Sin goods to face extra levy over 40% GST: CBIC chief Sanjay Kumar Agarwal

CBIC chief says repayment of compensation cess loan likely to be completed by Dec-end

The goods and services tax (GST) reforms may not bring cheer to smokers and gutkha manufacturers, as the government will impose an additional levy on sin goods over and above the 40 per cent tax, even after loans for the compensation cess are fully repaid, Central Board of Indirect Taxes and Customs (CBIC) Chairman Sanjay Kumar Agarwal said in an interview. 

“On sin goods, the duty incidence will not come down. So there will be something that can be levied on sin goods as provided under the Constitution. Whatever fiscal or tax space is provided by the Constitution, under that it will be levied,” Agarwal told Business Standard.   

Currently, sin goods such as cigarettes, gutkha, and tobacco products are taxed at 28 per cent, along with a compensation cess. For instance, after including cess, the overall levy on cigarettes amounts to around 50-60 per cent of the retail price. When asked whether this extra levy would be shared with states, Agarwal declined to comment. 

“Compensation cess was also a cess. You can draw your own conclusion. There is no hard and fast rule that a cess is non-shareable,” he said. 

Following the GST Council’s approval of the historic indirect tax reforms on Wednesday, Finance Minister Nirmala Sitharaman announced that the revised GST rates would take effect from September 22, except for tobacco and related products. On these items, 28 per cent GST, along with the existing compensation cess, will continue until the loan and interest for the cess are fully repaid. 

However, there was no clarity yet whether there would be additional levy on such sin goods or they will be taxed only at the 40 per cent slab like on large cars, aerated drinks, among others. 

The CBIC chairman also said repayment of the compensation cess loan would now likely be completed by end-December, rather than the earlier estimate of October.