Goods and Services Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 16-10-2017 – Alcoholic beverages sector is the second largest contributor of taxes to state Government exchequers yielding more than INR 90,000 crores in taxes every year. The total tax impact for liquor companies is in the range from 70-150% in most states as no inter-tax set-offs are available to them. While alcoholic beverages represent 25% of the food and beverage market in China and the US, in India, spirits alone comprise of 34% share, making it the largest category. For most states, alcohol contributes to 20 to 25% of State revenue in the form of state excise. Constitutional Provisions The Constitution of India has been amended to give effect to GST by the Constitution (101st Amendment) Act, 2016. In article 366, a new definition of goods and services tax has been provided in clause (12A), i.e., goods and services tax means any tax on supply of goods, or services or both except taxes on the supply of the alcoholi
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liquor Sale of IMFL Sale of imported liquor Non-taxable Incomes There would be certain incomes which would not be exigible to any tax i.e., GST or State excise /VAT such as : Export incentives, if any Tax refunds / incentives Sale of assets Interest income Dividend Write offs etc Expenses that will suffer GST If one looks at expense side of any alco-beverage company, the situation is more worse – you end up paying tax (GST) on almost every expenditure head despite the fact that this sector is out of GST net. This exclusion is only for output tax. Tax on all inputs or input services is not excluded or exempt. To illustrate, GST would be payable on the following heads of expenses /overheads: Borrowing costs other than interest on loans All stores and spares consumed Repairs & maintenance Hire charges Legal expenses Manpower recruitment expenses Security agency charges Insurance Royalties payable Rent Traveling expenses Director's fees Professional & legal fees Communication e
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o-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 taxability 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 ₹ 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, sho
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tion of used bottles An example of adverse GST impact would be on the exclusive patented bottles which alco-beverage manufacturers generally use five to seven times. Presently, many States impose a lower VAT (Value-added tax) rate or a standard VAT rate on glass bottles subject to input credit as compared to the VAT imposed on the finished products sold within the State i.e., the used glass bottles which are purchased by brewers/spirits manufacturers from used bottle dealers are again taxed at the lower/standard VAT. This taxation arrangement with regard to the recycling of glass bottles may undergo a change post-GST implementation, as each re-use/re-supply is likely to a suffer GST @ 12% or 18% (rate not yet fixed, assumed) with no possibility of tax credit for recycled glass bottles as alcohol is excluded from the GST regime. Consequently, the effective GST cost on every bottle will be about 70% of the purchase price of a new bottle. This too will add to cost as levying VAT on used b
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as such or after such minor processing which does not change the nature of the goods and where no input tax credit has been availed on the purchase of such goods, the value of supply shall be the difference between the selling price and the purchase price and where the value of such supply is negative, it shall be ignored. This is known as the margin scheme. Further, Notification No.10/2017-Central Tax (Rate), dated 28.06.2017 exempts central tax leviable on intra-State supplies of second hand goods received by a registered person, dealing in buying and selling of second hand goods [who pays the central tax on the value of outward supply of such second hand goods as determined under sub-rule (5)] from any supplier, who is not registered. This has been done to avoid double taxation on the outward supplies made by such registered person, since such person operating under the margin scheme cannot avail input tax credit on the purchase of second hand goods. Thus, margin scheme can be avail
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