GST Council ‘cedes right’ to states on taxing neutral alcohols: FM
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 vital raw material for the production of alcoholic beverages – for human consumption – giving states the exclusive rights to tax them.
However, neutral liquor intended for industrial purposes remains under GST, attracting a tax of 18 percent. The Council further clarified that conversion of barley into malt, irrespective of its end use, will be subject to 5 per cent GST and not 18 per cent.
“The GST Council today ceded the right to tax ENA used for human consumption to the States keeping in mind the issue of healthy Centre-State relations. If states want to tax it, they are welcome to do so,” Finance Minister Nirmala Sitharaman said during a media briefing after the Council meeting.
Citing the Allahabad High Court’s judgment on the matter, which stated that the state had lost its legislative competence to levy tax on the sale of ENA, Sitharaman said the Council did not accept the call to tax it despite the right of tax belongs to him.
“The Law Committee of the Council will explore suitable amendments to the law to exclude ENA for use in the manufacture of alcoholic beverages for human consumption from the ambit of GST,” according to the statement released after the GST Council meeting.
“Receding the right to tax ENA to states despite the Allahabad HC judgment speaks volumes for the cooperative federalism that GST has enabled,” said MS Mani, partner, Deloitte India.
Other major decisions include reducing the tax rate on molasses from 28 to 5 percent, which Sitharaman believes will “benefit sugarcane growers and reduce livestock feed costs.”
The Council also agreed to zero tax on millet-based food products containing a minimum of 70 percent millet when sold in bulk, while 5 percent will apply to prepackaged forms. The Council also highlighted that 2023 has been recognized as the International Year of Millets.
Among the key resolutions taken during the meeting, the Board also granted the industry additional time till January 24 to appeal against orders issued till March 23, subject to an advance deposit of 2.5 per cent of the total disputed amount.
In an effort to promote tourism, foreign vessels are now exempted from integrated GST for coastal shipping.
Changes in appointment rules for the upcoming GST Appellate Tribunal (GSTAT) were also discussed. The age limit for its president is limited to 70 years and 67 years for its members. The eligibility criteria for members of the Court of Appeal now includes lawyers with up to 10 years of experience. The move will pave the way for the tribunal to become operational in the current fiscal itself.
The Council also clarified the taxation of a number of issues, including a personal guarantee offered by bank directors and similarly a corporate guarantee given to related parties.
It is clarified that there will be no tax on the personal guarantee offered, while there will be 18% tax on 1% of the total loan amount in case of corporate guarantee to related parties.
The Council looked into the concerns raised by the states regarding e-gaming, cess issues
With regard to e-gaming and payment of compensation, the Council considered the concerns raised by states such as Delhi and Goa.
Clarifying the position, the Council said taxes are not imposed retroactively on online gaming businesses. The law remains the same and bettors are always charged 28 percent GST.
Before the September 30 deadline, the revenue department had issued tax notices to several well-known online gaming companies, including Dream 11, etc. The total tax demand raised so far is about 1 trillion rupees.
The notices were sent ahead of the new tax regime for gambling firms that came into effect on October 1, making them pay 28 percent of the entry bet. So far, a total of 18 states have implemented the changes in their respective state laws, while the remaining 13 states are expected to do so by ordinance.
There was some discussion on the issue, some members raised this issue, Revenue Minister Sanjay Malhotra said. “And they were advised that this was in no way retroactive because that was the law previously. The law has not been changed retroactively. Those obligations already existed,” he said.
On compensation charges, there will be a discussion on “forward planning” of price collection and the matter will be taken up in the future, Sitharaman clarified. He added that there would be no talks about extending the compensations to the states.