Tobacco stocks fell in early trade Tuesday after the GST Council hiked cess on cigarettes to take away the "windfall " manufacturers were reaping due to an anomaly that crept in after the GST rate fixation.
At 9:44 am, the stock of cigarettes-hotel (FMCG) major ITC was trading 11.65 percent or 37 points lower at Rs 287 on the BSE.
The stock of Modi Group firm Godfrey Phillips India fell 5.10 percent or 62.65 points at 1164 level. The stock of Hyderabad-based VST Industries was down 4.79 percent or 170 points to 3,390 level.
On Monday, the government announced the hike in cess which would bring in Rs 5,000 crore of additional tax revenue which otherwise would have gone to the manufacturers, after the GST council held an emergency meeting through video conferencing.
While the peak Goods and Service Tax (GST) rate of 28 per cent stays and so does 5 per cent ad valorem cess on top of it, the fixed cess has been hiked between Rs 485 and 792 per thousand sticks.
The GST Council had in May fixed 28 per cent as the top rate for cigarettes. A 5 per cent ad valorem cess was levied on top of it and Rs 1,591 per thousand sticks as fixed cess on both filter and non-filter cigarettes of not exceeding 65 mm length.
The cess rate varied from Rs 2,126 to Rs 4,170 for cigarettes of different lengths. But this rate was lower than the pre-GST tax incidence and the choice before manufacturers was either to pass on the lower taxes to consumers by way of cutting rates or pocketing the windfall. The manufacturers chose the latter.
Jaitley said to correct this, the GST Council has raised the fixed cess by Rs 485 to 792 per thousand sticks.