GST Credit at a Liquor Vend
Sunrise Wines, a licensed retail vend in Patiala, sells IMFL and packaged snacks. For July, liquor sales are ₹15,00,000 and snack sales ₹5,00,000. Liquor purchases are ₹10,00,000, on which excise duty of ₹3,00,000 and Punjab VAT are paid; snack purchases are ₹4,00,000 inclusive of 12% GST. The vend pays rent of ₹60,000 plus 18% GST and electricity of ₹24,000. It buys a display refrigerator for ₹1,18,000 inclusive of 18% GST; the manager estimates it is used 70% for snacks and 30% for liquor. The accountant claims the entire GST on rent and the refrigerator as input tax credit and proposes to use that credit to reduce the VAT payable on liquor. He also says liquor is 'zero-rated' under GST, so no excise duty is payable and all liquor purchases should be treated as GST-free. The owner wants to know whether this is defensible and how much ITC can be safely claimed. Turnover-based apportionment is acceptable where required.
1. Correct the accountant's three legal propositions about liquor, GST and excise duty.
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The accountant is wrong on three points. First, liquor for human consumption is constitutionally excluded from GST; it is not 'zero-rated'. Zero-rating is a GST mechanism for exports and SEZ supplies, not for liquor. Second, Punjab excise duty and Punjab VAT continue to apply to liquor; GST does not replace them. Third, GST input tax credit is a credit of GST and can be set off only against GST output; it cannot be used to pay Punjab VAT. Cross-utilization between GST and VAT is not permitted. Therefore the proposal to use rent and refrigerator GST credit against liquor VAT is untenable. GST credit on inputs used for liquor is also not available because liquor is not a taxable supply under GST; common inputs must be apportioned.
2. Compute the safely claimable GST ITC on rent and the refrigerator. Show the apportionment and any caveats.
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Rent: ₹60,000 x 18% = ₹10,800 GST. Total turnover is ₹20,00,000; snacks are ₹5,00,000 = 25%. If the rent is common, eligible ITC = ₹10,800 x 25% = ₹2,700; ₹8,100 is added to cost. Refrigerator: ₹1,18,000 inclusive of 18% = taxable value ₹1,00,000 plus GST ₹18,000. Used 70% for taxable snacks, eligible ITC = ₹18,000 x 70% = ₹12,600; ₹5,400 is not eligible. Total safely claimable = ₹15,300. Caveats: the refrigerator is a capital good used for both taxable and non-GST supplies, so Rule 43 requires a 60-month apportionment; the 70/30 estimate must be supported by a usage log. If the rent is exclusively for the liquor section, eligible rent ITC is nil. Snack purchases carry GST of about ₹42,857 (₹4,00,000 x 12/112), creditable only to the extent used for taxable snack sales. Liquor purchases carry no GST ITC.
3. What records and invoicing changes would you recommend to reduce future disputes and protect the owner against a demand?
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Separate the two businesses in the books: liquor purchases and sales in the VAT and excise ledger; snacks in the GST ledger. Obtain GST invoices in the name of the registered person and mark them 'snacks'. Maintain a monthly apportionment working for common rent and for capital goods, using a consistent turnover or area formula and disclosing it. Do not take credit on the liquor portion; reverse it in GSTR-3B. Keep a refrigerator usage log. Pay VAT from the VAT cash or credit ledger, never from the GST electronic credit ledger. Electricity is exempt, so no ITC arises on it. If an input is used predominantly for liquor, treat it as a cost rather than claiming and reversing later.