Bottling Arrangement of Alocoholic Liquor For Human Consumption – Summary of Order of Maharashtra AAR

The recent Order of the Maharashtra AAR in the matter of Crown Beers India Pvt. Ltd dated 04.09.2018 has been summarized as under:

Facts in the Application:

  1. The Bottler is to brew / manufacture package and supply beer to buyers / distributors in the territory identified by Applicant.
  2. In consideration for fulfillment of the above mentioned obligations by the Bottler to manufacture the Products in terms of the Agreement, the Bottler shall be entitled to a fixed fee for the products so manufacture, calculated and payable in accordance with this Agreement.
  3. The physical transfer of alcoholic liquor for human consumption is made by the Bottler in favour of buyers/ distributors which are identified by the Applicant. 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 Bottler, (2) the surplus which belongs to the Applicant, and (3) costs for the manufacture of alcoholic liquor for human consumption which is reimbursed to Bottler.

Submissions of the Applicant:

  1. The Applicant has submitted its contention that the entire sale consideration, for the supply of beer made by the bottler in favour of the buyers/distributors which are identified by the Applicants, is split into three parts:
    • 3 ….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 Applicant, and (3) costs for the manufacture of alcoholic liquor for human consumption which is reimbursed to PIL.
    • 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 Applicant or by PIL, are only parts of sale consideration of alcoholic liquor for human consumption which is manufacture and supplied by PIL…….
    • …The entire sale consideration which is split into three parts, as stated above, can therefore only be subjected to either State excise duty or VAT which is being levied and paid on such consideration.
  1. Without prejudice to its above submissions, the Applicant has also asked to confirm if the contention of the Department is acceptable that Bottler has provided job work service to the Applicant, then it should be taxable @ 5% i.e. covered under specific tax rate entry [Services by way of job work in relation to all food and food products falling under Chapters 1 to 22 in the First Schedule to the Customs Tariff Act, 1975.]

Order of Advanced Ruling Authority:

  1. In regard to the cost of procurement of goods/services for manufacture of beer paid by the Applicant to the Bottler, the Authority has held that there is no supply in the form of sale, barter, transfer, exchange, etc. of goods or services and hence, not leviable to GST.
  2. In regard to fixed cost paid by the Applicant to the Bottler, the Authority has held as under
    • 5 …..that it is very clear that the said fixed costs are paid to PIL because they are providing job work services to the Applicant. In this matter of payment of fixed costs there is supply of service by PIL to the applicant in the form of brewing/ manufacturing, packaging and supplying beer. Fir these services rendered there is a consideration which flows from the Applicant to PIL in the form of ‘fixed costs’. The entire services rendered by PIIL and the consideration paid by the Applicant for receiving such services is in the course of furtherance on business of both, the Applicant and PIL. Hence this amount is liable to tax under GST Laws and such tax is payable by the supplier of service i.e. PIL.
  3. In answer to question on rate of tax on job work service in relation to beer, the Authority has repeated its above said observation in different words without answering the specific query relating to rate of tax.

 

-Authored by:
Adv. Pawan Arora, Joint Partner
-Co-authored by:
Adv. Shambhavi Mishra, Associate

GST Law India is a blog on GST and allied commercial laws managed by members of the law firm ALA Legal.

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