This circular provides clarification on the GST treatment of licence fees and application fees charged by State Governments for the grant of licences for alcoholic liquor for human consumption.

It explains that, as a general principle, services provided by the Government to business entities, including grant of licences and privileges for a consideration, are taxable under GST and tax is payable by the recipient under reverse charge. The same position also existed under the Service Tax regime from 1 April 2016.

However, the GST Council in its 26th meeting recommended that GST should not be levied on licence fees or application fees payable for alcoholic liquor for human consumption. To give effect to this recommendation for the pre-GST period from 1 April 2016 to 30 June 2017, the service of grant of liquor licence by State Governments was exempted under the Finance (No. 2) Act, 2019.

Further, based on the recommendation of the GST Council in its 37th meeting, the service of grant of alcoholic liquor licence by State Governments, against consideration in the form of licence fee or application fee, has been notified as neither a supply of goods nor a supply of services under GST with effect from 30 September 2019. Accordingly, GST is not leviable on such licence fees.

The circular also clarifies that this special dispensation is limited strictly to liquor licences granted by State Governments and shall not be treated as a precedent for GST treatment of other licences, privileges, or permissions granted for a fee, where GST continues to be applicable