Following the ease of restrictions in the third phase of the nationwide lockdown, some of the most striking images showed long queues outside liquor stores around the country. The Delhi government announced a 70% hike in the price of liquor across categories in the capital.

Aspirants must note:

1. Purview of Excise duty (i.e. Petroleum and Liquor)

2. Excise duty before and after GST regime

3. Sources of state revenue etc.

4. Argument relating to inclusion of Liquor in GST

Why liquor matters?

• Delhi’s “special corona fee” on alcohol underlines the importance of liquor to the economy of the states.
• Manufacture and sale of liquor is one of the major sources of their revenue, and the reopening comes at a time when the states have been struggling to fill their coffers amid the disruption on account of the lockdown.

How do states earn from liquor?

• Liquor contributes a considerable amount to the exchequers of all states and UTs except Gujarat and Bihar, both of which have enforced prohibition.
• Generally, states levy excise duty on manufacture and sale of liquor.
• Some states, for example, Tamil Nadu, also impose VAT (value-added tax).
• States also charge special fees on imported foreign liquor; transport fee; and label & brand registration charges.
• A few states, such as UP, have imposed a “special duty on liquor” to collect funds for special purposes, such as maintenance of stray cattle.

Share in revenue

• A report published by the RBI last year shows that state excise duty on alcohol accounts for around 10-15 per cent of Own Tax Revenue of a majority of states.
• In fact, the state excise duty on liquor is the second or third largest contributor to the category State’s Own Tax revenue; sales tax (now GST) is the largest.
• This is the reason states have always wanted liquor kept out of the purview of GST.

What exactly is State Excise?

• Excise duty on alcohol, alcoholic preparations, and narcotic substances is collected by the State Government and is called “State Excise” duty.
• For most of the states, excise duty is the second largest tax revenue after sales taxes (state VAT).
• Besides, a substantial amount comes from licences, fines and confiscation of alcohol products.

What has changed with the State Excise after the GST regime?

• At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
• However, the Goods and Services Tax (GST), introduction in July 2017, subsumed many types of excise duty. Today, excise duty applies only on petroleum and liquor.
• Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.
• Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
• States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
• After GST was introduced, central excise duty was replaced by Central GST because excise was levied by the central government. The revenue generated from CGST goes to the central government.

What are the other sources of revenue for the states?

• The states’ revenues comprise broadly two categories — Tax Revenue and Non-Tax Revenue.
• Tax revenue is divided into two further categories: State’s Own Tax Revenue, and Share in Central Taxes.
• Again, Own Tax Revenue comprises three principal sources:

1) Taxes on Income (agricultural income tax and taxes on professions, trades, callings and employment);

2) Taxes on Property and Capital Transactions (land revenue, stamps and registration fees, urban immovable property tax); and

3) Taxes on Commodities and Services (sales tax, state sales tax/VAT, central sales tax, a surcharge on sales tax, receipts of turnover tax, other receipts, state excise, taxes on vehicles, taxes on goods and passengers, taxes and duties on electricity, entertainment tax, state GST, and “other taxes and duties”).

Back2Basics: What is Excise Duty?

• Excise duty is a form of tax imposed on goods for their production, licensing and sale.
• It is the opposite of Customs duty in sense that it applies to goods manufactured domestically in the country, while Customs is levied on those coming from outside of the country.
• At the central level, excise duty earlier used to be levied as Central Excise Duty, Additional Excise Duty, etc.
• Excise duty was levied on manufactured goods and levied at the time of removal of goods, while GST is levied on the supply of goods and services.

Purview of excise duty

• The GST introduction in July 2017 subsumed many types of excise duty.
• Today, excise duty applies only on petroleum and liquor.
• Alcohol does not come under the purview of GST as exclusion mandated by constitutional provision.
• States levy taxes on alcohol according to the same practice as was prevalent before the rollout of GST.
• After GST was introduced, excise duty was replaced by central GST because excise was levied by the central government. The revenue generated from CGST goes to the central government.

Types of excise duty in India

Before GST kicked in, there were three kinds of excise duties in India.

1) Basic Excise Duty

• Basic excise duty is also known as the Central Value Added Tax (CENVAT). This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
• This duty was levied under Section 3 (1) (a) of the Central Excise Act, 1944. This duty applied on all goods except salt.

2) Additional Excise Duty

• Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957.
• This duty was levied on some special category of goods.

3) Special Excise Duty

• This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.
• Presently the central excise duty comprises of a Basic Excise Duty, Special Additional Excise Duty and Additional Excise Duty (Road and Infrastructure Cess) on auto fuels.

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