How GST has impacted liquor business in India

Goods and Service Tax commonly known as GST was introduced in India w.e.f. 01.07.2017 keeping all forms of alcoholic beverages (e.g. wine, beer or whiskey) out of the GST ambit and as such anybody would believe that GST won't be impacting alcoholic beverages and that liquor may enjoy neutrality so far as indirect taxes are concerned. GST on liquor is not applicable in India. Certainly, this is not a reason to cheer as state taxes levied by the state government will continue (VAT and excise duty). Consequently, the liquor industry would continue to witness the same taxation mechanism as was applicable before the introduction of GST i.e. prior to July 1, 2017.

High Tax on Liquor after GST implementation

As mentioned above there is no GST on liquor, however, the liquor prices continue to rise sharply after introduction of GST in India. This is because, before the introduction of GST, the inputs (raw material) used in the manufacturing liquor were taxed between 12-15% under various VAT regimes. However, with the implementation of GST, most of the raw materials used to manufacture liquor attract 18% GST. This consecutively increases the input cost and the same increase in taxes on input cost is passed to the ultimate consumer.

Alcoholic Beverages was not brought under the scope of Goods and Service Tax for two main reasons:

·    Ensuring that the State Governments have a bulky source of revenue other than from the GST. As perestimation, taxes levied on liquor fetch state governments about INR 90,000 crores every year.

·         In order to keep the liquor prices high, so as to restrict the alcohol consumption.

Taxing Mechanism on Liquor

The liquor supplies are generally affected through licensed bars, shops, hotels, restaurants etc in one or the other form.  So far as ‘sale’ (only sale) of alcohol drinks are concerned, the taxing mechanism is very simple, no Goods and Service Tax on such sale of liquor but VAT on the full value of supply. But, where alcoholic beverages are served at different places such as hotel, bar, restaurant etc. together with other food and non-alcoholic beverages, the taxability of such supply may become complex, rigid and cumbersome. As the supply of alcoholic beverages along with food and non-alcoholic beverages give rise to a new area of dispute between the taxpayers and the tax authorities.

For an instance let's take an example, a restaurant offers a buffet dinner including food and complimentary aerated drinks/ beer / hard drink for a common price of ₹ 3000 per head.  Now the issue of the dispute would be how to tax the amount of 3000/-, i.e., whether GST at the rate of 18% (the GST rate applicable to hotels/restaurants) is payable on the whole amount of Rs. 3000/- or the amount would be split between food, non-alcoholic beverages and alcoholic beverages for taxation purpose. In addition to this, should the supply of the food, non-alcoholic and alcoholic beverages be considered as a composite supply and the entire amount would be subject to be charged to one tax, i.e., GST or VAT?

The slogan which came before the introduction of GST 'one nation one tax' and 'one market one tax' does not apply to alcoholic beverages as this industry will continue to live with many taxes.