CONFLICTING INTERESTS IN TAXATION OF ALCO-BEVERAGES

[Dr. Sanjiv Agarwal]

Till GST was introduced in India in July, 2017, taxation of alco-beverages was in absolute domain of State taxation- be it value added tax or sale tax, duly on manufacture in the form of state excise duty, municipal taxes such as octroi, entry tax etc.

In GST regime, taxation of alco-beverages has been specifically carved out of GST so much so that GST shall not be levied on alco-beverages – manufacturing as well as marketing or distribution thereof. However, certain inputs, input services and value additions in relation to such products shall be liable to levy of GST which puts this industry into a disadvantageous position.

It is a fact that liquor industry in India is highly regulated and suffers from excessive taxation, discretionary treatment, social stigma and disgrace. States have now started talking of ban on liquor. Gujarat, Andhra Pradesh, Bihar are some examples.

It is understood that recently Karnataka Chief Minister advocated for country wide ban on liquor. No doubt, liquor contributes significantly to the exchequer, but a ban like this would result in killing an industry which also has its space and consumers across the globe. It may not be an essential commodity for masses but very much desirable. Ask anyone who can not survive without a peg of liquor of his choice.

Coming to taxation, though GST is not levied on liquor, the regulation of this industry calls for Government's control, regulation, supervision requiring more than one permission, licence, permit or fee. The industry players are required to pay amounts for all such permission or licences or permits. Such payments become mandatory for the furtherance of business of alco-beverages these are not in the nature of tax (goods and service tax) and as such, levy of such fees can not be objected to permit fee or licence fee payment to Government or Local Authority is an essential payment to pursue business without which business operations can not continue. These payments enable continuity of business and therefore are support services for business or commerce.

These payments would attract levy of goods and services tax. However, there will be no input tax credit available to alco-beverage industry as output is not subject to levy of GST.

This creates a situation where State Governments tax revenue is directly impacted as alco-beverage sector is considered as a milking cow for State ex-chequer. States understand the hardship of industry and in its quest to help industry, states have started considering such fees etc as part of tax so that it does not suffer GST, considered unproductive. This brings confrontation between the Union and State Governments. Some States have renamed bar licence fee or permit fee to avoid payment of GST on the same. This would save 18% GST on such fees for alco-beverage industry. This would however, require change in excise policy as well as State excise legislation which we may witness in new financial year.

It is hoped that GST Council is seized of this issue and the experiment of cooperative federalism will also be repeated in case of alco-beverage industry and much desired relief due to GST implementation will be provided so that atleast tax cascading is eliminated. It would be desirable that the law is suitably amended in the second leg of ongoing Budget session after GST Council takes a favorable view on this.