In a significant move for the spirits industry, the Goods and Services Tax (GST) Council could propose a scheme enabling central and state tax authorities to write off the recovery of past tax dues on Extra Neutral Alcohol (ENA), potentially offering much-needed relief to the sector. The issue will be discussed in the Council's upcoming meeting in Delhi on September 9, according to an official familiar with the matter.

The ENA — a high-purity distillate containing 95 per cent alcohol by volume — was at the centre of tax disputes since the GST's rollout on July 1, 2017.

Discrepancies in how ENA was taxed — whether through Value Added Tax (VAT), GST, or no tax at all — had led to confusion and financial strain for producers of liquor.

At its 52nd meeting held last October, the council agreed to amend the GST law to explicitly exclude ENA from the scope of the tax regime when supplied for the production of alcoholic beverages. This move would allow states to continue levying taxes on ENA used in liquor manufacturing.

“The GST Council aims to streamline the taxation process for the past cases of ENA and ensure consistency in its treatment under the law,” an official told Moneycontrol. “The resolution of these cases is part of a broader effort to clear tax ambiguities and reduce the compliance burden on the industry.”

A select committee of officers — belonging to Andhra Pradesh, West Bengal, Maharashtra, Karnataka, and Uttar Pradesh — has been tasked with reviewing these past cases. The committee’s report, which will be tabled before the council on September 9, outlines an approach for resolving situations where different taxation methods were applied inconsistently across states.

There were varying practices across states, with some distilleries discharging GST on ENA and not paying VAT, while others paid VAT but no GST. Some distilleries paid 18 per cent GST on ENA cleared for the manufacture of ‘liquor for human consumption’ but didn’t pay GST on Grain Neutral Spirits (GNS) when supplying it to bottling units.

The upcoming meeting is seen as crucial in clarifying ENA’s tax treatment and lifting the burden of past tax dues on producers.

“This is an important step towards ensuring a fair and consistent tax policy for the industry,” the official added. He cited that the council’s proposal, if accepted, could provide a significant boost to the spirits sector.

Source: Money Control