GST Update on leviability of service tax/GST on liquor license

GST Update on leviability of service tax/GST on liquor license:-

The leviability of service tax on liquor license has been a matter of dispute as many hotels were issued show cause notices for not paying service tax under reverse charge mechanism on charges paid for obtaining liquor license to the State Government. The question that arises is whether the grant of license by the government to sell liquor is service provided by the government or is extension of its statutory/sovereign functions which are not liable to tax?

If we talk of pre-GST era, it is found that the grant of license by the government was neither covered under negative list nor covered under the Mega Exemption Notification. Moreover, there was doubt that the said activity was statutory function of the government. Accordingly, service tax liability was raised on various assessees under reverse charge mechanism. In contrast, if we observe the provisions in the GST regime, it is found that the definition of supply given under section 7(1)(a) includes all forms of supply of goods or services or both such as sale, transfer, barter, exchange, license, rental, lease of disposal made or agreed to be made for a consideration by a person in the course or furtherance of business. It is submitted that the definition of supply explicitly mentions license within its ambit and so it can be said that grant of license is liable to GST and that too, under reverse charge mechanism.

However, altogether different facts have emerged recently as regards levy of GST on liquor license in recent times. The GST Council in its 26^th meeting held on 10.3.2018, declared that:
(i) GST is not leviable on licences for alcoholic liquor for human consumption; and
(ii) This would also apply mutatis mutandis to the demands by service tax/Central Excise authorities of service tax on licences for alcoholic liquor for human consumption in the pre-GST era, i.e. from period 1^st April 2016 to June 2017.

Thereafter, Haryana Government issued letter no. 8044/X-1 dated 10.03.2018 based on the decision of the GST Council Meeting that GST/service tax is not leviable on the grant of license for liquor. However, no notification has been issued till date as regards non-levy of GST/service tax on the charges of liquor license and the assessees were in delimma whether GST/service tax was payable by them under reverse charge mechanism or not. But, the confusion of the assessees seem to be cleared by the recent decision rendered by the Hon’ble Delhi High Court in the case of Jagatjit Industries Limited & ANR Vs Union of India & Others and Sabmiller India Limited & ANR Vs Union of India & Others in Writ Petition No. 3277/2017 & 4204/2017 wherein it was held that since the Central Government has accepted the decision of the GST Council as evidenced from the communication addressed to the Joint Commissioner (Legal) vide letter dated 31.07.2018, the challenge to the relevant provisions of law have been rendered as irrelevant. Therefore, the position as regards levy of service tax/GST on license fees is clear that no tax is payable by the assessee on such charges.

It is submitted that although it is clear that no tax is payable by the assessee under reverse charge mechanism but what will be the recourse available to the assessees who have concluded their cases by paying the applicable service tax along with interest and 15% penalty in the erstwhile regime? Will such assessees have the option to file refund claim of the taxes paid by them is a serious question as the incidence of tax was borne by the said assessees.

It is also worth noting that apart from this issue wherein the decision of GST Council Meeting was not implemented by way of issuance of notification, there are many instances wherein the Council has taken decision in the meeting but the same is not implemented. Say for example in the Press Note dated 21.07.2018 issued as regards the recommendations made during the 28^th Meeting of GST Council held on 21.07.2018, it was stated in point no. 10 that the liability to pay interest is being done away in case recipient fails to pay the due amount to the supplier within 180 days from the date of issue of invoice but no such provision is incorporated in the amendment bill passed in the Lok Sabha. Now, the question that arises is what is the fate of the decision of the GST Council in 28^th Meeting which is not implemented till date? Whether the assessee has the only option to knock the doors of the High Court so as to know the exact position of law? Or it will be presumed that these are implemented and assessee start taking benefit of the same following the analogy of this High Court decision.

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GST Update on leviability of service tax/GST on liquor license

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