Concept of GST on items Containing Alcohol, Petroleum Products and Tobacco Products
by Goods containing or associated with alcohol, petroleum products and tobacco products have a special position under the Goods and Services Tax framework. GST was introduced to create a unified indirect tax system by subsuming several Central and State taxes. However, certain products were either kept outside GST or subjected to special taxation because of constitutional provisions, revenue considerations and their economic importance. Alcoholic liquor for human consumption is outside the GST framework, while specified petroleum products are presently outside the levy of GST. In contrast, tobacco products are covered under GST, but they are also subject to Central Excise duty. Understanding this distinction is important for determining the applicable taxes on these products.
1. Alcoholic Liquor for Human Consumption
Alcoholic liquor for human consumption is specifically excluded from GST. Article 366(12A) of the Constitution of India defines GST as a tax on the supply of goods or services or both, except taxes on the supply of alcoholic liquor for human consumption.
Therefore, alcoholic liquor meant for human consumption is not subject to GST. Instead, State Governments continue to levy taxes such as State Excise Duty and Value Added Tax (VAT) according to their respective State laws.
For example, when a consumer purchases a bottle of liquor for human consumption, GST is not charged on that liquor. The applicable State taxes are imposed according to the relevant State legislation.
However, this exemption is specifically for alcoholic liquor for human consumption. It should not be understood as a general exemption for every product containing alcohol.
2. Alcohol Used in Other Products
Alcohol is used in various products such as medicines, cosmetics, sanitising products, perfumes and industrial products. The GST treatment depends on the nature and intended use of the product.
The constitutional exclusion specifically refers to alcoholic liquor for human consumption. Therefore, products containing alcohol but not being alcoholic liquor for human consumption may fall within the GST framework, subject to their classification and applicable rate.
For example, alcoholic ingredients used in the manufacture of medicines or cosmetics do not automatically make the finished product exempt from GST. The taxability of the final product depends on its classification under the GST rate structure.
Thus, businesses must distinguish between alcoholic liquor meant for human consumption and other alcohol containing products.
3. Petroleum Products
Certain petroleum products have been kept outside the present GST levy. Section 9(2) of the CGST Act, 2017 provides that petroleum crude, high speed diesel, petrol, natural gas and aviation turbine fuel shall be subject to GST from a date recommended by the GST Council.
As the relevant notified date has not brought these specified products into the GST levy, they continue to remain outside GST. States levy VAT or sales tax on these products, while the Central Government also imposes applicable excise duties.
The five major petroleum products specifically referred to in the GST law are:
- Petroleum crude
- High speed diesel
- Petrol
- Natural gas
- Aviation turbine fuel
This special treatment is important because petroleum products generate significant revenue for both the Central and State Governments.
4. Taxation of Petroleum Products
Since specified petroleum products are currently outside GST, the existing tax structure continues to apply. Generally, the Central Government levies applicable excise duty, while State Governments levy VAT or sales tax.
This means that the tax structure for petrol and diesel is different from ordinary GST goods. GST input tax credit cannot generally be claimed in the same manner as for goods covered under GST.
The exclusion of petroleum products also affects businesses because taxes paid on these products may become part of their cost, subject to the applicable tax laws. Their eventual inclusion within GST would require a recommendation of the GST Council and implementation through the prescribed legal process.
5. Tobacco Products under GST
Tobacco products are included within the GST framework. Unlike alcoholic liquor for human consumption and specified petroleum products, tobacco has not been kept completely outside GST.
Under Section 9(1) of the CGST Act, 2017, GST is levied on taxable supplies of goods, including tobacco products. Tobacco products are generally subject to GST at the applicable rate specified under the GST rate notifications.
However, tobacco products receive special treatment because Central Excise duty may also apply to specified tobacco products under the Central Excise Act and relevant notifications.
Therefore, tobacco products can be subject to both GST and Central Excise duty. This is different from most goods where GST replaced several earlier indirect taxes.
6. Compensation Cess on Tobacco Products
Certain tobacco products are also subject to GST Compensation Cess under the Goods and Services Tax (Compensation to States) Act, 2017.
Compensation Cess was introduced primarily to compensate States for revenue losses arising from the implementation of GST. Tobacco products are among the goods on which Compensation Cess may be imposed at specified rates.
Therefore, depending on the particular tobacco product, the overall tax burden may consist of:
GST + Compensation Cess + applicable Central Excise Duty
The exact rate depends on the classification and nature of the tobacco product.
7. Importance of Classification
Correct classification is extremely important when dealing with alcohol, petroleum and tobacco products. Different products may have different tax treatments depending on their nature, composition, intended use and legal classification.
For example, alcoholic liquor for human consumption is outside GST, whereas certain alcohol containing medicines or cosmetics may be taxable under GST. Similarly, specified petroleum products are presently outside GST, while other petroleum related products may fall within GST.
Tobacco products are generally taxable under GST and may also attract Compensation Cess and Central Excise duty.
Therefore, businesses must correctly identify the product before determining its tax liability.
8. Comparative Position
| Product | GST Treatment | Other Taxes |
|---|---|---|
| Alcoholic liquor for human consumption | Outside GST | State Excise Duty and VAT/other State taxes |
| Petrol | Presently outside GST | Central Excise and State VAT |
| Diesel | Presently outside GST | Central Excise and State VAT |
| Petroleum crude | Presently outside GST | Applicable Central and State taxes |
| Natural Gas | Presently outside GST | Applicable Central and State taxes |
| Aviation Turbine Fuel | Presently outside GST | Applicable Central and State taxes |
| Tobacco products | Subject to GST | Central Excise and Compensation Cess may also apply |