NO GST ON GRANT OF ALCOHOLIC LIQUOR LICENSE

[Dr. Sanjiv Agarwal]

GST is levied on supply of services as defined in section 7 of CGST Act, 2017 read with Schedule I, II and III of the said Act.

Supply under GST

Section 7(1) deals with scope of supply and includes:

(a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.

(aa) the activities or transactions, by a person, other than an individual, to its members or constituents or vice-versa, for cash, deferred payment or other valuable consideration.

(b) import of services for a consideration whether or not in the course or furtherance of business.

(c) the activities specified in Schedule I, made or agreed to be made without a consideration.

Section 7(2) provides an exception to the above which has an overriding effect over sub-section (1). It provides as follows :

(a)  activities or transactions specified in Schedule III; or

(b)  such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council,

shall be treated neither as a supply of goods nor a supply of services.

Schedule III to the CGST Act stipulates the activities or transactions which shall be treated neither as a supply of goods nor a supply or services.

Background in GST / Service Tax regime

Section 8 which is the charging section in GST states that there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.

Services proved by the Government to business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. are taxable under GST. Same was the position under Service Tax regime also with effect from 1st April, 2016. Tax is required to be paid by the business entities on such services under reverse charge.

However, GST Council in its 26th meeting held on 10.03.2018, recommended that GST was not leviable on license fee and application fee, by whatever name it is called, payable for alcoholic liquor for human consumption and that this would apply mutatis mutandis to the demand raised by Service Tax/Excise authorities on license fee for alcoholic liquor for human consumption in the pre-GST era, i.e. for the period from 01-04-2016 to 30-06-2017.

Grant of liquor licences by State Government against payment of consideration in the form of licence fee, application fee etc. was a taxable service under Service Tax, therefore to implement GST Council’s recommendation, Central Government decided to exempt service provided or agreed to be provided by way of grant of liquor licence by the State Government, against consideration in the form of licence fee or application fee, by whatever name called, during the period from 01.04.2016 to 30.06.2017. Clause No. 117 of Finance Act, 2019 made the necessary amendment in this regard.

Accordingly, Finance Act, 2019 inserted the following provision (clause 117) with retrospective effect from 01.04.2016. It reads as under:

 “Special provision for retrospective exemption from service tax on service by way of grant of

liquor license:

117. (1) Notwithstanding anything contained in section 66B of Chapter V of the Finance Act, 1994 as it stood prior to its omission vide section 173 of the Central Goods and Services Tax Act, 2017 with effect from the 1st day of July, 2017(hereinafter referred to as the said Chapter), no service tax shall be levied or collected in respect of taxable service provided or agreed to be provided by the State Government by way of grant of liquor licence, against consideration in the form of licence fee or application fee, by whatever name called, during the period commencing from the 1st day of April, 2016 and ending with the 30th day of June, 2017 (both days inclusive).

(2) Refund shall be made of all such service tax which has been collected, but which would not

have been so collected, had sub-section (1) been in force at all material times:

Provided that an application for the claim of refund of service tax shall be made within a period of six months from the date on which the Finance (No.2) Bill, 2019 receives the assent of the President.

(3) Notwithstanding the omission of the said Chapter, the provisions of the said Chapter shall apply for refund under this section retrospectively as if the said Chapter had been in force at all material times.”

Thus, by virtue of this amendment, any such fee by whatever name called became refundable if refund was sought by the assessee within a period of six months from the date of enactment, i.e. from 01.08.2019.

Decisions of GST Council

Further, GST Council in its 37th meeting held on 20.09.2019 further recommended that the decision of the 26th GST Council meeting be implemented by notifying service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called, by State Government as neither a supply of goods nor a supply of service. Therefore, in exercise of powers conferred under sub-section 2 (b) of section 7 of CGST Act, 2017, Notification No. 25/2019-Central Tax (Rate) dated 30th September, 2019 has been issued.

GST Council further decided in the 37th meeting held on 20.09.2019, to clarify that this special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments as an agreement between the Centre and States and has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.

GST Notifications issued

Accordingly, as per GST Council’s decisions, Notification No. 25/2019-Central Tax (Rate) dated 30.09.2019 was issued to the following effect:

“The Central Government, on the recommendations of the Council hereby notifies that the following activities or transactions undertaken by the State Governments in which they are engaged as public authorities, shall be treated neither as a supply of goods nor a supply of service, namely:-

Service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called.”

Similar Notifications viz,

• Notification No. 24/2019-IT (Rate) dated 30.09.2019,

 and

• Notification No.  25/2019-UT(Rate) dated 30.09.2019

were issued under IGST Act 2017 and UTGST Act, 2017 respectively.

A suitable Circular was issued by Tax Research Unit (TRU) of Ministry of Finance to clarify the amendment (Refer Circular No. 121/ 40/2019-GST dated 11.10.2019)

Retrospective Amendment made by Finance Bill, 2022 in CGST / IGST / UTGST [Clause 117, 120 and 123 of Finance Bill, 2022]

The text of these clauses are reproduced below for ready reference:

Retrospective effect to notification issued under sub-section (2) of section 7 of Central Goods and Service Tax Act. (Clause 117)

1. Subject to the provisions of sub-section (2), the effect to notification of the Government of India in the Ministry of Finance notification (Department of Revenue) number G.S.R. 746(E), dated the 30th   September, 2019 issued by the Central Government, on the  recommendations of the Council, in exercise of the powers under sub- section (2) of section 7 of the Central Goods and Services Tax Act, 2017, shall be deemed to have, and always to have, for all purposes, come into force on and from the 1st day of July,  2017.
2. No refund shall be made of all such central tax which has been collected, but which would not have been so collected, had the notification referred to in sub-section (1) been in force at all material times.

Retrospective effect to notification issued under clause (i) of section 20 of Integrated Goods and Services Tax Act read with sub section (2) of section 7 of Central Goods and Services Tax Act. (Clause 120)

1. Subject to the provisions of sub-section (2), the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 745(E), dated the 30th September, 2019 issued by the Central Government on the recommendations of the Council, in exercise of the powers under clause (i) of section 20 of the Integrated Goods and Services Tax Act, 2017, read with sub-section (2) of section 7 of the Central Goods and Services Tax Act, 2017, shall be deemed to have, and always to have, for all purposes, come into force on and from the 1st day of July, 2017.

2. No refund shall be made of all such integrated tax which has been collected, but which would not have been so collected, had the notification referred to in sub-section (1) been in force at all material times.

Retrospective effect to notification issued under clause (i) of section 21 of Union Territory Goods and Services Tax Act read with sub-section (2) of section 7 of Central Goods and Services Tax Act. (Clause 123)

1. Subject to the 'provisions of sub-section (2), the notification of the Government of India in the Ministry of Finance  (Department of Revenue) number G.S.R. 747(E),dated the 30th  September, 2019 issued by the Central Government, on the recommendations of the Council, in exercise of the powers under clause (i) of section 21 of the Union Territory Goods and Services Tax Act, 2017, read with sub-section (2) of section 7 of the Central Goods and Services Tax Act, 2017, shall be deemed to have, and always to have, for all purposes, come into force on and from the 1st day of July, 2017.

2. No refund shall be made of all such Union territory tax  which has been collected, but which would not have been so  collected, had the notification referred to in sub-section (1) been  in force at all material times.

The summary of these amendments is as follows:

• Clause 117 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 746(E), dated the 30th September, 2019 with effect from the 1st day of July, 2017.
• Clause 120 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 745(E), dated the 30th September,2019 with effect from the 1st day of July,2017.
• Clause 123 seeks to give retrospective effect to the notification of the Government of India in the Ministry of Finance (Department of Revenue) number G.S.R. 747(E), dated the 30th September, 2019 with effect from the 1st day of July, 2017.
• Thus, Notification No. 25/2019-CT (Rate) dated 30.09.2019 shall have retrospective effect from 01.07.2017. The said Notification No. 25/2019-CT (Rate) dated 30.09.2019 declares that “services by way of grant of alcoholic liquor license against consideration in the form of license fee or application fee or by whatever name it is called” shall neither be treated as supply of goods or supply of services.
• Similar retrospective amendment has been proposed in respect of Notification 24/2019-IT(Rate) dated 30.09.2019, vide clause 120 of the Finance Bill.
• Similar retrospective amendment has been proposed in respect of Notification 25/2019-UTT (Rate) dated 30.09.2019, vide clause 123 of the Finance Bill.
• However, no refund shall be made of all such taxes which have been collected but which would not have been so collected, had the notification been in force during relevant period. The tax already paid shall not be refunded (as if it may always be considered as a cost incurred for being honest taxpayer).
• It implies that tax collected / paid between 01.07.2017 and 30.09.2019 will not be refunded now, i.e., those who have paid will not get refund but those who did not paid till now need not pay such tax.

The above amendments goes on to imply that no GST was ever leviable on supply of services by way of grant of grant of alcoholic liquor licence against any consideration in the form of licence fee or application fee or by whatever name it is called as such supply shall w.e.f. 07.07.2017 never be treated as supply of goods or supply of services.

In other words, the aforesaid notifications shall be deemed to have been, for all purposes, come into force on and from the 1^st day of July, 2017, i.e, no GST on services of grant of liquor license by State Governments.