Dr. Sanjiv Agarwal,FCA, FCS

Sanjiv Agarwal Photo

Alco beverages sector is highly regulated in India from all angles be- it regulation of industry itself in terms of capacity, products, marketing and distribution or taxation. Indirect taxation has been a concern for alco-beverages, both in pre-GST regime prior to July 1, 2017 and even today. While it suffered heavy and multiple taxation in pre-GST era, presently it is not only crippled with GST and non-GST taxes but also the adverse cascading impact due to not being covered under Goods and Services Tax (GST).

It is also a fact that alco-beverages sector is one of the significant contributors of tax revenue to state exchequer, besides also contributing to Union in the form of income tax and other central taxes. The growth in booze industry is also good with sales growth in 2018 in double digits (10-11 percent), even after demonetization and heavy tax regime. It is seen that demand has grown in almost all major IMFL brands and also FMFL. Beer segment has also grown significantly. The growth leads to growth in tax revenue’s of course effortlessly. This is despite demonetization in 2016, Supreme Court restriction in 2017 on sale of alcohol near highways and prohibition in different forms in states like Gujarat, Bihar, Kerala and Tamil Nadu.

GST Council, which is the highest decision making body in GST regime has had 33 meetings so far and is open to corrections and remove anomalies / distortions in GST law and its implementation. Since last few meetings, mainly owing to elections in different parts of the country, GST Council has demonstrated a liberal and pro-assessee stance in its decision making process, so much so that you demand something and you have it – be it textiles, automobiles, MSME sector, hospitality and lately, real estate sector.

Time is now ripe for alco-beverage industry also to wake up and put its demand charter forcefully before the GST Council and seek to get various anomalies removed or appropriately addressed by the GST Council. This opportunity is unique as the country goes to general elections in few weeks from now. Though taxation of alcoholic beverages meant for human consumption is a state subject, GST Council is the right forum to address this issue as it is represented by all the states and Union Territories and is a constitutional federal body.

It is desirable that all the trade bodies in alco-beverages sector should get their concerns addressed to GST Council and get resolved which may prima facie include:

  • Inclusion of alco-beverages in GST net itself.  This can be done via:
    • Change in definition of ‘goods’
    • Change in provision relating to charging section – levy and collection of GST
  • Any possible revenue loss to states (not likely) may be adjusted via compensation cess which is meant for such purposes only.
  • If such a change is not possible, rate of GST on major raw materials and input services may be reduced.
  • Specific exemptions may be provided to certain services consumed in liquor industry to avoid cascading effect on final output cost.
  • Though it is against the GST principles, to avoid cascading effect and safeguard state’s interests, possibility of GST alongwith some state tax (like stamp duty in case of real estate) may be thought of as an interim measure.

GST law is still a work in progress. Alco-beverage sector is one of the major industry which has been over looked in GST regime due to political and constitutional reason. It is high time as well as opportune time that these concerns are now fixed in larger industry and national interest.

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October 2020