Denatured anhydrous ethanol and ethyl alcohol are not the same under the law: K’taka Appeal Tribunal

PTI, November 13, 2022, 2:01 PM IST

Representative image (Credit: iStock)

bangalore: The Karnataka Court of Appeal (KAT) has dismissed the tax claim made by the Trade Tax Department to petroleum marketing companies on denatured anhydrous ethanol blended in gasoline. The department had, under the Karnataka Entry of Goods Tax Act (KTEG), considered denatured anhydrous ethanol to be “ethyl alcohol” and imposed an entry tax separately on ethanol already mixed with gasoline.

The tax request made by the Department’s tax authorities dates from the year 2008-09 and is based on a 2002 notification under the statute.

Oil marketing companies Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited had contested the tax claim.

The companies claimed that the head tax on the sale value of the blended gasoline had been paid under the law and therefore a separate head tax on this ethanol cannot be considered as ethyl alcohol and that no separate import tax on the denatured anhydrous ethanol used can be levied. .

Their appeals were dismissed on the grounds that a tax may be levied on the purchase of ethyl alcohol and that for the purposes of the tax denatured anhydrous ethanol is considered ethyl alcohol. The companies then filed appeals with the KAT.

The Bench of District Judge Member BL Jinaralakar and Business Tax Member SR Thulasidas heard the appeals recently and dismissed the department’s tax claims. The bench also ordered the ministry’s assessment authorities to establish revised procedures. Either a revised notice of claim or a refund order can be issued to businesses, the bench said.

The bench noted the basic difference between denatured anhydrous ethanol and ethyl alcohol and stated that the former is not intended for human consumption while the latter can be consumed. The latter should be taxed under the Karnataka Excise Act and not Central Excise. Since 2017, KTEG has been subject to the Goods and Services Tax (GST).

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