Exclusion of ENA used in manufacturing alcoholic liquor for human consumption from GST to be effective from Nov 1

The Central Board of Indirect Taxes & Customs (CBIC) has set November 1 as the date for exclusion of Extra Neutral Alcohol (ENA) used in manufacturing alcoholic liquor for human consumption from GST. The same date will also be effective for waiver of interest, penalties, or both on tax demands.

The CBIC has notified appointed dates for various provisions brought through Finance Act, 2024. These provisions were inserted based on the recommendation of the GST Council.

One key provision talks about addition in section 9 of the CGST Act 2017. As on date, the section exempts “alcoholic liquor for human consumption” from GST. Now, this will also cover “un-denatured extra neutral alcohol or rectified spirit used for manufacture of alcoholic liquor, for human consumption.” This provision will be made applicable from November 1, 2024.

Alcohol for human consumption is already out of GST. Now, taking out key input in distilling alcoholic beverages out of GST and giving the discretion to levy tax to States has given more comfort to the industry. In case of levy by States, VAT on inputs such as ENA will be set off on output supplies of alcoholic beverages.

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The 52^nd meeting of the GST Council recommended EAN used for manufacture of alcoholic liquor for human consumption to be outside GST, but empowered States to levy VAT (Value Added Tax).

ENA is a key input to alcoholic beverages. According to industry sources, a production of one case of Indian Made Foreign Liquor (IMFL), with 12 bottles of 750 ml each or a total of nine litres, needs four litres of ENA. The alcohol content in IMFL is uniform at 42.8 per cent.

For India Made Indian Liquor (IMIL), alcohol ranges between 30 per cent and 36 per cent means less requirement of ENA.

Along with keeping ENA out of GST, the council also recommended lowering GST on molasses to five per cent from 28 per cent.

According to a statement by the Finance Ministry, this step will increase liquidity with mills and enable faster clearance of cane dues to sugarcane farmers. This will also lead to a reduction in cost for the manufacture of cattle feed as molasses is also an ingredient in its manufacture, it added.

Appointed dates for other changes

While some changes, as applicable through Finance Act, will be effective from November 1, some changes have been made effective from September 27.

Among these, one of the most significant amendments is the insertion of Sections 16(5) & 16(6), which pertains to the availment of Input Tax Credit (ITC) for the financial years 2017-18 to 2020-21, up to the deadline of November 30, 2021.

“This provision has now been made effective from September 27, 2024, enabling businesses to rectify and claim any missed ITC during the specified period, thus mitigating the risk of disputes or penalties over past ITC ineligibility,” explained Rajat Mohan, Executive Director, MOORE Singhi.

Additionally, the newly inserted Section 128A, effective from November 1, 2024, introduces a waiver of interest, penalties, or both on tax demands raised under Section 73 for certain tax periods.

This relief is particularly beneficial in cases of unintentional shortfalls or errors, as it reduces the financial burden on taxpayers, encourages voluntary compliance, and facilitates a smoother dispute resolution process.

“These changes collectively demonstrate the government’s commitment to reducing compliance challenges and fostering a more business-friendly tax regime,” said Mohan.

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