GST Council To Decide On Proposal To Tax Raw Material In Alcoholic Beverages

The GST Council is likely to consider levying an 18 percent tax on 'extra neutral alcohol' - alcohol used in making alcoholic beverages -in its next meeting scheduled on March 10, two senior officials told BloombergQuint requesting anonymity.

According to the proposal, made by the central government, an 18 percent GST on ENA would fetch Rs 1,100-1,200 crore in revenue, said the first official quoted above.

Currently, ENA, also known as ethyl alcohol is used in a different form for industrial purposes besides being used as as a raw material for production of whiskey, country liquor, and other alcoholic beverages. Denatured ethyl alcohol and ethyl alcohol used for industrial purposes is taxed at 18 percent, but not ethyl alcohol used in production of alcohol consumed by humans. This as the Constitutional amendment said GST would not apply on “on the supply of the alcoholic liquor for human consumption”.

On this basis States had opposed the idea of GST being levied on ENA, when it was first discussed in GST Council's meeting in June last year, said the first official quoted above.

Also Read: GST Council Revises Rates, Mulls Simpler Return Filings

Citing a Supreme Court ruling, states had then argued that states had the exclusive jurisdiction to tax such goods. The central government pointed out the same court ruling said that ENA is a raw material for alcoholic beverages, and not “alcoholIc liquor for human consumption”. Therefore, taxing ENA will not need an amendment to the Constitution, the centre had said then, the same official explained.

No decision on this was taken last year and the proposal was deferred to seek opinion of the Attorney General of India, he added.

BloombergQuint could not very verify what opinion the Attorney General offered but it will play a crucial role in determining which way the matter goes when the proposal comes up in the next GST Council meeting, the first official explained.

Abhishek Jain, a partner at consulting firm EY India told BloombergQuint that any levy of GST on such a raw material will add to costs of liquor manufacturers.

"If 18% GST is levied on ENA, it will become a cost for taxpayers who are using ENA for manufacturing of alcohol for human consumption, since alcohol for human consumption is outside GST ambit," Jain said.

However, Sumit Lunker, partner at consulting firm PwC India, told BloombergQuint that levying GST on ENA will allow pharmaceutical and cosmetics industries, that also use it as an input, to offset the tax.