2019 (7) TMI 1507 - AAAR - GST

Levy of GST - classification of supply - supply of goods or supply of services - Fixed fees and costs are for supply of alcoholic liquor for human consumption - PIL is providing job work services to the Appellant - effective ownership of the raw materials and inputs used for manufacture of the Products or not - HELD THAT - In the instant case, it is expressly clear that PIL is being paid a fixed amount of fee for undertaking the manufacturing and other allied activities required for the manufacturing of the Product i.e. beer for the Appellant and not for the sale of the manufactured beer. In fact, the manufactured Product i.e. beer is sold to the buyers identified by the Appellant. Thus, there is no sale taking place between PIL and the Appellant. Thus, the contention of the Appellant that the consideration received by PIL from the Appellant is for supply of alcoholic liquor for human consumption, is factually incorrect and fallacious, and hence not tenable. Purchase transaction of the raw materials and other ingredients required for the brewing of beers is undertaken by PIL - HELD THAT - It is aptly clear that though PIL is undertaking the purchase transaction of the raw materials and other ingredients used in the manufacture of beers, it is the Appellant, who is deciding not only the qualities and varieties of the materials, but also the suppliers from whom these materials are to be purchased along with the terms and conditions for the purchase transaction. PIL is undertaking these purchase transaction simply as an agent or representative of the Appellant as they do not enjoy any autonomy, whatsoever, while performing these transaction. Further, it is germane that the cost of the purchase of the entire raw materials and other inputs is also incurred to the Appellant, as is submitted by the Appellant. All the goods, on which PIL is undertaking the manufacturing process, belong to the Appellant and certainly not PIL. Thus, this contention of the Appellant is not tenable and hence not considered. Applying the provision of Job-Work in the present case, it is abundantly clear that the activities of PIL as contemplated under the said Agreement are those of the job worker as they are carrying out their entire activities of brewing, bottling and packaging on the goods belonging to another registered person, in this case, the Appellant. The final manufactured Products i.e. beer also belong to and are owned by the Appellant, as the final products are delivered by PIL to the buyers, which are identified by the Appellant and entire sale consideration against the same is credited to the designated bank account meant for manufacturing expenses and sale proceeds of the Product i.e. beer. The activities performed by the PIL, on the goods of Appellant, are in the nature of the Job work and accordingly attract 18% GST. Also, the benefit of exemption under entry no. 26(f) of Notification 11/2017-C.T.(Rate) dt. 28.06.2017 is not available to alcoholic liquor for human consumption.

Summary

Issues Involved:
1. Whether the activities performed by PIL for the Appellant constitute job work under GST.
2. Whether the fees paid to PIL for manufacturing beer are subject to GST.
3. Whether the supply of alcoholic liquor for human consumption is outside the purview of GST.
4. The appropriate GST rate applicable if the activities are considered job work.

Issue-wise Detailed Analysis:

1. Whether the activities performed by PIL for the Appellant constitute job work under GST:
The judgment examines the definition of "job work" under Section 2(68) of the CGST Act, which means any treatment or process undertaken by a person on goods belonging to another registered person. It was found that PIL undertakes brewing, bottling, and packaging of beer based on the Appellant's instructions, using raw materials and inputs procured as per the Appellant's specifications. The Appellant bears the cost of these materials, and the insurance is also in the Appellant's name. Despite PIL purchasing the raw materials, the Appellant controls the quality, sources, and terms of procurement, indicating that PIL is performing job work on goods belonging to the Appellant.

2. Whether the fees paid to PIL for manufacturing beer are subject to GST:
The judgment clarifies that PIL is paid a fixed fee for manufacturing beer, not for selling it to the Appellant. The manufactured beer is sold to buyers identified by the Appellant, and the sale proceeds are credited to an account controlled by the Appellant. Thus, the fixed fee paid to PIL is for job work services, not for the supply of alcoholic liquor for human consumption, making it subject to GST.

3. Whether the supply of alcoholic liquor for human consumption is outside the purview of GST:
The judgment references Article 366(12A) of the Constitution and Section 9(1) of the CGST Act, which exclude the supply of alcoholic liquor for human consumption from GST. However, it interprets that this exclusion applies only to the sale of alcoholic liquor, not to the processes involved in its manufacture. Therefore, the job work services provided by PIL, which are part of the manufacturing process, are not excluded from GST.

4. The appropriate GST rate applicable if the activities are considered job work:
The Appellant argued for a GST rate of 5% under Notification No. 11/2017, classifying the activities under food and food products. However, the judgment, referencing Supreme Court rulings, concludes that alcoholic liquor for human consumption does not qualify as food or food products for GST exemption purposes. Therefore, the job work services provided by PIL attract an 18% GST rate.

Conclusion:
The judgment upholds the Advance Ruling Authority's decision that the activities performed by PIL are in the nature of job work and attract 18% GST. The fees paid to PIL for these services are subject to GST, and the supply of alcoholic liquor for human consumption is outside the GST purview only in terms of its sale, not the manufacturing processes.