Page 25 - GSTL_7th May 2020_Vol 36_Part 1

2020 ] OUTSOURCED LIQUOR MANUFACTURING TAXABLE UNDER GST J7

OUTSOURCED LIQUOR MANUFACTURING TAXABLE UNDER GST
OUTSOURCED LIQUOR MANUFACTU-
RING TAXABLE UNDER GST
By
Dr. Sanjiv Agarwal, FCA, FCS

It is a fact that there is no levy of Goods and Ser-
vices Tax (GST) on alcoholic liquor meant for human con-
sumption-manufacturing, trading or consumption. How-
ever, if you do it through outsourced agencies on job
work basis in such situations as you don’t have your own
distillery, you may have to shell out 18 per cent. 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 distill-
ery 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, not-
withstanding 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 up-
held an earlier ruling of Advance Ruling Authority (AAR) in the matter of Crown
Beers India Pvt. Ltd. [2019 (27) G.S.T.L. 468 (App. A.A.R. - GST)]. 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 appli-
cable 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 con-
sideration for supply of alcoholic liquor for human consumption which is be-
yond the purview of the GST provisions. The Authority by coming to such a con-
clusion 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 Au-
thority which upheld that where entire gamut of activities viz. - brewing, bot-
tling 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 con-
sumption is outside purview of GST and not processes involved in manufacture
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