GST on Manufacturer of Alcoholic Liquor on Job Work Basis

Exemptions, rate rationalisation, expansion of relaxations to Covid supply, exports, ITC, debit notes, late penalties, inclusion of specific items / services in tax net, and other decisions were made by the GST Council. The information is contained on the inside pages of this newsletter. All such recommendations will be carried out in due course. Based on GST Council recommendations, CBIC has already released a few Circulars that provide much-needed explanations. In this article we’ll discuss GST on Manufacturer of Alcoholic Liquor on Job Work Basis.

One of the key topics discussed by the GSTC is the rate of GST applied to job works conducted in regard to alcoholic liquor intended for human use. According to the judgement, alcoholic liquor for human use does not qualify as “food and food goods” for the purposes of the provision requiring a 5% GST rate on job labour services related to food and food products.

Meaning of Food

The term “food” is not specified in the GST statute. However, the Prevention of Food Adulteration Act, 1954 defines ‘food’ as any object used as food or drink for human use that is not medications or water. The word encompasses-

• any substance that normally enters or is employed in the composition or preparation of human food; and
• any seasonings or condiments; and
• any other commodity that the Central Government, having respect to its use, character, content, or quality, declares as food for the purposes of this Act by announcement in the Official Gazette.

According to the Food Safety and Standards Act, 2006, “food” refers to any substance intended for human consumption, whether processed, partially processed, or unprocessed, and includes primary food, genetically modified or engineered food or food containing such ingredients, infant food, packaged drinking water, alcoholic drink, chewing gum, and any substance, including water, used into the food during its manufacture, preparation, or treatment, but does not include any animal faeces.

Other Meaning of Food

• Food has been described as “what is consumed for biological body nutrition; nutriment; aliment; victuals; supplies.”
• Food is what is ingested into the body to sustain life and growth.

New GST rate on job work

CBIC has stipulated in Notification No. 06/2021-CT(Rate) dated 30.09.2021 that services by means of job work in connection to the manufacturing of alcoholic liquor for human consumption should be taxed at 18% (9% CGST and 9% SGST) with effect from 01.10.2021. This resolves the interpretation controversy concerning employment activities leading to the production of alcoholic beverages.

The impact of the GST Council not considering alcoholic drinks for a 5% GST rate:

• Alcoholic beverages are not foods or products.
• It does not fall within the definition of ‘food / food product’ and hence does not qualify for the 5% GST discount.
• The applicable rate for any employment work, namely 18%, shall apply.
• This clears up any confusion about the scope of rate application.
• As a result of the GST slab rates, the cost of liquor intended for human consumption would rise by 13% (i.e. 18% – 5%), with no ITC advantage to the brand owner.

The current GST rate in respect to food processing Industries

The current GST rate for food processing industries is as follows:

• 5 percent for job work services related to food and food products falling under Chapters 1 to 22 of the HS Code (excluding packaging of processed milk into packages).
• All other services not specifically mentioned elsewhere – 18%

Clarification from the CBIC

CBIC has clarified the situation as follows: Circular No. 164/20/2021-GST, issued October 6, 2021:

“Services provided by contract manufacturers to brand owners for the production of alcoholic beverages for human consumption.”

• According to Sl. No. 26 [Item 1(i)f] of notification No. 11/2017-Central Tax (R) dated 28-6-2017, job work services supplied by contract manufacturers to brand owners for the manufacture of alcoholic liquor for human consumption attract GST at the rate of 5% prescribed for job work services in relation to food and food products. This item specifies a 5% GST rate for services performed in regard to food and food products falling within chapters 1 to 22 of the first Schedule to the Customs Tariff Act, 1975.
• It is clarified, as proposed by the GST Council, that the word “food and food items” in the aforementioned entry excludes alcoholic drinks for human consumption. As a result, alcoholic liquor is not considered food in common language. As a result, services performed on the job in relation to the manufacturing of alcoholic liquor for human use are not eligible for the GST rate of 5% specified in the relevant entry. The GST Council suggested that such work be subject to GST at the rate of 18%.”

Endnote

The new clarification clears the air for everyone, and GST will now be imposed at 18% on all job operations connected to the manufacture / manufacturing / bottling / distilling of alcoholic liquor intended for human use.

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