OUTSOURCED LIQUOR MANUFACTURING LIABLE TO GST

[Dr. Sanjiv Agarwal]

It is a fact that there is no levy of Goods and Service Tax (GST) on alcoholic liquor meant for human consumption –manufacturing, trading or consumption.  But however, if you do it through outsourced agencies on job work basis or say, if you don’t have your own distillery, you may have to shelve out 18 percent more on GST on charges or fees paid to such job worker for services provided by it.

In India, alco-beverage sector is highly regulated and licenses for distillery are limited. Many a times brand owners who own the brand of liquor have to manufacture through other distilleries / bottling units known as Contract Bottling Units (CBUs) under different arrangements (such as franchise, leasing of unit etc). All such arrangements shall be rendered taxable under GST regime, notwithstanding that alco-beverages itself is out of ambit of GST. What will be taxed is the service component in such business arrangements.

Appellate Authority for Advance Ruling (AAAR), Maharashtra has upheld an earlier ruling of Advance Ruling Authority (AAR) in the matter of Crown Beers India Pvt. Ltd. [2019 (7) TMI 1507 - APPELLATE AUTHORITY FOR ADVANCE RULING MAHARASHTRA ]. In this case Crown Beers entered into an agreement with bottling unit to brew, manufacture, package and supply beer, as specified under the agreement, from its bottling unit to buyers/distributors in the territory identified by the Crown Beers.

Such unit had surplus manufacturing and licensed capacity at its bottling unit and held valid licenses, permits and permissions necessary under the applicable laws for manufacture of beer at the bottling unit.

Crown incurred to bottling unit a fixed fee and costs specified in the agreement as a consideration for supply of beer.

It was held that since the costs are paid by the appellant herein, there is no supply to bottling unit and therefore, costs are not liable to GST. However, while observing so, the Authority held that fixed fees paid by the Crown Beers to bottling unit are liable for GST, without appreciating that there is a single consideration for supply of alcoholic liquor for human consumption which is beyond the purview of the GST provisions. The Authority by coming to such a conclusion has held that bottling unit is providing job work services to the appellant and therefore, fixed fee which is consideration for such services is liable to GST in the hands of bottling unit.

Being aggrieved, Crown Beers filed an appeal before the Appellate Authority which upheld that where entire gamut of activities viz.- brewing, bottling and packaging of alcoholic liquor is undertaken by bottling unit at behest of Crown Beers, as per agreement entered between them, it will constitute job work and accordingly, will attract 18 per cent GST.

It was further held that only supply of alcoholic liquor for human consumption is outside purview of GST and not processes involved in manufacture of same. Therefore, processes involved in manufacture of alcoholic liquor would be liable to GST. Benefit of exemption under Entry No. 26(f) of Notification 11/2017-C.T. (Rate) dated 28-6-2017 is not available to alcoholic liquor for human consumption as it cannot be considered as food for purpose of exemption under said notification.

However, once GST is paid on such charges, it becomes an eligible input service to claim input tax credit, if otherwise eligible under section 16 of CGST Act, 2017.