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TMI Blog2019 (7) TMI 1507X X X X Extracts X X X X X X X X Extracts X X X X ..... er 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stand the transactions being undertaken under the Agreement, the Appellant has summarized the relevant terms of the Agreement below: a. In accordance with the instructions received from Appellant during the term of the Agreement, PIL undertakes to manufacture the Products at its Bottling Unit and perform certain other allied activities, including the following: (Clause 2.1 of the Agreement): i. Purchasing the required materials, arranging labour and all other facilities and inputs, in compliance with the standards prescribed under the Agreement, for the purpose of manufacturing the Products; ii. Carrying out all the processes required for brewing / manufacturing, bottling and packing of the Products; iii. Maintaining physical stock of Products in the Bottling Unit or in bonded or other warehouses; and iv. Preparation of sales invoices, ensuring timely dispatches and delivery of the Products to buyers / distributors in the territory identified by the Appellant. b. PIL would be responsible for carrying out its obligations under this Agreement in a timely manner and in accordance with the directions and inst ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Power cost based upon parameters agreed under the Agreement on actual price basis; v. Bottling fee (including without limitation franchise fee and label registration charges) that may be levied by the excise department of the State of Maharashtra; vi. Other duties, taxes and fees levied by the State Government or Central Government payable in relation to the dispatch of Products as applicable on the date of Agreement; vii. Cost for taking insurance as contemplated under Clause 4.11 of the Agreement; viii. Cost of any permit fees or levies to be submitted under any applicable rule, regulation or law towards supply of Products pursuant to the Agreement; ix. Cost of loading and unloading of raw materials and ingredients used to manufacture Products and the Products; x. Approved cost of running and operating a bonded or other warehouse as advised by the Appellant; and xi. Cost of inwards freight charges in relation to the Material and Products. g. Any costs other than as specified in Schedule II shall be borne by the Appellant(Clause 7.3 of the Agreement). h. PIL shall open a sepa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are identified by the Appellant. The entire sale consideration for the supply of alcoholic liquor for human consumption is split into three parts viz., (1) fixed fee which is retained by PIL, (2) the surplus which belongs to the Appellant, and (3) costs for the manufacture of alcoholic liquor for human consumption which is reimbursed to PIL. g. No part of the above sale consideration for alcoholic liquor for human consumption is subject to GST as the supply of alcoholic liquor for human consumption itself is outside the purview of the GST provisions. All the above components of the sale consideration, whether retained by the Appellant or by PIL, are only parts of sale consideration of alcoholic liquor for human consumption which is manufactured and supplied by PIL. h. Advance Ruling No. KAR ADRG 9/2018 dated 29.06.2018 = 2018 (7) TMI 835 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA supports the Appellant s contention that the manufacturing activity undertaken by PIL is not in the nature of supply of services and, therefore, no GST is liable to be paid on the same. i. Merely because the cost of raw materials and ingredients used in the manufa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 2 (68) of the CGST Act, job work is defined as any treatment or process undertaken by a person on goods belonging to another registered person and the expression job worker has to be construed accordingly. An identical definition of job work is provided under Section 2 (68) of the MGST Act. In terms of Section 2 (24) of the IGST Act, the abovementioned definition of job work under the CGST Act shall also apply to the IGST Act. In this regard, it is humbly submitted in terms of the above 2. mentioned definition of job work , an activity can be said to be job work only if such treatment or process is undertaken by a person on goods belonging to another registered person . 3. In the present case, it is clearly stated in Clause 2.1 of the Agreement that PIL shall purchase raw materials and other inputs on their own. Relevant clause is reiterated below for ease of reference; 2.1 In accordance with the instructions of Crown to PIL from time to time during the term, PIL undertakes to manufacture the products at its Bottling unit and perform certain allied activities, including the following 2.1.1 purchasing the required materials, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... T Act. 4. In this regard, it is humbly submitted that merely the fact that the cost of raw materials and ingredients used to make the Products is reimbursed by the Appellant does not change the fact that such raw materials and ingredients are procured by and owned by PIL. It is respectfully contended that in any case of supply of goods or services, the consideration charged for supplying such goods or services can be broadly split into (1) the cost incurred for supplying such goods or services; and (2) the amount of profit. The fact that the cost of raw materials used for supplying such goods or services is recovered from the recipient of goods or services at the time of supply does not imply that the raw materials always belonged to the said recipient (i.e. even before the time of supply). Relying on the same reasoning, it is humbly submitted that merely because the cost of raw materials and ingredients used in manufacture of Products is recovered from the Appellant, it cannot be concluded that the said raw materials and ingredients always belonged to the Appellant and PIL was undertaking the manufacturing activity on goods owned by the Appellant. Fixed fees an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for human consumption . As far as the IGST Act is concerned, the same provides for provisions for levy and collection of tax on inter-State supply of goods and services or both by the Central Government. Under the IGST Act, Section 5 (1) specifically provides for the levy of IGST on all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor of human consumption . 7. Based on a plain reading of Article 366 (12A) of the Constitution of India, Section 9 (1) of the CGST Act / MGST Act and Section 5 (1) of the IGST Act, it is respectfully submitted that supply of alcoholic liquor for human consumption has been expressly excluded from the ambit of levy of CGST / MGST / IGST. Further, the amendment in Entry 54 in List Il of Seventh Schedule (State List) to the Constitution of India that the power to impose tax on alcoholic liquor for human consumption has been separately prescribed to the State Government. The Appellant would like to point out that prior to the Constitution (One Hundred and First Amendment) Act, 2016, Entry 84 to List I (Union List) of Schedule 7 to the Constitution of India excluded manufacture or production of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ould be incorrect to sub-divide the transaction of alcoholic liquor for human consumption and attempt to tax the service portion, if any, which already stands subsumed in the final product which is alcoholic liquor for human consumption alone. For instance, if the manufacturer enters into an agreement to supply packaged pens, the activity of packaging pens gets subsumed in the manufacture and no separate service of packaging pens will be said to be undertaken. Therefore, observing that there is a job work activity which is being done for which fixed fee is being paid is entirely incorrect. 10. In this regard, it is humbly submitted that the following facts are undisputed: a. That PIL is a manufacturer of alcoholic liquor for human consumption and holds the requisite licences under the State excise laws (Recital (b), Clause 1.3.1(a) and (d) of the Agreement). b. That the Products which are the subject matter of supply are alcoholic liquor for human consumption as is clear from the definition of Products under Clause 1 (u) of the Agreement which defines Product (s) . c. The raw materials for the manufacture of alcoholic liquor for human con ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... age and there is no room for any intendment. The reasoning behind such construction of taxing statutes is that there is no concept of equity in taxation law. This principle has been upheld by the Hon ble Supreme Court in a series of judgments, including by a Constitutional Bench of the Hon ble Supreme Court in Hansraj Gordhandas v. HH Dave, (1969) 2 SCR 253 = 1968 (9) TMI 112 - SUPREME COURT as well as in Sales Tax Commissioner v. Modi Sugar Mills, AIR 1961 SC 1047 = 1960 (10) TMI 65 - SUPREME COURT . 13. In light of the above mentioned rule of construction relating to taxing statutes, it is humbly submitted that the definition of job work only includes such treatment or process undertaken by a person on goods belonging to another registered person . In the present case, it is already established that PIL is working on its own goods and not on Appellant s goods. Further, the language of Article 366 (12A) of the Constitution of India, Section 9 (1) of the CGST Act / MGST Act and Section 5 (1) of the IGST Act have to be strictly construed as well, without considering the consequences that it may have. Once the said provisions are interpreted strictly in terms of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f GST under the Constitution of India as well as from the charging provisions levying CGST / MGST / IGST under the CGST Act / MGST Act / IGST Act, there is a total bar on imposing GST on such a supply in any form, including by way of creating a deeming fiction. Advance Ruling No. KAR ADRG 9/2018 dated 29.06.2018 = 2018 (7) TMI 835 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA supports the Appellant s contention that the manufacturing activity undertaken b PIL is not in the nature of supply of services and, therefore, no GST is liable to be paid on the same 15. The Ld. Authority erred in ignoring the fact that the Advance Ruling No. KAR ADRG 9/2018 dated 29.06.2018 = 2018 (7) TMI 835 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA given by the Authority for Advance Ruling, Karnataka ( Karnataka Advance Ruling ) in the case of M/s. United Breweries Limited ( UBL )actually supports the Appellant s contentions. The facts of the Karnataka Advance Ruling are similar to the facts of the present case insofar as UBL, apart from manufacturing beer on its own, also has manufacturing arrangement with Contract Bottling Units ( CBUs ) who manufacture beer under brand name ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld that supply of beer per se is not taxable and that what is taxable in the subject case is the job work which is a service provided by PIL to the Appellant. 19. It is humbly submitted that the Appellant had not sought a response on the nature of service which is taxable but the specific rate at which GST will be charged, if brewing, bottling and supplying Products is considered to be a taxable supply. In this regard, it is the Appellant s humble contention that all the activities under consideration i.e. brewing, bottling and supplying Products are in relation to beer which is classifiable as Customs Tariff Item 2203 00 00 of the First Schedule to the Customs Tariff Act, 1975. 20. Accordingly, it was the Appellant s respectful contention that if brewing, bottling and supplying Products is considered to be a taxable supply, the same shall be levied CGST (in case of intra-State supply) at the rate of 2.5% in terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by Notification No. 31/2017-Central Tax (Rate) dated 13.10.2017. Similarly, there shall be a levy of MGST (in case of intra-State supply) at the rate of 2.5% on the said taxa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and all other facilities and inputs as per the Product and Performance Standard, clearly laid out by the Appellant in the said agreement, is towards the supply of the alcoholic liquor for human consumption and therefore, will not come under the ambit of GST as per the provision of Article 366(12A) of the Constitution of India and also as per the levy and collection provision carved under Section 9(1) of the CGST Act. (ii) They have also contended that since PIL is the actual owner of the raw materials and other ingredients required for the manufacture of the beer as the said raw materials are purchased by the PIL on their own account in accordance with the terms and covenants of the agreement, they are not performing any treatment or process on the goods belonging to another registered person, which is an essential requirement of the activity of Job work as provided under Section 2(68) of the CGST Act, 2017. (iii) The Appellant, further, contended by submitting that merely the fact that the cost of raw materials and other ingredients used to make the Products is reimbursed by the Appellant does not change the fact that such raw materials and ingredients are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as part of the Product and Performance Standards, the quality, specific varieties, sources and terms for procurement of Materials......... Thus, PIL does not have any stake in deciding the quality, varieties and even the source of the materials, which are used to manufacture the Product i.e. been This fact is also reflected from the entry 4.5 of the said agreement, which is reproduced herein under: 4.5 PIL shall not settle without Crown s prior written consent any claims or disputes with any supplier of the materials identified by the crown or any third parties in relation to activities undertaken by PIL pursuant to this agreement including operation of the Bottling unit. Thus, from the above, 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 o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses set out in Schedule Il and the sale revenue generated from the sale of products will always be incurred on account of and inure to the benefit of Crown. It is therefore clearly understood and acknowledged by the parties that any surplus arising or recorded in the Manufacturing and Sales Account will always belong to Crown and would be utilized by Crown at its sole discretion. Entry 3.1 contemplates that PIL shall be entitled only to the Fixed Fee for performance of its obligations under this agreement to the reasonable satisfaction of Crown. Entry 7.8 of the said Agreement stipulates as under: The Parties agree and acknowledge that Crown shall be responsible for the collection of proceeds from the sales of products and crediting of the same in the Account. All these above clauses clearly establishes that the actual owner of the finished Product is the Appellant and not the PIL as the entire sale process viz.- identification of the actual and potential buyers and recovery of the sale proceeds etc. is controlled and administered by the Appellant, making them accountable for the sale of the Products. 27. All the above discuss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to interpret the provision by adding, altering the words used by the legislature by going against the well settled rule of literal construction of interpretation even if the provision does not have any ambiguity. 29. It is worth noting here that in erstwhile Service Tax regime also, the said activities of CBI-Js of manufacturing alcoholic liquor on behalf of Brand Owners (BOs) against a consideration, were subjected to Service Tax and this was clarified also by CBIC(earlier CBEC) vide Circular No. 249/1/2006-C.X.4 dt. 27.10.2008 and Circular No. 332/17/2009-TRU dt. 30.10.2009. This levy of Service Tax continued upto 30.06.2012. Thereafter, with effect from 01.07.2012, the activity of production of or process amounting to manufacture was covered under Section 66D (Negative List) implying that the activity undertaken by the CBIJ went out of purview of Service Tax. The statute was yet again amended and process undertaken by CBUs once again came under the purview of Service Tax with effect from 01.06.2015 and remained there till 30.06.2017. Therefore, it is observed that the activities of CBUs were subjected to Service Tax just prior to introduction of GST. 30. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ports (P) Ltd. reported in 1998 (38) E.L.T. 741 (S.C.) =1988 (11) TMI 108 - SUPREME COURT and decided that non -alcoholic beverages were not eligible to exemption as food products. Everything consumed by human cannot be considered as food or food products for the purpose of exemption from GST. The context, spirit and reason of law need to be examined to extend exemption. . Hon ble Supreme Court in the said judgment had opined that it cannot be contended that expensive items like Gold-Spot base, Limca-base or Thums up-base were intended to be given exemption at the cost of public exchequer. Similarly, it would have never been the intention of law to exempt expensive item like alcoholic liquor under the category of food and food products even though the same is for human consumption. Additionally, Hon,ble Supreme Court, in the matter of Commissioner of Customs (Import) Vs Dilip Kumar Company reported in 2018 (361) E.L.T. 577(S.C.) =2018 (7) TMI 1826 - SUPREME COURT has given a landmark judgment concluding that: Exemption notification should be interpreted strictly; the burden of proving applicability would be on the assessee to show that his case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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