The Goods and Services Tax (GST) Council last week said that it has decided not to impose a tax on Extra Neutral Alcohol (ENA) at the national level, however, it’s now up to the states whether to tax ENA or not.
ENA is an important ingredient used in making alcoholic drinks for human consumption.
The GST rate on Molasses, which is used in various industries including the production of alcohol and cattle feed also been lowered from 28 per cent to 5 per cent.
Executive Partner at Lakshmikumaran & Sridharan, Raghavan Ramabadran, provides legal insights, stating, “Considering the jurisprudence on this vexed issue specifically in the context of whether ENA is alcoholic liquor for human consumption, the implementation of the Council recommendation may require Constitutional amendments.”
The Chairperson of an alcoholic brand House of Skull X, Roshini Nath states the challenges that alcohol companies might have to face as states may impose different tax rates on ENA, leading to inconsistencies in production costs for alcohol brands across regions.
“Alcohol brands will need to adapt pricing strategies to account for varying state-level taxes, which may affect consumer prices. Also, compliance efforts will become more complex as alcohol brands need to adhere to diverse state-level tax regulations,” she said.
Alcohol brands may need to reconfigure their distribution networks to align with state-specific tax structures.
Furthermore, Nath also highlighted how this decision will impact the profit margins of the companies. “The ability of alcohol brands to remain competitive will depend on their ability to navigate the changing tax landscape in various states,” she stated.
On the other hand, the move has received praise for its balanced approach to national and state interests.
Rohit Malhotra, CEO of Jay Jay & Kwality Restaurants Pvt Ltd., adds, “We’ve always recognised the significance of ENA in crafting our premium beverages. The recent decision by the GST Council to allow states to decide on taxing ENA showcases a thoughtful balance between national and state interests.”
He further added that plays a pivotal role in various industries, including benefiting our sugarcane farmers.
“By giving states the autonomy to decide on its taxation, the council has highlighted the multifaceted value of ENA. We commend this harmonious approach and believe it paves the way for a prosperous coexistence of interests in the industry,” Malhotra said.
