FMCG distributors have written to the Centre seeking relief on cess that has accumulated on soft drinks and cigarettes, which will now attract 40% GST under the new tax structure. Earlier, both products attracted 28% GST and 12% compensation cess. This cess on previously purchased stock has created a large pool of unutilised input tax credit (ITC), they said.
Problem with unutilized cess credit
The All India Consumer Products Distributors Federation (AICPDF), in a letter to the Finance Ministry on Friday, said that this has blocked working capital for soft drink and cigarette distributors across the country. The cess credits cannot be set off against the new GST liability, resulting in a liquidity squeeze, the body said.
The distributors body has sought relief in the form of refunds or guidelines to be allowed to use the accumulated ITC against other categories and to introduce transitional provisions to prevent financial difficulties for the trade. It has also sought special transitional arrangements for soft drink and cigarette distributors to ensure a smooth adjustment to the new tax structure.
Call for government intervention and dialogue
AICPDF said the government should set up consultations with industry representatives and trade bodies to discuss solutions and prevent long-term distress to trade.
“This issue is of immediate concern, as the upcoming festive season will further strain working capital requirements if the accumulated cess remains unutilised. A timely intervention will go a long way in safeguarding trade partners and ensuring smooth supply chain operations in the FMCG, tobacco and beverage industry,” the letter said.
On September 3, the GST Council had consolidated the four-tier GST regime into a two-rate structure including 5% and 18%, respectively. The 12% and 28% tax slabs were removed, making way for a special 40% tax bracket for sin goods.