan amount in case of corporate guarantee to related parties.

Council addressed concerns raised by states on e-gaming, cess issues

Regarding e-gaming and compensation cess, the Council addressed concerns raised by states like Delhi and Goa.

Clarifying the stance, Council said that taxes are not levied retrospectively on online gaming firms. The law remains the same and those involved in betting are always being charged 28 per cent GST.

Ahead of the September 30 deadline, the revenue department had issued tax notices to several known online gaming companies including Dream 11 etc. The total tax demand raised so far is to the tune of about Rs 1 trillion.

The notices were slapped ahead of a new taxation regime for gaming firms kicked in from October 1, making them liable to pay 28 per cent on the entry bet. So far, total 18 states have introduced the changes in their respective state laws, while remaining 13 states are expected to do it through ordinance.

There was some discussion on it, certain members did raise this issue, said revenue secretary Sanjay Malhotra. “And it was informed to them that this is not retrospective in any way because this is how the law was earlier. The law has not been amended retrospectively. These liabilities were already existing”, he said.

On compensation cess, there will be a discussion on the “prospective planning” of cess collection, and the issue will be taken up in future, Sitharaman clarified. Added that there will be no talks on extension of compensation to states.

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Pooja Gupta

CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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CA Pooja Gupta (CA, ISA, having 15 years of experience. Educator and Digital Creator

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