GST on liquor two contradictory rulings raise scope of litigation

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In a move which could raise the scope of litigation for alcohol manufacturers, Maharashtra and Karnataka advance ruling authorities have delivered contradictory ruling on the levy of goods and services tax (GST) on payments made by breweries to the brand owners. While the Karnataka Appellate Authority for Advance Ruling (AAAR) has said such a payment would attract the GST at 18%, the Maharashtra Authority for Advance Ruling (AAR) has ruled just the opposite, saying that this does not qualify as consideration for any supply and hence, is exempt from GST.

The issue came up with United Breweries filing an application before the Karnataka AAAR late last year. Around the same time, another brand owner, Allied Blenders & Distillers approached the Maharashtra AAR. Both the firms wanted clarity on the applicability of GST on proceeds received from contract bottling units (CBUs). Sale of alcohol for human consumption is outside GST purview, and only state specific taxes are levied on its sale.

In the liquor industry, companies holding registered brands typically enter into licensing agreements with CBUs who hold requisite licences under state excise laws to manufacture liquor for brand owners. In return, CBUs are paid bottling charges and certain agreed upon reimbursements such as taxes and expenses. The CBUs sell alcohol at prices fixed by the brand owner. Further, after reimbursing the CBUs for its expenses along with a fixed cost, the ‘surplus profit’ is then recovered by the brand owner.

The Karnataka AAR held that the brand owner was providing services to the CBUs in terms of deploying resources to ensure CBUs manufacture alcohol as per its specifications. Thus, the ‘surplus profit’ constituted a consideration for the services which was taxable under the GST at 18%. On the other hand, the Maharashtra AAR ruled that the brand owner wasn’t engaged in any activity that can be classified as supply of goods or services to CBUs, which meant that the proceeds of ‘surplus profit’ wouldn’t attract GST.

“…the entire process can be seen as the applicant (brand owner) is contracting with the CBUs to get the IMFL manufactured under their brand name. There is no service rendered by the applicant in this case,” the Maharashtra AAR said.

Read More at: https://www.financialexpress.com/industry/why-two-different-rulings-on-gst-on-liquor-could-be-problematic/1538610/

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