Taxability of Extra Neutral Alcohol

The Central Board of Indirect Taxes & Customs (CBIC) has set November 1, 2024, as the effective date for excluding Extra Neutral Alcohol (ENA) used in the manufacturing of alcoholic liquor for human consumption from the purview of GST. This change aligns with a key recommendation of the GST Council’s 52nd meeting, which aimed to keep ENA outside the scope of GST while allowing states to levy VAT. This shift is intended to provide greater clarity and comfort to the alcoholic beverage industry, as the states can now levy VAT on ENA, and inputs such as ENA will be set off on output supplies like alcoholic beverages.

The GST Council also proposed reducing the GST on molasses from 28% to 5%. Molasses is a significant by-product in the sugar industry, and this reduction is expected to improve liquidity for sugar mills and aid in the faster clearance of dues owed to sugarcane farmers. The reduction will also lower the cost of producing cattle feed, as molasses is a key ingredient.

Further, the CBIC notified appointed dates for various amendments introduced by the Finance Act, 2024, including a notable change in section 9 of the CGST Act, 2017, which now exempts “un-denatured extra neutral alcohol or rectified spirit used for manufacturing alcoholic liquor for human consumption” from GST. These provisions will be applicable from November 1, 2024.

Other important amendments include the insertion of sections 16(5) & 16(6), effective from September 27, 2024, which allow businesses to claim missed Input Tax Credit (ITC) for the financial years 2017-18 to 2020-21 by November 30, 2021, thereby reducing disputes over ITC ineligibility. Additionally, Section 128A, effective from November 1, 2024, introduces a waiver of interest and penalties on tax demands raised under Section 73 for certain tax periods, offering relief to taxpayers with unintentional errors.

These changes collectively aim to ease compliance and foster a more business-friendly tax environment.