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By: Dr. Sanjiv Agarwal
May 13, 2020
All Articles by: Dr. Sanjiv Agarwal       View Profile
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The major parts of the world are today struggling with Covid-19, Corona virus and many countries are under curfew or lockdown, thus not allowing people to move out of their homes. Given the number of casualties and infections, almost all commercial activities are under the curb. This includes liquor shops. This lock down is continuing in India since 24 March, 2020 and may continue in foreseeable further. . Such shops and other outlets for sale restaurants, hotels etc) are also closed due to lock down.

Since consumption has been badly impacted, so has been the production of alco beverages. Further, in all the states, since lock down is in force from 24 March 2020, this year (FY 2020-21) licences could not be renewed or granted causing an adverse major cash inflow for Governments. It is a fact that liquor (alco-beverages) is an important source of tax revenue for all state Governments.

What these distilleries and bottlers have been doing then in lock down ? It is a fact that ‘sanitizers’ have become an essential item for use in daily routine with mass consumption. It is also a fact that because of corona virus, consumption of sanitizers has sky rocketed created a huge demand supply gap and also black marketing and hoarding of such commodity. Its major raw material or input is alcohol. The health advisory also suggests that a desirable sanitizer should contain 65% of alcohol. Majority of alco-beverage producers are now producing sanitizers in bulk to cater to this demand in public interest.

Now comes the dilemma for alco-beverage sector. Presently, w.e.f. 1.7.2017, the output supply (alcoholic beverages meant for human consumption) are outside the ambit of Goods and Services Tax (GST) implying that there is no levy of GST on such products. These products continue to be liable to value added tax (VAT) and State Excise Duty. On the other hand, they suffer on account of no input tax credit of GST paid on various inputs and input services, adding to cost as there is tax cascading.

Now when these units will manufacture ‘sanitizer’, such product can not be technically called alco-beverages and is subject to levy of GST. This is also not a medical supply. Hand sanitizers (HSN classification 3808.94) are taxable @ 18% (9% CGST, 9% SGST). Other disinfectant preparations including alcohol solution are also taxable @ 18% under GST.

Though there is a demand to exempt such products from levy of GST, the Government has not accepted such demand and rightly so. If exemption is provided, then companies manufacturing these products will not be able to reap the benefits of input tax credit and consequent tax efficiency. Their products will not be cost competitive and such exemption will be counter-productive. As such, exemption from GST may not sound to be a good proposition in view of the broken value chain. This will also make imported goods cheaper as compared to domestic production.

Now, given the fact that sanitizers are taxable @18% GST, all alco-beverage companies manufacturing ‘sanitizers’ for the time being or for a short to medium term in future will have a GST output supply on which they will be entitled to input tax credit. This implies that they will have to pay GST on inputs as well as outward supplies. Such companies should be aware of this and ensure all GST related compliances including registration, amendment in registration (if any), issuance of a tax invoice, taking note of input tax costs, taxes and invoices, filing of returns and availing and utilizing input tax credit.

Given the scenario that India will have considerable consumption of sanitizers in future (also export potential), many companies may decide to manufacture sanitizers in future and even decide a change in product mix.

Like every-one says, life post corona will change. This may happen for companies too.


By: Dr. Sanjiv Agarwal - May 13, 2020



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