K.R. Srivats

New Delhi, June 15

The VAT Panel has asked the States to submit their views in writing on the mechanism that could be adopted for levying countervailing duty on liquor/alcohol imported into the country.

Currently, imported liquor is subjected to an additional customs duty (countervailing duty) at the level of the Centre and not at the sub-national level like the States. Moreover, the Centre does not levy any excise duty on liquor, only the States enjoy such power. The State Governments, however, do not have the power to levy any import duty on goods coming into the country and therefore the countervailing duty is levied by the Centre.

Informed sources said that the VAT Panel today deliberated on the issue of taxation of alcohol imported into the country. This issue was referred to the VAT Panel by the Centre (the Commerce Ministry) in the wake of the need to maintain a World Trade Organisation (WTO)-compatible system of taxation of imported liquor.

There are, however, differing views among the States as to whether a constitutional amendment is required for allowing the States to levy some form of countervailing duty on foreign liquor imported into the country.

At today's meeting, some of the States are understood to have even suggested that they could impose additional VAT/sales tax (equivalent to the countervailing duty) on imported liquor. However, some of them felt that this suggestion might not pass legal scrutiny under the `national treatment' principles of the WTO.

(This article was published in the Business Line print edition dated June 16, 2006)
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