Liquor industry concerned over backdoor GST imposition

The constitutional amendment that brought in Goods and Services Tax (GST) into effect back in 2017 clearly states that alcohol is out of its purview. So, two years after the implementation of GST, why is India's alcoholic beverages industry suddenly worried, as the GST Council gets set for its next meeting later this month?

The reason is a technicality the liquor industry fears would be manipulated to enforce GST on what is otherwise a state subject—liquor was defined as 'alcohol for human consumption', while being kept out of the ambit of GST on the request of most states. The question is whether this would be circumvented at the upcoming GST Council meeting by including under GST alcohol's single most crucial and expensive raw material—extra neutral alcohol or ENA—the ingredient that is distilled.

“It's been on the agenda (of the last GST Council meeting) but not discussed, so it's (always) been a part of the agenda,” fears Amrit Kiran Singh, alco-bev veteran and president of the industry body International Spirits and Wine Association of India (ISWAI). 

There is a reason why the industry is fearful. In the days preceding its roll out, the Centre had agreed to keep alcohol and petroleum products out of GST due to pressure from most state governments that depended on tax revenue from these two categories. While alcohol was kept out  as per the constitutional amendment that implemented GST, petroleum was kept outside under the condition that GST will apply to it at a later date. 

But while alcoholic products were kept out, an attempt was made to include its raw materials under GST. This ranged from ENA, which accounts up to 35 per cent of the total cost, as well as glass bottles, transportation and taxes on government services. “(When) raw materials are in GST and end product is outside, (we would have) ended up paying more taxes as we cannot offset (input credit) with end product taxes, and prices go up,” points out Singh, who then led the successful lobbying against the anomaly. For bottles, for example, an agreement was reached that GST is paid the first time a bottle is used, and only GST on a residual value is paid when the bottle is re-used. 

“The GST council decided to allow government services for alcohol industry also off the list,” he adds. “With all these initiatives combined, we saved almost Rs 12,000 crore for the industry.”

Now, the fear is that ENA may be re-included under GST. When discussed some time ago, the council had asked the Attorney General who gave his opinion that it is 'not fit' for human consumption. "For human consumption" is the operative phrase that keeps alcohol out of the tax provisions, as per the GST constitutional amendment. 

“Alcohol cannot be brought under GST without a constitutional amendment, but ENA can be. This could be a backdoor entry because if you are taking 35 per cent of the cost into GST, then what is left?” Singh asks. 

While the liquor industry is hoping that the matter itself would not be taken up at the upcoming GST meet, it is also expecting the states to oppose it if it is discussed by chance. “Keep alcohol inside or outside, doesn't matter to the industry as long as inputs are also in the same place,” adds Singh. “But now that you have decided to keep it out, you cannot (add) one of the crucial input cost inside GST.”