Goods and Services Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 26-11-2018 – It is now affirmed that beer bearing a brand or owned by brand owners which are manufactured by Contract Bottling Units or tie-up units (generally known in trade as CBUs) is a supply of service which attracts Goods and Services Tax (GST). A recap United Breweries Ltd. sought an advance ruling from the Authority for Advance Rulings (AAR), Karnataka on the following two issues: Whether beer bearing brand/s owned by Brand Owner manufactured by Contract Brewing Units (CBUs) out of the raw materials, packaging materials and other input materials procured by it and accounted by it and thereafter selling such beer to various parties under its invoicing would be considered as supply of services and whether GST is payable by the CBUs on the profit earned out of such manufacturing activity? and Whether GST is payable by the Brand owner on the Surplus Profit transferred by the CBU to the Brand Owner out of such manufa
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hat since the applicant is engaged in supply of service and the service does not find mention at any other entry in the Classification table it has to be placed in the residual entry. The applicable rate of Central Tax as per serial number 35 of the Notification No. 11/2017-CT(Rate) dated 28.06.2017. It was also ruled that GST is payable by the Brand owner 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. [As reported in IN RE : M/S UNITED BREWERIES LIMITED (2018) 7 TMI 835; vide ruling dated 28.06.2018]. Appellate Affirmation Industry leader, not being satisfied, approached the doors of Appellate Authority of Advance Ruling (AAAR), Karnataka for a review. It was submitted against the said ruling that AAR has erred in holding that the classification of 'other miscella
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e is only a monetary transaction between the Appellant and the CBU by way of transfer of apportioned profit from supply of beer, which is excluded from the ambit of charge under provision of the said Act. The Authority erred in not appreciating the fact that the arrangement between the Appellant and the CBU was in the nature of consortium for earning profit from operation of beer manufacture and supply, necessitated by the regulations governing the supply of beer. That the Authority erred in not following the settled positions as cited in the relied upon decisions above wherein it was held that the activity of permitting the CBU to manufacture alcoholic beverages on behalf of the principal does not amount to rendering of taxable service under the category of IPR service. The AAAR interpreted the scope of supply as per section 7 and charging section 9 of the GST law. While section 9 clearly excludes the supply of alcoholic liquor for human consumption, but the activities and role of par
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s the character of permitting the use of intellectual property rights, or of being a franchise service, at other times it takes on the colour and character of being secondment of personnel. The varied nature in the character of the services supplied by the Appellant, makes it difficult to determine the pre-dominancy in terms of characterisation since the consideration for some elements of the supply is being received in terms of a variable amount. Since, the activity which the Appellant engages in with respect to contract does not essentially change, hut the volume of consideration can change in each tax period, it does pose a challenge in terms of giving one particular nomenclature to the activities of the Appellant that would remain unchanged over all tax periods. There is a standard rate of 18% which applies across the whole range of services that are taxed under GST. However, this fact of having one pre-dominant supply that may be constant across tax periods, does not do anything t
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Code 999799 as other services nowhere else classified . The amounts received by the Appellant from the contracting units under the Agreement, in the nature of brand fee and reimbursement of expenses, is termed as a consideration for the supply of service and is chargeable to GST at the applicable rate of 18%. End Note To conclude, it can be said that it is now settled from the advance ruling perspective that activities of contract bottling of beer shall be eligible to levy of GST @ 18%. However, an assessee may still knock the doors of High Court or Supreme Court by way of a writ petition. Further, since we have now an AAAR affirmed advance ruling which is atleast binding on the applicant and its jurisdictional tax officer, it indicates that the same analogy would apply to other bottling activities like alcoholic liquor (other than beer), pharma, FMCG and other industries where such arrangements are in vogue. This would also be used as a guidance, though not a binding precedent, by the
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