GST IMPACT ON LIQUOR INDUSTRY
By: – Dr. Sanjiv Agarwal
Goods and Services Tax – GST
Dated:- 15-7-2017
It is a fact that GST which has been introduced in India w.e.f. 01.07.2017 has kept out all forms of alcoholic beverages (e.g. beer, whiskey or wine) out of its ambit and as such anybody would believe that GST will not impact alco-beverages and that alco-beverages may enjoy neutrality so far as taxes are concerned. Simply put, taxes on liquor are going to be same in GST era, as they are at present. But business may not be the same as it is done today as GST would bring in certain compelling changes for alco-beverages industry, impacting the costs and eventually the prices.
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 l
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s and other inputs) and services which go into the manufacture of liquor may go up and become part of the cost.
This shall invariably happen as taxes would form part of cost. The only exception could be grain spirit and grapes on which GST may not apply. However, another major input, molasses has been placed in highest tax bracket of 28 percent. All other inputs like chemicals, colouring agents and other consumables will also suffer GST of 5-18 percent.
Coming to services, almost all services, right from taking approvals and licenses from the Government to distribution in market would be liable to levy of GST. For example, if you have taken a distillery on lease, that lease will suffer GST. If you produce on job work basis, that job work would be subject to tax. Even assignment of 'brand' by the brand owner on temporary basis for production would be liable to levy of GST. Then costs of production, marketing, distribution, advertisements, cargo handling, packaging, warehousing
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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 taxability may becom
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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 taxability or rate of tax, bills or invoices may be better split and tax charged accordingly.
The slogan of 'one market one tax' does not apply to alco-beverages as this sector will continue to live with many taxes (VAT, State Excise and of Course GST on various inputs, input services and capital goods) and have prohibition of 'one market' (as each State will have its own tax laws so far as liquor is concerned). Though one can argue that demand for potable liquor to large extent is income in el
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