ENA used for distilling alcoholic liquor for human consumption outside GST to give cost comfort to industry

Alcoholic beverage companies may get some relief on the cost front as the GST Council has ceded the right of levying GST on Extra Neutral Alcohol (ENA) used in manufacturing alcoholic liquor for human consumption outside GST and empowered the States to levy.

The alcohol industry is hopeful of ease of compliance. At the same time, the lowering of GST on molasses has gone well with the industry. ENA is a key input to alcoholic beverages.

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ENA Exemption

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.

GST Council recommended keeping ENA used for the manufacture of alcoholic liquor for human consumption outside GST. However, States will be free to levy Value Added Tax (VAT). 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.

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Suresh Menon, Secretary-General of the International Spirits and Wines Association of India (ISWAI) says it brings finality to an issue that has been hanging fire for the six-plus years since GST came into being. “The possibility of an increase in taxes and hence in the cost of this essential ingredient in the manufacture of alcoholic spirits if ENA were to be taxed to GST, thereby pushing up the prices of the end alcoholic beverage, now falls away,” he said.

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.  

Experts feel that the latest recommendation is a good example of cooperative federalism. MS Mani, Partner with Deloitte India said “Ceding the right to tax ENA to the states despite the Allahabad HC decision speaks very highly of the cooperative federalism that GST has enabled.”

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Lower GST on molasses

Menon felt that the reduction in the rate of GST on molasses to five per cent should make for a level playing field for distillers of both grain and molasses (both integrated and standalone). Echoing the same sentiment, Uppal Shah, Co-founder and CEO, of AgriMandilive. Research termed the move a big impetus for sugarcane-based ethanol producers, who use molasses as raw material for ethanol production. This will promote ethanol production further.

“I feel today’s decision will enable us to achieve the ethanol blending target of 20 per cent by 2025, for which about 1,016 crore liters of ethanol would be required.  This will also improve the liquidity of the sugar mills, which will ensure timely sugarcane price payments to farmers. There will be more cash flow for mills, and hence better financial capacity to pay farmers on time,” he said.

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