Any Services provided by the Government to any business entities including by way of grant of privileges, licences, mining rights, natural resources such as spectrum etc. against payment of consideration in the form of fee, royalty etc. are taxable under GST. Same was the position under the Service Tax regime, wherein also with effect from April 01, 2016, tax is required to be paid by the business entities on such services under reverse charge mechanism (RCM).
The GST Council in its 26th meeting held on March 10, 2018, recommended that GST was not leviable on license fee and application fee, payable for alcoholic liquor for human consumption and that this would apply mutatis mutandis to the demand raised by Service Tax/Excise authorities on license fee for alcoholic liquor for human consumption in the pre-GST era, i.e. for the period from April 01, 2016 to June 30, 2017.
Therefore, to implement the GST council recommendations, the Central Government decided to exempt the service provided or agreed to be provided by way of grant of liquor licence by the State Government, against consideration in the form of licence fee or application fee for the period from April 01, 2016 to June 30, 2017 [Clause No. 117 of Finance (No. 2) Act, 2019 may be referred in this regard].
Further, GST Council in its 37th meeting held on September 20, 2019 further recommended that the decision of the 26th GST Council meeting be implemented by notifying service by way of grant of alcoholic liquor licence, against consideration in the form of licence fee or application fee or by whatever name it is called, by State Government as neither a supply of goods nor a supply of service [Refer Notification No. 25/2019-Central Tax (Rate) dated September 30, 2019]
In the above backdrop, the CBIC has issued a Circular No. 121/40/2019 – GST dated October 11, 2019 which clarifies that this special dispensation applies only to supply of service by way of grant of liquor licenses by the State Governments and has no applicability or precedence value in relation to grant of other licenses and privileges for a fee in other situations, where GST is payable.