The transition of GST on aerated drinks from slab charge and cess element to a consolidated 40 per cent levy may pose as a problem for FMCG distributors and merchants. These FMCG distributors at the moment are on the point of knock the door of the Finance Ministry.
As of date, all items (together with aerated waters) containing added sugar or different sweetening matter or flavoured, caffeinated drinks, carbonated drinks of fruit drink or carbonated drinks with fruit juice entice GST at 28 per cent. On the identical time, a compensation cess at 12 per cent is levied on aerated waters, lemonade and caffeinated drinks moreover different. With impact from September 22, all these drinks will entice a flat 40 per cent charge to keep up the incidence of taxation as compensation cess has been withdrawn.
Since inputs for the beverage corporations can be in 5 per cent and 18 per cent slabs, the businesses won’t have any downside from September 22. Nevertheless, sellers and distributors won’t be able to utilise compensation cess paid on unsold inventory on or after September 22. Explaining it additional, Manoj Mishra, Associate at Grant Thornton Bharat mentioned, the change from a break up levy (28 per cent slab charge and 12 per cent compensation cess) to a consolidated 40 per cent levy on carbonated drinks is essentially a structural shift with important implications for merchants.
Merchants who had collected enter tax credit score (ITC) of compensation cess could discover themselves unable to set it off in opposition to future liabilities, as the brand new framework eliminates the compensation cess element. This creates stranded ITC, successfully changing it right into a sunk price. For smaller merchants and distributors with thinner margins, this provides to working capital pressures, he added .
“If these stranded credit should not allowed to be carried ahead or refunded, the price burden is more likely to ripple throughout the worth chain. Bigger gamers could take in it within the brief time period, however merchants and mid-tier distributors, who are sometimes extra cash-sensitive, are anticipated to cross on a part of this burden, doubtlessly resulting in a marginal rise in shopper costs or tighter reductions on the retail degree,” mentioned Mishra.
This comes at a time when beverage business witnessed a washout summer time season on account of early rains. The business can be hoping to make up for a few of this quantity decline within the upcoming pageant season. Analysts mentioned that policymakers could must problem clarifications or transitional provisions to keep away from unintended price escalations for merchants and, finally, the customers.
Harpreet Singh, Associate, Oblique tax, Deloitte mentioned, ”Buying and selling corporations dealing in aerated drinks having collected ITC of compensation cess paid on previous procurements, wouldn’t have the ability to utilise such credit going ahead, and this unutilised enter cess may turn out to be a price, which is an space of concern for such corporations. “
In the meantime, Dhairyashil Patil, President, the All India Client Merchandise Distributors Federation mentioned,” We can be elevating this matter with the Hon’ble Finance Minister, as crores of rupees in working capital can be unnecessarily blocked on account of this example, creating immense stress on distributors and the retail ecosystem.”
Revealed on September 14, 2025