Many States have issued VAT Notifications levying VAT on ENA/Rectified Spirits.. Liquor Price, GST, VAT: There is a big confusion on industry on the taxability of products like Rectified spirit and Extra Neutral Alcohol (ENA) which are non-denatured spirits that contains up to 95 per cent of alcohol
New Delhi: Liquor is one of the major sources of revenue for Indian government. In India, states are empowered to levy VAT on alcohol for human consumption which roughly makes liquor a quarter of their revenues. The revenue that liquor generates for states is the precise reason why alcohol for human consumption has been consciously reserved out of GST. However, it is only alcohol for human consumption that has been kept out of GST and not every kind of alcohol, CA Tushar Aggarwal – Founder Partner, Tattvam Advisors said.
Taxability, VAT, GST
- There is a big confusion on industry on the taxability of products like Rectified spirit and Extra Neutral Alcohol (ENA) which are non-denatured spirits that contains up to 95 per cent of alcohol, predominantly used as raw material by liquor manufacturers in manufacturing liquor for human consumption. These spirits have high content of alcohol and cannot be consumed as such without further processing.
- Many States have issued VAT Notifications levying VAT on ENA/Rectified Spirits. Recently, it was also reported in Media that the GST Council has decided to continue with the status quo on states taxing extra-neutral alcohol (ENA).
- “To a large extent it has been finally decided, let’s not take up the issue again and again. Let the status quo continue that the state governments will continue to levy VAT and … CST on ENA, which is going into manufacture of alcohol for human consumption. It is a decision that has been taken in the 43rd GST Council meeting,” A Senior Officer had said in an interactive session of the PHD Chamber of Commerce.
However, recently the Allahabad High Court quashed the notification issued by the Uttar Pradesh government to levy tax on sale of ENA and stated that rectified spirits or ENA are not alcoholic liquors not fit for human consumption and there is no material to the contrary view. Therefore, states are not empowered to levy any duty on such goods. Thus, the judiciary upheld the view that GST should be applicable on ENA/Rectified Spirit. Also Read – PDP Issues Legal Notice To Former J&K Guv Satya Pal Malik For Allegations Against Mehbooba Mufti
In fact, the constitutional bench of the Supreme Court while examining the meaning of the term ‘alcoholic liquors for human consumption’ in Pre GST Regime has held that the law makers used this term with a clear intention to only refer the alcohol which can be used for human consumption and not anything else. Further, in the same judgment they rejected the contention that there are many denatured spirits which can be used for human consumption after appropriate or application or admixture with water or with others. The Court pointed that alcoholic liquors must be understood as these are, not what these are capable of or able to become.
This judgment was further appreciated and regarded by the Supreme Court in its latter judgments where it has been constantly held that State cannot levy excise duty on the raw material or input used for production of alcohol for human consumption, but only on the final product.
Even, the Attorney-General after deliberating upon law and existing judicial decisions, opined that ENA typically contains 95 per cent alcohol by volume and as such is not fit for human consumption. As per Indian Constitution, GST cannot be levied on the supply of alcoholic liquor for human consumption only. However, since ENA and spirits are not fit for human consumption, GST can be levied upon it.
Thought, the Allahabad High Court has reaffirmed the position taken by various courts before GST regime, however, the problem still persists from the standpoint of the government, which is yet to give any clarity on the issue despite the advice of their own man. It is expected that GST Council should come with a legal clarification on this matter to stop the different practices being adopted by the taxpayers.
(Writer is CA Tushar Aggarwal – Founder Partner, Tattvam Advisors.)