Imposition of Covid Tax on Liquor by States: A Legal Scrutiny

The Author, Nikhilesh Koudinya, is a 2nd-year, BA.LLB student at Symbiosis Law School, Pune. He is currently interning with LatestLaws.com.

INTRODUCTION

Who knew that Corona could change the way we thought, felt and behaved? The pandemic has not only changed the lives of individuals but has also affected countries in a very serious way. All countries are facing the pandemic with full force and are trying to come up with a vaccine immediately to save mankind from extinction, but in these trying times unfortunately while countries are doing all they can to save human life, the economy is impacted in an adverse way. Particularly referring to the Indian sub-continent, the prime minister had issued extremely strict actions to be taken to curb the novel virus which meant a complete lockdown in the country.

On March 25^th, the Prime Minister had imposed Lockdown 1.0 which was one of the most extensive lockdowns seen anywhere in the world. The regulations imposed meant that no citizen would venture outside his/her home and will stay indoors. People were only allowed to venture outside when they had to procure essential supplies for which government ration shops and other shops were open for an extremely limited time. Moreover, these shops were strictly instructed to follow social distancing norms where only certain people were allowed inside, while others had to wait their turn. So suddenly, due to this lockdown the economy came to a halt because industrial activities were shut, shops were closed and activities such as gyms, stadiums etc. were restricted. Hence the question of economic activity was put to rest on the behest of saving human lives. The Indian economy suffered a loss of 32,000 crore rupees during the first 21 days of lockdown which lead to loss in GDP by 7.5 Lakh rupees.[1]

Even after the implementation of such a rigorous initiative, the cases in India were on the rise and hence Lockdown 2.0 was implemented on April 14^th where new lows of Indian economy were seen. The world bank downgraded the fiscal growth of India substantially due to the economic slowdown. But in Lockdown 2.0 some economic activities were allowed because even the central government realized that without some incoming money, India could be looking at recession in the near future. Though many aid packages have been released by the ministry of finance for the support of migrant labor and underprivileged sections of society, some serious steps needed to be taken to get the economy up and running again.

ALCOHOL: THE GAME CHANGER

On May 4^th, a game changing decision took effect which was opening of liquor shops in green zones. These instructions were received as per the Union home ministry’s notification. In fact, there was a lot of pressure on the union and the state governments to open the liquor shops due to people not being able to consume it for 40 long days. But if we look at it from the state government’s point of view there is particular reason for opening of liquor stores at this point.

As we know for every state to develop there are two types of resources which the particular state uses, one being state own tax revenue and the other being state non-tax revenue. The other kinds of resources include grants and share in central taxes. This essentially mean that states get resources from these four areas. But a careful observation shows us the percentage of how much each resource contributes to the state fund:

• State own tax revenue- 46 per cent of the total state resources
• State non-tax revenue- 8 per cent
• Grants- 20 per cent
• Share in central taxes- 26 per cent

Considering the largest chunk of state resources is state own tax revenue we must make an observation into what are the ingredients that constitute this revenue. There are six main ingredients that build up state own tax revenue which are divided into:

1. State GST which was introduced after the good and services act was passed by the parliament where all different taxes are consolidated and one amount is provided which becomes the main tax taken from people. This contributes 39.9 per cent of the state own tax revenue. A point to be kept in mind is that such tax can only be applied when people purchase goods or avail services.
2. Value Added Tax (VAT) contributes 21.5 per cent towards the state own tax revenue. But if we closely look at VAT most of this tax come from fuel. This essentially means that when people fill their car or bike tanks only then such tax can be applied and contributed towards the state economy.
3. The third tax is called excise duty which inherits its legal backing from the State Excise Act which is implemented by every state. This tax is mainly put on alcoholic beverages. Alcohol is a part of the state list as per schedule seven of the constitution and the revenue earned from selling alcohol goes to the state fund. This contributes 11.9 per cent to the state own tax revenue.
4. Tax on vehicles contributes 5.7 per cent to the state own tax revenue but for this tax to be applied there needs to sale of vehicles in the particular state.
5. The last ingredient is named others which contributes 9.8 per cent to the state own tax revenue. This means any tax other than the ones mentioned above will fall under this bracket.

If we analyze these taxes closely in light of the pandemic, we come to know why it was essential for the state government to open alcohol shops. The first ingredient which refers to GST tax can only be applied when people avail certain services and purchase goods. But, during the lockdown period all shops were closed except ones which provided essential services such as milk, ration and photocopy shops. Also, people were restricted from leaving their homes and if they did were punished under the Epidemic Diseases Act. Hence due to shops closing and people not venturing out this tax couldn’t be collected or was collected meagerly from people purchasing essential supplies.

Further we will look at VAT and vehicle tax together as they are interconnected. With reference to VAT such a tax was mainly collected from fuel. But during the lockdown due to people not venturing out vehicles did not use fuel and hence the petrol and diesel industry also suffered. Hence even this tax couldn’t be collected from people or was collected in a very small way from people who were performing essential services like doctors, firemen, defense personnel and police. Also, regarding the vehicle tax, due to the lockdown there was an economic slowdown and many people were laid off their jobs. Due to this people looked at saving money and resources in this situation. In such an environment selling of items such as cars became difficult because nobody wanted to invest a huge amount of a commodity which would depreciate at a high rate and some people avoided investing in expensive goods. Hence this tax also couldn’t be collected.

Hence the only tax that could be collected was excise tax. Now, excise tax was mainly put on alcoholic beverages and hence if the states wanted to earn some kind of revenue it was extremely important for them to open shops catering to alcohol. States levy excise duty on manufacture and sale of liquor. Some states like Tamil Nadu also impose VAT on alcoholic beverages. The states also charge special fees on imported foreign liquor, transport fee and label and registration charges. There are also examples of states collecting special duty on liquor and using these funds for catering to cow protection or other activities. A report called the “state finances: a study of budgets of 2019-20” published by the RBI makes a reference to money earned from excise duty imposed on alcohol. The report showed that in the fiscal year of 2019-20 states in total earned an amount of 1,75,501 crores from alcohol alone. This was 16 per cent higher than the last year. In fact, if we break the numbers more states in the year 2019-20 earned 15000 crores per month from excise duty on alcohol. Hence, we can conclude why alcohol was the game changer in these times.

COURT’S DECISION ON ALCOHOL SALE

When the news of alcohol shops re-opening was announced there were many cases instituted by lawyers who stated that opening of these shops would lead to pandemic increasing because there will be tons of people lined up at stores to buy liquor and social distancing norms will be violated. Also, some lawyers contended that there was no need to open alcohol shops in various states at this point of time. One of the cases instituted in Madras HC was the B. Ramkumar v Chief Secretary, Tamil Nadu and Ors.[2] where the plaintiff (lawyer) argued for non-opening of alcohol shops due to fear of spread of disease. The court stated that “the balance of revival of economic activity and management of COVID has to be maintained by the state authorities and it is not within the domain of the court to interfere with the same.” The court dismissed the case stating the decision of states being a policy matter. But the court did issue some guidelines to be followed by consumers and shops selling alcohol such as:

1. Limited quantities must be sold and once somebody buys alcohol, he/she cannot make buy the same again before a minimum gap of three days. Also, people are only allowed to buy alcoholic beverages twice a week.
2. There must be online payment for alcoholic beverages. The people who pay through electronic methods can purchase two bottles of the same brand. The cash facility was to be availed only by the people who didn’t have access to mobile phones or authorized e-payment options.
3. The state of Tamil Nadu came up with an interesting way to avoid long ques. People could place their order online and an online token with time slots would be generated.
4. The court also held that the bill should include the name, address and Aadhar number of the customer.

The Delhi government started applying a special corona fee on alcoholic beverages which was charging 70 per cent more fees for a bottle. This meant that earlier a bottle available for 1000 rupees was going to be sold at 1700 during the pandemic. There was a batch of petitions instituted in the Delhi HC where people contended that such an increase was unjustified. The govt of Delhi was summoned to provide a response and it said that because liquor is a state matter and is governed by the state excise act hence the prices charged are justified because it is a policy matter. The court disagreed and explained the reasons for such a disagreement. The Delhi government said that right to alcohol is not a fundamental right and hence the government can charge whatever price it wants. But after the courts ruling the Delhi government withdrew the special fee and this decision came into effect from June 10^th.

Once these liquor shops opened there was a sudden boom in economy of states. In fact, states earned a lot of money during the first few days of sale. The numbers were extremely promising such as 500 crores earned on the first day of sale in Kerala. But due to the long ques and violation of social distancing norms the government closed down liquor shops after a few days of opening. But now the government has opened these shops with increase in prices. But people are still willing to purchase bottles with the heightened prices and the states can recover in their resources a little bit. Hence it looks like a win-win game on either side, but the question is are there certain negative connotations to opening of alcohol shops and charging of exorbitant prices.

THE NEGATIVES 

One of the main problems associated with alcohol in India is the increase in domestic violence. A study conducted during the lockdown revealed that, the domestic violence cases had reduced because no alcohol was being brought and drunk by husbands which would lead to multifold problems such as beating, harassment etc. due to them being in a subconscious state. But when these liquor shops opened there was an immediate spike in the number domestic violence cases. In fact, the India’s National commission for women reported 587 complaints from women between the time when alcohol shops were open. Most of these men also had lost their jobs due to the economic slowdown but were resorting to alcohol as an escape mechanism to forget their worries. This affected the household as ladies complained about men using all savings and leftover money on alcohol and narcotic substances.

Another major problem that has seen a spike is bootlegging which is commonly known as alcohol smuggling. Due to alcohol being a state subject, each state can decide the tax to be imposed on bottles. This leads to a major problem in the pandemic because while in normal conditions all shops charge the same ta around the country, due to the pandemic each state charges a different amount. Majorly in Andhra Pradesh while the Telangana government charges a moderate amount of excise duty, other states charge a higher rate due to which alcohol is smuggled between borders which leads to tax being evaded and the state not profiting. Though the police have run several operations which have led to catching smugglers, they have not even touched the rim of the barrel due to the amount of smuggling.

CONCLUSION

We can conclude that alcohol is an important source of revenue especially during the lockdown time because it provides people with access to beverages and on the other hand provides the state government with funds to survive. But the problems highlighted above are of a serious nature and must be dealt with in an urgent manner. Sale of alcohol must be restricted and to counter the smuggling problem, the states may form a committee which decides the excise to be applied during the pandemic as a one- time measure. This will reduce the pressure on police and will allow them to focus on more important assignments.

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