The transition of GST on aerated beverages from a dual structure of slab rate and compensation cess to a consolidated 40 per cent levy is raising fresh concerns among distributors and traders in the fast-moving consumer goods (FMCG) sector. Industry representatives are preparing to approach the Finance Ministry, citing risks of stranded input tax credits (ITC) and added stress on working capital.
Until now, aerated waters, lemonade, fruit-based carbonated beverages and caffeinated drinks attracted GST at 28%, alongside a 12% compensation cess. Effective September 22, these products will be taxed at a flat 40%, following the withdrawal of the cess.
While beverage manufacturers may not face hurdles since their inputs largely fall under the 5% and 18% GST slabs, dealers and distributors could be left holding unsold inventory on which compensation cess has already been paid. Tax experts note that such cess-related ITC will become unusable in the new regime, effectively converting into a sunk cost.
"For smaller traders and mid-tier distributors, this shift means blocked capital. Unless transitional provisions or refunds are allowed, the additional burden may get passed on to consumers in the form of higher prices or reduced retail discounts," a tax consultant explained.
The issue comes at a sensitive time for the beverage industry, which has already faced weak sales due to an early monsoon cutting short the summer season. With the festive period approaching, stakeholders are worried that higher distribution costs could affect demand recovery.
The All India Consumer Products Distributors Federation has confirmed that it will raise the matter with Finance Minister Nirmala Sitharaman. "Crores of rupees in working capital will be unnecessarily blocked due to this situation, creating immense stress on distributors and the retail ecosystem," said its President.
Analysts believe that policymakers may need to issue clarifications or transitional relief to prevent unintended cost escalations. Without such measures, the new 40% levy, while structurally simplifying GST on aerated beverages, could trigger ripple effects across the supply chain.
CAclubindia
