Denatured anhydrous ethanol and ethyl alcohol not the same under law: K'taka Appellate Tribunal

Bengaluru: The Karnataka Appellate Tribunal (KAT) has rejected the tax demand made by the Commercial Taxes Department on oil marketing companies over denatured anhydrous ethanol that is blended with petrol. The department had under the Karnataka Tax on Entry of Goods (KTEG) Act considered denatured anhydrous ethanol as ‘Ethyl Alcohol’ and imposed entry tax separately on the ethanol already blended with petrol.

The tax demand made by the assessment authorities of the Department is from the year 2008-09 onwards and based on a 2002 notification under the law.

Oil marketing companies Indian Oil Corporation, Bharat Petroleum Corporation Limited and Hindustan Petroleum Corporation Limited had challenged the tax demand.

The companies claimed that entry tax on the sale value of the blended petrol was paid under the Act and therefore a separate entry tax on that ethanol cannot be considered as ethyl alcohol and no separate entry tax on the denatured anhydrous ethanol used in it cannot be levied.

Their appeals were dismissed on grounds that tax can be levied on purchase of ethyl alcohol and for the purpose of tax, denatured anhydrous ethanol is considered ethyl alcohol. The companies then filed appeals before the KAT.

The bench of District Judge Member B L Jinaralakar and Commercial Tax Member S R Thulasidas heard the appeals recently and dismissed the tax claims of the Department. The bench also directed the assessing authorities of the Department to draw revised proceedings. Either a revised demand notice or a refund order can be issued to the companies, the bench said.

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