ALCOHOLIC BEVERAGES INDUSTRY UNDER GST REGIME
By: – Dr. Sanjiv Agarwal
Goods and Services Tax – GST
Dated:- 13-1-2017
Introduction
Alcohol sector is the second largest contributor of taxes to state Government exchequers yielding more than ₹ 90, 000 crores in taxes every year. The total tax impact for liquor companies are in the range from 70-150% in most states as no inter-tax set-offs are available for them. While alcoholic beverages represent 25% of the food and beverage market in China and the US, in India, spirits alone is 34%, making it the largest category. For most states, alcohol contributes to 20 to 25% of state revenue (state excise).
It may, however, be noted that manufacture of liquor meant for human consumption is subject to state excise duties and not Central Excise Duty under the Central Excise Act, 1944. State Excise Duties will not get subsumed in GST.
With Constitution (101st) Act, 2016 which authorizes levy of GST in India, it is clear that
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are exempt from Service Tax vide Entry No. 30 of exemption Notification No. 25/2012-ST. To give effect to the exclusion of processes in relation to alcoholic liquor from negative list, exemption under Notification No. 25/2012-ST was also amended w.e.f. 01.06.2015 to exclude exemption to intermediate production processes/job works in relation to alcoholic liquor meant for human consumption.
Liquor industry is also subject to levy of State VAT and other local taxes as entry tax / octroi etc.
Goods and Services Tax (GST) as a tax reform
Migrating to Goods and Services Tax (GST) is a time to revisit the taxation and remove the anomalies.
Goods and Service Tax (GST) is a destination based consumption tax which is a levy of tax on all goods and services with the objective of expanding the tax base through wide coverage of economic activities , mitigating the cascading effect , reduction of exemptions , enable better compliances etc. thereby resulting into formation of common national mar
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f exclusion from GST of the alcohol beverage industry, it will lead to both, positive and negative impact.
Likely positive GST impact on the alco-beverage industry
* Better and efficient logistics/distribution channels
* State taxes other than excise/VAT to be subsumed in GST. To that extent, input tax credit may be allowed.
* Relief from dual administrative control (only States to control)
Likely adverse GST impact on the alco-beverage industry
* There is no concept of centralized registration in GST regime, unlike in the present setup.
* Where input goods and services used in the petroleum and liquor industries are covered under GST and the outputs are not, there could arise complex issues surrounding double taxation, ineligibility for input tax credits, supply chain regulations, and so on.
* GST will accentuate increased cascading effect of taxes on the final retail product price because no input tax credit will be available between GST and state excise/VAT.
* No inp
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management for compliances will increase as manufacturers and vendors will be exposed to both non-GST regime and GST regime for certain inputs / outputs.
* There will be adverse impact on major consumers like hotels, restaurants, pharmaceuticals, perfumes manufacturing sector etc. in the form of increased cost.
Major Challenges in GST
GST poses multifarious challenges to alco-beverages industry. In the GST regime, due to higher GST rates tax on many input raw materials (for instance, agriculture inputs to ethanol production) as well as services, costs would go up significantly which would prove detrimental to the industry in both the short-term and the long-term. Even if all of these costs are passed down the value-chain, the additional burden may have a huge working capital impact on the industry.
Manufacturers of alcoholic beverages for human consumption procure the raw materials (Extra Neutral Alcohol (ENA)/Grain Neutral Spirit (GNS) / Concentrate of Alcoholic Beverage) either
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for the common consumers. The transportation cost will be even higher for sectors like potable alcohol and petroleum which, because of being excluded from GST base, will be unable to avail credit for the enhanced tax paid on transportation services. The 70% abatement should be continued for taxation of these services.
Some of the alco-beverages manufacturers use their own exclusive patented bottles, which may be used 5-7 times by the same manufacturer. Presently, many States impose a lower VAT rate with some states like imposing the standard VAT rate on glass bottles vattable against the VAT on the finished product sold within the state. The used glass bottles which are purchased by brewers / spirits manufacturers from used bottle dealers are again taxed at the lower/ standard VAT.
In GST, each re-use / re-supply is likely to suffer GST @ 18% with no possibility of credit as alcohol is excluded from GST base. The effective GST cost on every bottle will be about 70% of the purchase p
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