Will alcohol and realty come under GST? The jury is still out

Talking with ET Now, Mythili Bhusnurmath, Consulting Editor, and Sandeep Chilana of Shardul Amarchand Mangaldas discuss the challenges before the GST council.

Edited excerpts:

ET Now: GST Council is meeting at a time when there is pressure from Chandrababu Naidu and it may have a domino effect across other alliance members and other states. Do you think that besides simplification of taxation, alcohol and real estate can come under GST?

Mythili Bhusnurmath: One of the good things about the GST Council is that it shows a maturing of our fiscal federalism, because political issues have been broadly kept aside and the council has focussed on economic issues. So, political differences have not come in the way of forging ahead on GST. But, I do not expect too much forward movement in this meeting simply because the items such as alcohol and real estate are far too contentious. So, I do not see too much movement. May be on the e-way bill, you might find a further deferment, because 1st of April still looks a little difficult.

ET Now: Can you explain the alcohol issue?

Sandeep Chilana:
 As far as the agenda of the GST Council is concerned, the question before the GST Council is not whether the alcohol for human consumption should be bought within GST, because the constitutional powers to tax alcohol for human consumption is with the state government.
Now, because of the drafting of the GST, interpretation issue arose whether ENA which is extra neutral alcohol or methyl alcohol, etc., are chargeable to GST or not, because the GST tariff only referred to denatured alcohol. The interpretation that came out is that ENA was covered under the category and was therefore chargeable to 18 per cent. It caused a lot of problem for the alcohol industry, because that 18 per cent was not creditable. There were two views; while the state government said  that the ENAs are not covered under GST, central government was of the view that ENA is covered under GST. This is the question which is before the GST Council to decide what is the status of taxability of ENA under the GST regime. At what rate it should be charged if it is chargeable under GST and whether the government would want to consider the rate of taxation because this ENA is not only a raw material for human consumption industry but also it is used for medicinal purposes.

ET Now: Even if alcohol comes under GST, they cannot pass on the hike because price control is ended by the states. Do you think that there can be an exemption to alcohol industry?

Sandeep Chilana: I do not think only because of the status of the alcohol industry the government is going to give any concessions to it. They will not be able to take any input tax credit because their output tax liability is not GST, which means that their cost of production would go up. As far as the final rate of the alcohol is concerned, obviously states or corporations would be deciding those rates. So, they will have to go back to the corporations or the state for revision of rate. In some states, they may have to continue to sell it at a rate which has already been decided for this financial year. For the next financial year, they will be able to ask for an increase in the maximum sale prices.

Mythili Bhusnurmath: One of the questions that will challenge the GST Council is that collections have not looked up. Will the council be concerned with that or will it be seen as part of the teething troubles that are part and parcel of the GST?<

Sandeep Chilana: In the first three four months when the collections were not stable, it was considered that GST would take some time to stabilise. Now, we are eight months down and we have had enough time for the GST to stabilise, and if the revenues have not picked up as much as they were expected, the biggest reason for it is the evasion of taxes which the government right now is unable to tackle, primarily because e-way bill could not be implemented on account of the technical glitches. So, I think that would be one of the most important agenda for the government to see whether GST network is now ready for implementation of e-way bill or not.
My biggest concern for tomorrow’s meeting is that simplification of GST and e-way bill should not completely overshadow all other important agendas which have been before GST Council, such as the legal changes suggested by the law committee with respect to centralised registration or restriction on credits with respect to works contract etc., which as the law committee has said, should be removed.

I would expect the GST Council tomorrow to quickly go through the e-way bill and GST return related changes and then move on to these important aspects of the agenda.

Mythili Bhusnurmath: Is the GST Council ready for the surfeit of numbers that they will have to handle once there is e-way bill introduction from 1st of April?

Sandeep Chilana: Two days back one of the inter-ministerial committee said that they will take stock of the readiness of the GST network. It is believed that GST network has worked to ensure its readiness this time if e-way bills become mandatory from 1st of April.

ET Now: We do not have clarity on property taxes yet. Is bringing real estate under the GST a good approach?

Sandeep Chilana: We must keep in mind that the power to levy taxes on land and building is with the state government. That there may not be any need for constitutional amendment before real estate could be bought under the GST network is debatable. The other aspect is with respect to the EDC and IDC. As far as EDC and IDC registration charges are concerned, some of them are the fees which the government is charging for providing certain services or undertaking certain activities, such as registration of document. Some of those may not even go away even if the real estate is brought under the GST regime.

If real estate is brought under the GST regime, a major portion of tax will go away. Stamp duty forms the major chunk of it. Rregistration charges are not the biggest chunk of the taxes which we pay currently on the real estate.

So, I think even if the real estate is brought into the GST regime, only stamp duty will go away and all other charges with respect to the real estate may continue.


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