Where applicant has manufacturing arrangement with contract brewing/bottling units (CBU) who manufacture brands of beer belonging to applicant and supply such beer to market by procuring raw materials, packaging materials, incurring overheads and other manufacturing costs etc. on its own and sell beer directly, since material is purchased by CBUs and ownership of raw material required to manufacture beer rests with manufacturer and not with applicant, manufacturing activity undertaken by CBUs does not qualify classification under Heading 9988, as a result CBUs are not engaged in supply of any service to applicant
Thus, CBUs are not engaged in supply of service to applicant and therefore there does not arise any liability to pay GST on amount retained by CBUs as their profit.
GST is payable by the Brand owner (UBL) on ‘Surplus Profit” transferred by the CBU to brand owner out of the manufacturing activity and the supply of service to the CBUs is classified under Service Code (Tariff) 999799 and liable to pay GST at 18% ( CGST-9%, SGST-9%) on the amount received from the CBUs.
Citation - 95 taxmann.com 87 (AAR-KARNATAKA)