Dr. Sanjiv Agarwal, FCA, FCS

 Dr. Sanjiv Agarwal

Legally speaking, alcoholic beverages meant for human consumption are out of the scope of Goods and Services Tax (GST) net and anybody who knows this would understand that there can not be any new impact, whatsoever, on alco- beverages in GST regime. However, this may not actually happen. Let’s look at how and why this may not hold good.

It may be noted that there is no GST on alcoholic liquor for human consumption but supply of these goods would be subject to existing State levies. Ethyl alcohol and other spirits, denatured, of any strength shall be liable to GST at the rate of 18 percent.

Though GST is not applicable on alcoholic beverages, i.e. on manufacture there of or sale / supply of alco- beverages but these activities for or on such goods would be subject to levy of state excise duties and Value Added Tax (VAT) when sold. Thus, the industry would be subject to same taxation as was applicable prior to July 1, 2017.

While this segment of economy continues to reel under existing taxes, they would also be subject to levy of GST on:

  • All inputs which are covered under levy of GST,
  • Input services which go into rendering of supply of goods or services in relation to alco- beverages, and
  • Certain fees payable for licenses and permits to State Government or local bodies which do not form part of taxes on which tax would be payable.

The alco- beverage supplies are effected through licensed shops, bars, permit rooms, restaurants, hotels etc in one or the other form. So far as ‘only sale’ of liquor or alco- beverages are concerned (say, from shops), the taxation is simple, no GST at all but VAT on full supply value. However, where liquor is served at a place such as bar, restaurant, hotel etc. along with other food and beverages, the tax ability may become complex and this may create new areas of dispute between tax authorities and tax payers. For example, a hotel may offer a buffet dinner which includes food and complimentary beer / hard drink / aerated drinks for a common price of Rs. 2500 per person. The issue would be that how to tax the amount of 2500/-, i.e., whether GST is payable on entire 2500/- @ 18 percent (the rate which is applicable to restaurants / hotels) or it should be split between food, drinks and alco- beverages and taxed separately for GST and VAT. This may not be practical. Alternatively, should it be considered as a composite supply only and entire amount be charged to one tax, i.e., GST or VAT. Yet another alternative could be to split the price between alcoholic beverages and food + non-alcoholic drinks.

To add further to the problem, let it be known that aerated drinks are taxed at 28 percent + 15 percent cess under GST regime. Even where no alcoholic drinks are involved, there may be a confusion as there are different tax rates for food / drinks (18%) and aerated water / drinks (@28% + cess). One would have to decide whether such supplies are mixed supplies (artificially bundled) or composite supplies (naturally bundled).

Sale of liquor from mini bar in a hotel room would be considered as a pure sale and may not be subject to GST but State VAT only.

It would be desirable to conceive bundling of products where tax confusions are best avoided. Also, whenever there is a doubt on tax ability or rate of tax, bills or invoices may be better split and tax charged accordingly.

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    1. Manindra Nath says:

      You can use your ITC on liability of outward supply of services and outward supply of intermediary goods falling under GST purview.

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December 2020