ALCO BEVERAGES: MAY NOT COME UNDER GST

[Dr. Sanjiv Agarwal]

India migrated to Goods and Services Tax (GST) with all major indirect taxes subsuming into GST w.e.f. July 1, 2017. There were two exceptions to this-petroleum products and alcoholic beverages meant for human consumption, as per section 9 of CGST Act, 2017.

Keeping alco-beverages out of GST ambit has been a double whammy for this golden goose for all State Governments. While output goods are not liable to levy of GST and continue to be subjected to State Excise Duty and State Value Added Tax, all major inputs and input services are subjected to levy of GST. This industry is exposed to both, old and new indirect tax regimes with no benefit of principle of tax cascading.

In both situations when GST was being discussed and even now during many GST Council meetings, GST on alco-beverages has been deliberated. The industry has been demanding itself to be brought under GST net but has been the victim of political non-consensus and political ambitions as well as federal taxation powers of States to control tax revenue independent of Union of India. For all states in India, major tax revenue comes from State Excise Duty and VAT on alco-beverages meant for human consumption and VAT on petro products so much so that it comprises around 50 percent of State taxes. Since petroleum products in India are centrally monitored in terms of prices and taxes, alco-beverages provide enough elbow room to State Governments and it becomes a major socio-economic-political subject. Infact, this sector is heavily regulated and is one of the most important lobby for any ruling Government, thus being able to navigate the policy framework.

The GST implementation is in the hands of GST Council, the apex constitutional body to recommend GST legislation and its implementation. The GST Council comprises of representation from each State /Union Territory and Central Government. As against July, 2017 when GST was launched, composition of GST has transformed with each successive election in states. Now many states like Punjab, Tamilnadu, Maharashtra etc where most of the manufacturing / distilling / bottling of alco-beverages happens are not being governed by ruling party at the centre. It therefore, seems difficult (not impossible) that such States will accede to central or GST Council’s view to bring alco-beverages in GST net. Moreover, in last few months, states have not been happy on certain decisions of Council and not passing of the Compensation Cess as promised. Centre has failed on Compensation Cess promise on both counts-timing as well as quantum of Compensation Cess. Further, states are not keen on surrendering their sovereign power to levy tax on alco-beverages- both state excise duty and value added tax.

In such a scenario, there are little hopes that GST on alco-beverage sector will see the light of the day in near future. It may have to live with all taxes as in pre-GST regime for some more time. However, it is would be desirable for all trade bodies of alco-beverages at apex  and state level to keep on emphasizing the need for bring alco-beverages into the GST net. It may sound like music to deaf ears but still it is a good case for bringing it into GST net, just like petroleum products or electricity. Till that happens, lets live with the fractured and impractical tax structure. All times are not good but better to fight to earn good times.

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