The Goods and Services Tax (GST) Council on Saturday put unbranded flour containing 70% millets in the tax-free category and reduced GST on molasses from 28% to 5% in a major relief to farmers, particularly sugarcane cultivators and coarse grain producers of Rajasthan, Gujarat, Maharashtra and Madhya Pradesh.

Read here: GST Council exempts extra neutral alcohol levy, reduces rates on millet flour | Top Updates

Announcing the decision of the 52nd GST Council, Union finance minister Nirmala Sitharaman said the tax on food preparation of millet flour in powder form, containing at least 70% millets by weight, will be zero if it is sold loose. It will attract 5% GST if sold in a pre-packaged and labelled form.

The decision is in line with Prime Minister Narendra Modi’s special emphasis on Shree Anna (India’s branding of millets), which led to the declaration of 2023 as the International Year of Millets by the Food and Agriculture Organization and United Nations.

At the global millets conference on March 18, PM said Shree Anna is “a door to prosperity for the small farmers… a cornerstone of nutrition for crores of countrymen… a big foundation for chemical-free farming and a huge help in fighting climate change”. India is the largest producer of millets in the world with 98% production from 10 states, including poll-bound Rajasthan and Madhya Pradesh.

The Council also proposed to keep extra neutral alcohol (ENA) used for manufacture of alcoholic liquor for human consumption outside the GST and decided to reduce tax on molasses from 28% to 5%. Sitharaman said the Council “ceded the right” to tax ENA to the states “despite having legislative competence”.

“This step will increase liquidity with mills and enable faster clearance of cane dues to sugarcane farmers. This will also lead to reduction in cost for manufacture of cattle feed as molasses is also an ingredient in its manufacture,” the finance ministry said in a statement. Effectively, a separate tariff classification (HS code) has been created by the customs to cover rectified spirit for industrial use, attracting 18% GST, it added.

The Council on Saturday also clarified on the taxability of personal or corporate guarantee for bank loans. No GST will be applicable if company does not pay any consideration for a director’s personal guarantee because the value of the transaction or supply is zero, it said.

Guarantees provided by corporates to their subsidiaries will, however, attract an 18% GST. According to revenue secretary Sanjay Malhotra when a corporate guarantee is given by a company to its subsidiary firm, then it will be deemed that the value is 1% of the corporate guarantee. Hence, it will attract GST at 18% on the 1% of the total amount guaranteed by the parent company.

“Taxability of corporate and personal guarantees has been a vexed issue since inception of GST. Clarity on taxation and valuation issues comes as a welcome move and would help contain unwarranted litigations on the issue. However, taxability for the past period, especially in scenarios where full credit is not available, and valuation, may still be challenged by the industry,” said Abhishek Jain, indirect tax head & partner at KPMG.

Even as Delhi raised the issue of huge tax demand on online gaming firms retrospectively, the revenue secretary said that like betting, they always attracted 28% GST. “Certain members raised the issue of retrospective taxation. It was informed to them that this is not retrospective, and this was the law earlier,” Malhotra said.

Read here: 28 per cent GST rate on online gaming from October 1

The council also prescribed the minimum age for president and members of the GST Appellate Tribunal (GSTAT) and extended the upper age limit. While minimum eligible age is 50 years, the upper limit for the president is raised from 67 years to 70, and for members, revised from 65 to 70.

According to experts, many critical decisions were taken by the Council on Saturday. Pratik Jain, partner at consultancy firm Price Waterhouse & Co LLP said: “Liquor industry had a lot to cheer as Council decided to not levy GST on ENA supplied to alcohol manufactures. Also, it was clarified that job work for conversion of barley to malt would be liable to GST at 5% and not 18%. Decision to reduce GST to 5% on molasses would help the sugar industry and sugarcane farmers,” he said.