Question :- Whether in the facts and circumstances of the present case, the Contract Bottling Unit is making a taxable supply to the Applicant (i.e. Brand Owner), oi . alternatively, whether the Applicant (i.e. brand owner) is making a taxable supply to the. Contract g Unit? Correspondingly, whether in the facts and circumstances of the present case, the Applicant (i.e. ‘brand Owner) is paying consideration to the Contract Bottling Unit by way of bottling charges, or, alternatively, whether the Contract Bottling Unit is paying consideration to the Applicant by way of brand owner surplus?
Answer:- In view of the discussions made above, the question “Whether the applicant (brand owner) is making a taxable supply to the Contract Bottling Unit” is answered in the negative. The remaining Questions, as discussed above, are not answered begin out of the purview of this Authority.
FULL TEXT OF ORDER OF AUTHORITY OF ADVANCE RULING,MAHARASHTRA
The present application has been filed under section 97 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017 hereinafter referred to as “the CGST Act and MGST Act respectively”‘ by ALLIED DERS AND DISTILLERS PRIVATE LIMITED, the applicant, seeking an advance respect of the following issue.
When her in the facts and circumstances of the present case, the Contract Bottling unit is making a taxable supply to the Applicant (i.e. Brand Owner), or, alternatively, r the Applicant (i.e. brand owner) is making a taxable supply to the Contract Bottling Unit? Correspondingly, whether in the facts and circumstances of the present case, the Applicant (i.e. Brand Owner) is paying consideration to the Contract Bottling Unit by way of bottling charges, or, alternatively, whether the Contract Bottling Unit is paying consideration to the Applicant by way of brand owner surplus?
At the outset, we would like to make it clear that the provisions of both the CGST Act and the MGST Act are the same except for certain provisions. Therefore, unless a mention is specifically made to such dissimilar provisions, a reference to the CGST Act would also mean a reference to the same provision under the MGST Act. Further to the earlier, henceforth for the purposes of this Advance Ruling, a reference to such a similar provision under the CGST Act / MGST Act would be mentioned as being under the “GST Act”.
02. FACTS AND CONTENTION – AS PER THE APPLICANT
The submissions, as reproduced verbatim, could be seen thus-
STATEMENT OF THE RELEVANT FACTS HAVING A BEARING ON THE QUESTIONS AS PROVIDED IN ANNEXURE 1
The following are the relevant facts in the context of the present ruling sought:
1. Allied Blenders and Distillers Pvt. Ltd. (“ABD” / “Applicant”) has its GST registered premise at 394/C, Lamington Chambers, Lamington Road, Mumbai – 400 004. The Applicants are d ly registered with the GST department, holding Registration No. 27AAACY3846K1ZX.
2. The Applicant, also known in the industry as a Brand Owner (“BO”), is the holder of various registered brands in relation to Indian Made Foreign Liquor (“IMFL”). As the owner of the said IMFL brands, no one other than the Applicant has the ability to exploit the brands, including by way of sale of IMFL under those brands. At the same time, the State Excise laws mandate that the manufacture and sale of IMFL, as well as the procurement of Extra Neutral Alcohol (“ENA”) required for the manufacture of IMFL, can only be undertaken by parties, who have been duly licensed by the State Excise authorities.
3. In order to the meet the requirements under the State Excise laws, the Applicant approaches various Contracting Bottling Units (“CBUS”) who hold the requisite licences under the State Excise laws to source the ENA and carry out the manufacture and bottling of the IMFL. The Applicant enters into contractual arrangements with the CBUs, under which the CBUs undertake the manufacture of the IMFL for the Applicant, in return for the payment of bottling charges (and certain agreed upon reimbursements, such as taxes and expenses). To enable the manufacturing of IMFL under the Applicant’s brands, the Applicant permits the CBU to affix the labels etc. on the finished products and packaging. Furthermore, in certain States, the sale of alcoholic beverages can only take place through a State-owned corporation; accordingly, the CBUs deliver the goods to the relevant State Corporation or other buyer as per the directions of the Applicant. The sale price for the goods so delivered is typically received by the Applicant from the State Corporation or other buyer.
4. The Applicant enters into the aforesaid contractual arrangements with the CBUs on a strictly non- exclusive basis. In fact, in order to fully exploit its brand, the Applicant simultaneously enters into multiple such arrangements with various CBUs. The Applicant is also at liberty to terminate the arrangement with any CBU. Upon such termination, all the raw materials, packing materials, finished goods, scrap, etc. which are financed by the Applicant are to be handed over to the Applicant, and the CBU is obligated to immediately cease and desist from using the brands of the Applicant associated with the IMFL products which were being manufactured.
The terms and conditions of all such arrangements between the Applicant (as the Brand Owner) and the CBU are the same, and for the purposes of this Application, the Applicant draws reference to sample Agreements for Tie-Up Manufacture of IMFL (“Manufacturing Agreement”) with various CBUs (S.P.Y. Agro Industries Ltd., Unistil Alcoblends Pvt. Ltd., Devicolam Distilleries Ltd. and Hi-Tech Bottling Pvt. Ltd., United Brothers Distilleries Pvt. Ltd., Chandigarh Distillers & /Bottlers Ltd.), which are attached herewith as Exhibit-A. The salient features of the said arrangement are set out below:
6. As stated hereinabove, under the arrangement between the Applicant and the CBUS, in terms of the clause on Consideration, the CBU is remunerated in the form of bottling charges per case of IMFL manufactured. In this regard, sample invoices/ debit notes raised by the CBUs on the Applicant for the manufacturing and bottling charges are attached herewith as Exhibit L.
7. In terms of the flow of funds, the sale price of the IMFL is received directly by the Applicant from the State Corporation or other buyer (in a few cases, they money is received by the CBUs but is immediately auto-transferred to the Applicant vide standing instructions or otherwise). The Applicant then makes payment of the bottling charges and agreed upon reimbursements (such as for taxes) to the CBUs. The Applicant also makes payment directly to the raw material suppliers. The amount left with the Applicant (i.e. Brand Owner) after making all of the aforesaid payments is known as the Brand Owner’s surplus/ profit. The said flow of payments is also duly reflected in the accounting treatment in the Applicant’s books of accounts. A brief description of the said accounting treatment is attached herewith as Exhibit M.
STATEMENT CONTAINING APPLICANTS INTERPRETATION OF LAW IN RESPECT OF THE QUESTIONS RAISED Statement containing the applicant’s interpretation of law and/or facts, as the case may be, in respect of the aforesaid question(s)
1. RELEVANT PROVISIONS OF THE GST LAW
1. The charging provision under the Central Goods and Services Tax Act, 2017 (CGST Act). viz Section 9, stipulates that a supply of goods and/ or services will be liable to GST. The relevant provisions are reproduced below for ease of reference:
9. Levy and collection
(1) Subject to the provisions of sub-section (2), there shall he levied a lax called the central goods and servil:es tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
7. Scope of supply (1) For the purposes of this Act, the expression “supply” includes (a) all forms of supply of goods or services or both such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business
2. Definitions In this Act, unless the context otherwise requires, –
(52) “goods” means every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply
(102) “services” means anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a separate consideration is charged
2. In terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 read with the Annexure thereto, the various services liable to GST include ‘Manufacturing services on physical inputs (goods) owned by others’ as well as ‘Other manufacturing services’ (Heading 9988). Under this Heading, the activity of ‘job work’ (defined as “any treatment or process undertaken by a person on goods belonging to another registered person”) is also covered. Further, there is also a residuary entry for ‘Other services nowhere else classified’ (Heading 9997).
II. PAST CLARIFICATIONS AND RULINGS ON THE ISSUE
3. under the erstwhile Indirect Tax regime, the manufacture and sale of IMFL was liable to State (axrise and VAT. This continues to be the position under GST, as the supply of alcoholic liquor for iiman consumption has been constitutionally excluded from the purview of the GST.
4. However, an issue arose under the Service Tax provisions as to whether the CBUs were roviding a service to the BOs, or vice versa, so as to attract the levy of Service Tax. In this regard, the Central Board of Indirect Taxes and Customs (“CBIC”/ “Board”) had clarified vide two Circulars that under such contract manufacturing arrangements, the CBU is providfog manufacturing services to the BO, but no services are being provided by the BO to the CBU. The relevant extracts of the said Circulars are extracted below for ease of reference:
Circular No. 249/I/2006-C.X.4 dated 27.10.2008
Under such arrangement the BO gets alcoholic beverages manufactured by the licencee / manufacturer, the latter holding the required State Licences for manufacture of the alcoholic beverages. In trade, such licenCees / manufacturers are called the Contract Bottling Units or CBUs. The cost of raw materials (and in same cases, even capital goods) and other expenses are either paid by the BO or reimbursed by the BO. Statutory levies (i.e., State Excise Duty) are also reimbursed to the CBU by the BO. The alcoholic beverages are sold by or as per the directions of the BO and profit or loss on account of manufacturing and sale of alcoholic beverages is entirely on account of BO, who thus holds the property, risk and reward of the products. The CBU receives consideration (i.e. job charges) for undertaking the manufacturing activity on job work basis. There is no doubt that under such an arrangement, CBU is a service provider providing services to BO. Circular F. No. 332/17/2009-TRU dated 30.10.2009
4. For the removal of doubts and with a view to avoid disputes on valuation, it is clarified that -(a) Service tax would be payable on the bottling/job charges, distribution costs and other reimbursables.
[ ]
(d) Similarly, the surplus/profit earned by the BO being in 11w nature of business profit (which falls witl the purview of direct taxes), will not be chargeable to service tax.
Copies of the aforesaid Circulars are attached herewith as Exhibit-N.
5. Further, pursuant to a Letter addressed by the Applicant to the jurisdictional Service Tax Department, it was affirmed vide Letter F.No. ST/HQ/PREVIA. 198(2)/2006/5734 dated 14.12.2009 that the surplus/ profit of the BO is not liable to Service Tax, per the previously issued Circulars. A copy of the said letter is attached herewith as Exhibit-O.
6. In terms of judicial decisions, in the Applicant’s own.case, as well as in the case of various other BOs in the industry operating under similar arrangements (as listed below), the Hon’hle CESTAT has held that the CBU is providing services to the BO which are taxable and/or that no service is rendered by the BO to the CBU.
Copies of the aforesaid rulings are attached herewith as Exhibit-P.
III. INTERPRETATION OF LAW ANDI OR FACTS PER THE APPLICANT
7. Under the GST, any ‘supply’ of ‘goods’ or ‘services’ is liable to tax. It therefore requires to be examined whether, in terms of the charging and related provisions under the CGST Act, the transactions under the contractual arrangements between the BOs and the CBUs constitute a supply of goods and/or services.
8. It is well settled that the determination of the taxability of a given transaction is to be carried out on the basis of its true commercial nature (Uol vs. Playworld Electronics Pvt. Ltd [1989 (41) ELT 368 (SC)). At the outset, in the present context, it is to be appreciated that the aforesaid contractual arrangement between the Applicant and the CBUs has evolved as a result of the intersection of; (i) the commercial requirements of the Applicant (i.e. to exploit the brands under its ownership through the manufacture and sale IM FL under those brands); and (ii) the licensing requirements under the State Excise laws (viz. that only a licence holder can source the ENA for such manufacture, carry out the manufacture of the IMFL, and sell the alcoholic beverages). It is for the latter reason that the procurement of the raw materials, manufacture and sale of the IMFL are carried out by the CBUs who holds the necessary licences. However, the entirety of the supervision and control of various aspects (including the designation of the sources of raw materials, payment or the said raw materials, every stage of the process of manufacture, determination price for sale of IMFL and identification of the buyers of the IMFL) rests with the Applicant. Under no umstances can the CBU source inputs from a vendor who has not been approved by the Oplicant, nor manufacture the IMFL contrary to the specifications stipulated by the Applicant, nor sell the manufactured IMFL to a buyer who has not been approved by the Applicant or sell at price which is lesser or greater than the exact price approved by the Applicant, nor retain any proceeds from the buyer (in excess of the bottling charges and reimbursements) in any manner. Accordingly, the entire basis and rationale for the Applicant entering into a Manufacturing Agreement with the CBUs is to enable the Applicant (as the owner of the brands) to ftfly commercially exploit his rights in relation to the brands, through the production and distribution of IMFL under thosFe brands. It is for this reason that the Applicant approaches the CBUs and negotiates the terms of the Manufacturing Agreement (and not vice versa), as well as determines the remuneration (in terms of the bottling charge on a per case basis) which it is willing to pay to the CBU. It is also significant that the Applicant enters into the aforesaid contractual arrangements with the CBUs on a strictly non-exclusive basis. In fact, in order to fully exploit its brand, the Applicant simultaneously enters into multiple such arrangements with various CBUs. The Applicant is also at liberty to terminate the arrangement with any CBU. Upon such termination, all the raw materials, packing materials, finished goods, scrap, etc. which are financed by the Applicant are to be handed over to the Applicant, and the CBU is obligated to immediately cease and desist from using the brands of the Applicant associated with the IMFL products which were being manufactured.
9. Accordingly, the true commercial nature of the arrangement is one in which the CBU provides manufacturing services to the Applicant, and is remunerated in the form of bottling charges. BOs such as the Applicant are clearly not service providers to the CBU, but are entrepreneurs seeking to exploit the brands under their ownership, viz. through the sale of IMFL bearing their brands. In the course of exploiting the brands, the BOs incur various expenses, including the bottling charges paid to the CBUs, and the balance amounts retained by them represent their earnings/ profit from the entrepreneurial venture.
10. Furthermore, from a perusal of the various features of the Manufacturing Agreement as well, it is clear that the true nature of the arrangement is for the manufacture and bottling of alcoholic beverages by the CBUs for and on account of the Applicant. In particular, the following features of the arrangement lead to the conclusion that the CBUs are manufacturing IMFL for the Applicant (in addition to the various other features set out at paragraph 3 of the Statement of Facts at Annexure B):
11. In essence, the CBU is carrying out the manufacture and bottling of IMFL to meet the requirements of the Applicant (as the Applicant does not hold the requisite licences under the State Excise laws), in return for the consideration of bottling charges along with certain reimbursements as agreed upon. There is evidently a supply of service by the CI3U to the Applicant, in return for consideration (i.e. the bottling charges) paid by the Applicant to the Concomitantly, there is no supply of service by the Applicant to the CBU which can be brought to tax. The provision of the specifications by the Applicant, as well as permitting the CBUs to affix the Applicant’s brand on the products is evidently merely to enable the manufacture of the IMlF per the commercial requirements of the Applicant, which cannot in any manner be treated as a supply of service by the Applicant to the CBUs. Any such position would result in the absurdity that in every transaction of job work or 411,1Tacting manufacturing, there would be a supply of service by the party placing an order for do manufacture/ processing of goods, to the party manufacturing processing those goods.
12. moreover, in terms of Section 7 of the CGST Act, the requirements of a supply liable to GST are: (i) goods or services or both; (ii) made for a consideration; (iii) by a person; (iv) in the course or futherance of business. Even if the provision of the specifications by the Applicant and permitting the CBUs to affix the Applicant’s brand on the products can be seen as a supply of service by a person (i.e. the Applicant), in the course of furtherance of the business of manufacture and distribution of IMFL under the Applicant’s brand name, there is still arequirement that there must be a consideration payable for the said supply of However, under the contractual arrangement between the Applicant and the CBUs, there is no such contemplation of any consideration whatsoever. In fact, all payments are received by the Applicant from the buyers (either directly or via auto-transfer from the CBUs) towards the supply of the IMFL. There are no payments made by the CBUs to the Applicant, only payment by the Applicant to the CBUs in the form of the bottling charges and reimbursements (which are for the manufacturing services). Accordingly, on this basis as well (viz. absence of consideration), there cannot be said to be a supply by the Applicant to the CBUs which is liable to GST.
13. The aforesaid position (i.e. that there is no service being rendered by BOs such as the Applicant, to the CBUs), is also well established in terms of the past Circulars and rulings under the erstwhile Service Tax regime, which are referred to hereinabove at paragraphs 6 to 8. It is submitted that there has been no change in the contractual arrangements analysed in the said Circulars and rulings under the erstwhile regime, and the conclusion reached by the Board and the Courts/ Tribunals on the true commercial nature of the said arrangements (viz. that the CBU is rendering a service to the BO, and not vice versa) continues to hold good under the GST. Furthermore, it is also submitted that there has been no material change in the provisions between the erstwhile Service Tax regime and the current GST regime which would necessitate a change in the position on issue. In fact, manufacturing services carried out for or on account of another party (whether on the inputs of another or otherwise) continue to be taxable under Heading 9988, and in any event, services nowhere elsewhere classified are also covered under Heading 9997.
Additional submissions on 13.12.2018
WRITTEN SUBMISSIONS
1. At the outset, the Applicant would like to thank the Hon’ble AAR for a patient opportunity of hearing on 28.11.2018. Further to the said personal hearing, the Applicant is placing the following Written Submissions on record, summarizing the contentions made during the said hearing
BRIEF BACKGROUND FACTS:
2. M/s. Allied Blender and Distillers Pvt. Ltd. (“Applicant”) is the Brand Owner (“BO”) of various brands in relation to the manufacture and sale of alcoholic beverages. The Applicant, in order to exploit the brands owned by it, approaches Contract Bottling Units (“CBUs”) in various States, in order to obtain services of manufacture, bottling and packing of alcoholic beverages.
3. The Applicant and the CBU then enter into an Agreement, in terms of which the CBU undertakes the manufacture, bottling and packing of the alcoholic beverages, in return for a fixed Bottling Fee paid by the Applicant.
4. The CBU sells the alcoholic beverages (either to a State Corporation or to a private buyer) under the instructions of the Applicant, and at the price fixed by the Applicant. The sale price of the alcoholic beverages is received by the Applicant, out of which the Bottling Fee and other reimbursements are paid to the CBU. The balance amount is retained by the Applicant as its surplus/ profit.
ISSUE INVOLVED:
5. In the above background, the issue referred to this Hon’ble AAR is whether the aforementioned surplus/ profit earned by the Applicant as the Brand Owner is liable to GST.
LEGAL SUBMISSIONS:
6. The Applicant submits that there is no supply of service by the Applicant to the CBUs for e following reasons.
(Refer insurance claim payments at Pg. 235 of the Compilation Vol. 2). Accordingly, the risk and reward in the goods is with the Applicant.
PRAYER:
In view of the foregoing, the Applicant prays that this Hon’ble AA R may be pleased to issue a ruling to the effect that, in terms of the agreements entered into by the Applicant with the CBUs, the aforementioned surplus/ profit of the Applicant, is not liable to GST.
.03. CONTENTION – AS PER ‘I’HE CONCERNED OFFICER
The submission, as reproduced verbatim, could be seen thus-
BRIEF FACTS OF THE CASE
1. In the alcoholic beverages industry, the Brand Owners (“BO”) such as M/s Allied Blenders and Distillers Pvt. Ltd. hold various registered brands in relation to Indian Made Foreign Liquor (“IMFL”). Such BOs alone have the ability to exploit the brands, including by way of manufacture and salel of IMFL under those brands.
2. At the same time, the State Excise laws mandate that the manufacture and sale of IMFL, as well as the procurement of Extra Neutral Alcohol (“ENA”) required for the manufacture of IMFL, can only be undertaken by parties who have been duly licensed by the State Excise authorities. While the BOs do not hold the licenses under the State Excise laws, there are various Contracting Bottling Units (“CBUs”) who hold the requisite licences under the State Excise laws to source the ENA and carry out the manufacture and bottling of the ‘IMFL’.
3. M/s Allied Blenders and Distillers Pvt. Ltd., approaches the CBUs and enter into contractual arrangements under which the CBUs undertake the manufacture of the IMFL for the BOs, in return for the payment of bottling charges (and certain agreed upon reimbursements, such as taxes and expenses). To enable the manufacturing of IMFL under the 130’s brands, the BO as part of the arrangement permits the CBU to affix the brand labels etc. on the finished products and packaging.
4. In terms of the sale of the IMFL, in certain States, the sale of alcoholic beverages can only take place through a State-owned corporation; accordingly, the CBUs deliver the goods to the relevant State Corporation or other buyer as per the directions of the BO.
5. As regards the flow of funds, the sale price of the IMFL is received directly by M/s Allied Blenders and Distillers Pvt. Ltd. from the State Corporation or other buyer (in a few cases, the money is received y the CBUs but is immediately auto-transferred vide standing instructions or otherwise). The Applicant then makes payment of the bottling charges and agreed upon reimbursements (such as for s) to the CBUs. The BO also makes payment directly to the raw material suppliers. The amount with the BO after making all of the aforesaid payments is known as the BO’s surplus/ profit.
6. under the previous Service Tax regime, the aforesaid arrangement was seen as a rendition of service e CBUs to the BOs. Simultaneously, no service was being rendered by the BOs to the CBUs, and surplus / profit was seen as the earnings from the entrepreneurial venture which would not be e to Service Tax. This view was affirmed by Circulars as well as judicial precedents (referred to herein below).
POSITION ON TAXABILITY UNDER GST:
7. In the aforesaid transactions, it is the CBU who provides services to the M/s Allied Blenders aid Distillers Pvt. Ltd. (the BO) in return for the bottling charges (and other reimbursements). It is not e case that the BO is providing brand-related services to the C13U, for the CBU to manufacture and I the IMFL on its own account. This conclusion is borne out by the following factors:-
(i) At the outset, it is the BO who approaches the CBU to manufacture the IMFL for it.
(ii) The IMFL brands belong to the BO and the 130 seeks to commercially exploit the same by manufacturing and selling alcoholic beverages under the various brand names. However, the does not have the requisite State Excise licences in the various States, and therefore made contracts with the CBUs who will carry out the procurement, manufacture the IMFL and sell e same under the State Excise licences held by them.
(iii) The BO accordingly enters into non-exclusive arrangements with various such CBUs to maxim e the returns on exploiting the brand. The BO can terminate the arrangement at any time. Upon such termination, the CBU is obligated to immediately cease and desist from using the brands of the BO.
(iv) The CBU is only remunerated to the extent of bottling charges per case of IMFL produced (plus reimbursements for taxes etc.). This bottling charge is only a fraction of the selling price of each case of IMFL. Had it been the case that the CBU was ma manufacturing and selling the IMFL on its own account, the CBU would have received and retained the entirety of the selling price of the IMFL, and would have then paid the brand-related fees t.) the 130. In such a scenario, the contract would have specified a brand-related fee to be paid by t I CBU to the BO. Whereas, the contract clearly sets out a bottling fee which the CBU is entitled to receive from the BO. In such cases the title of the Brands and goods is remain with the Brand Owner i.e. M/s Allied Blenders and Distillers Pvt. Ltd.
(v) The total working capital as required by the CBU for its corresponding manufacturing operations is to be arranged by the BO.
(vi) In terms of procurement, the BO has right to either directly arrange, or, recommend suppliers for the procurement of all raw materials and packing materials, and the BO always approves the price at which materials are to be procured by the CBU. The CBU has no discretion on the procurements. The BO may also directly make payment for the raw materials, packing materials etc. to the vendors.
(vii)The entire manufacturing activity by the CI3U is carried out under the supervision of the I30, and, for this purpose, the BO deputes fixed personnel to the premises of the CBU.
During the manufacturing, any unusable or damaged materials are to be handed over by the CBU to the BO. In respect of any wastage which occurs, the disposal of such wastage is to be done only at the rates approved by the BO and all such amounts are to be paid to the BO. On termination of any bottling arrangement, all the raw ma tc.rials, packing materials, finished goods, scrap, etc. which are financed by the 130 are to be handed over to the BO.
(viii)Insurance in respect of the manufactured goods is obtained by the BO in its own name.
(ix) In terms of the sale of the IMFL, the BO identifies the persons to whom the IMFL is to be sold and also decides the price at which the IMFL is to be sold. The CBU has no discretion on the distribution of the IMFL. The sale price of the IMK is also received directly by the BO from the buyer.
8. Accordingly, the true commercial nature of the arrangement is one in which the CBU provides manufacturing services to the BO, and is remunerated in the form of bottling charges.
9. The BO therefore clearly cannot be a service provider to the CI3U, but is an entrepreneur seeking to exploit the brands under its ownership, viz. through the sale of IMFL bearing their brands. In the course of exploiting the brands, M/s Allied Blenders and Distillers Pvt. Ltd. (the BO) incurs various expenses, including the bottling charges paid to the CBUs. The balance amounts retained by them represent their earnings / profit from the entrepreneurial venture. These earnings duly suffer Income but cannot be brought to tax under GST, as there is no supply being made by the M/s Allied Blenders and Distillers Pvt. Ltd. (the BO) to the CBUs.
10. This position was also affirmed under the previous Services Tax regime, vide Circulars No. 249/1/2006-CX4. dated 27.10.2008 and Circular F. No. 332/17/2009-TRU dated 30.10.2019 issued by the ministry of Finance. The latter Circular specifically confirmed that “Service tax would be payable on the bottling/job Charges, distribution costs and other reimbursable… the surplus/ Profit earned by the BO begin in the nature of business profit (which falls within the purview of the direct taxes), will not be chargeable to the service tax”.
The Notification No. 39/2009-Service Tax dated 23.09.2009 wider the previous Service Tax regime, exempted the taxable services specified in sub-case (zzb) of clause 105 of section 65 of the Finance Act, provided by a person (hereinafter called the ‘service receiver’) during the course of manufacture or processing of alcoholic beverages by the service provider, for or on behalf of the service receiver, during the course of manufacture processing of alcoholic beverages by the service provider, for or on behalf of the service receiver, from so much of value which is equivalent to the value of inputs, excluding capital goods, used for providing the same service, subject to the following conditions, namely:-
a) that no Cenvat credit has been taken under the provisions of the Cenvat Credit Rules, 2004;
b) that there is documentary proof specifically indicating the value of such inputs; and
c) where the service provider also manufactures or processes alcoholic beverages, on his or her own account or in a manner or under an arrangement other that as mentioned aforesaid, he or she shall maintain separate accounts of receipt, production, inventory. dispatches of goods as well as financial transactions relating thereto.
12. There has been no material change in the provisions between the erstwhile Service Tax regime and the current GST regime, and the above position should continue to apply.
04. HEARING
The case was scheduled for 11.09.2018 for Preliminary hearing when Sh. Rohan Shah, Advocate along with Ms. Divya Jeswant, Advocate and Sh. Ratan Jain Tax Adviser and Sh. Atit Dalal, head taxation appeared and made contentions for admission of application as pr contentions in their ARA application. Jurisdictional Officer Sh. Ashok S. Gupta Supt., Divisi n I , Mumbai Central appeared and stated that they wou Id be making submissions in due tour
The application was admitted and called for final hearing on 28.11.2018, Sh. Rohan Shah , Advocate along with Ms. Divya Jeswant, Advocate and Sh. A tit Dalai, head taxation appeared argued case on merit . Jurisdictional Officer Sh. Sashikant Bhasgauri Supt., appeared and ma e written submissions.
05. OBSERVATIONS
We have gone through the facts of the case, documents on records and submissions made by both, the department and the applicant. The questions pot before us is as under:-
Whether in the facts and circumstances of the present case, the ( Inlet Bottling Unit is making a taxable supply to the Applicant (i.e. Brand Owner), or, alternatively, ‘to:tether the Applicant (i.e. brand owner) is making a taxable supply to the Contract Bottling Unit? Correspondingly, whether in the facts and circumstances of the present case, the Applicant (i.e. Brand Owner) is paying consideration to the Contract Bottling Unit by way of bottling charges, or, alternatively, whether the Contract Bottling Unit is paying consideration to the Applicant by way of brand owner surplus?
From the above we find that the question raised by the applicant can be divided into 4 parts as under:-
1. Whether in the facts and circumstances of the present case, the Contract Bottling Unit is making a taxable supply to the Applicant?
2. Whether in the facts and circumstances of the present case, the Applicant (i.e. brand owner is making a taxable supply to the Contract Bottling Unit?
3. Whether in the facts and circumstances of the present case, the Applicant (i.e. brand owner is paying consideration to the Contract Bottling Charges?
4. Whether the Contract Bottling Unit is playing consideration to the Applicant by way of brand owner surplus?
We find from the above that questions numbers 1 and 1 are asked by the applicant but pertains to the CBU. As per Section 95 (a) of the CGST Act, 2017 “advance ruling” means a decision provided by the Authority or the Appellate Authority to an applicant on matters or on questions specified in sub-section (2) of section 97 or sub-section (1) of section 100, in relation to the supply of goods or services or both being undertaken or proposed to be undertaken by the applicant.
In respect of question nos. 1 and 4, we find that the supply of services or goods or both, if any is not undertaken by the applicant and therefore the said questions cannot be answered by this Authority.
We also find that question no. 3 does not fall under any of the clauses of sub-section (2) of section 97 of the CGST Act, 2017. Hence the only question that is being taken up in this ruling is question no 2 above which falls under Section 97 (2) of the CGST Act, 2017. The question is reproduced again as under:-
Whether in the facts and circumstances of the present case, the Applicant (i.e. brand owner) is making a taxable supply to the Contract Bottling Unit?
We find, from the submissions made, that the Applicant, holding various registered brands in relation to Indian Made Foreign Liquor (WEI.’ ) has approached and contracted with various Contracting Bottling Units (“CBUS”) who hold the requisite licences under the State Excise laws to undertake the manufacture of the IMFL. for the Applicant, in return for the payment of bottling charges (and certain agreed upon reimbursements, such as taxes and expenses). The CBUs after manufacturing the IMFL, deliver the said goods to buyers as per the applicant’s directions and the sale price for the said goods is received by the Applicant. All the raw materials, packing materials, finished goods, scrap, etc. used by the CBUs are paid for, by the Applicant.
From a perusal of the sample agreements submitted by the applicant, we find that the said agreements are on a principal-to-principal basis, the price at which raw materials are to be procured is fixed by the applicant, the risk, property and interest in the manufactured product passes from the CBU to the applicant upon delivery of the product to the carrier marinated by the applicant, the selling price is as per the directions of the applicant, the sale the goods is received by the applicant, the applicant pays consideration to the CBU in e of bottling charges which are fixed on a per month case basis, and not the sale price manufactured products, the manufacturing activity by the CBU is carried out under the ion of the Applicant, etc. The amount left with the Applicant after making all of the aid payments is their profit.
The applicant has very rightly stated that the true commercial nature of the arrangement in the subject case is one in which the CBU provides manufacturing services to the Applicant, and is remunerated in the form of bottling charges and the applicant is not a service provider to the CBUs. In terms of Section 7 of the CGST Act, one of the requirements of a supply liable to GST is that there should be some consideration received by the applicant if it is to be considered that they are supplying goods/services. We find that in the instant case the applicant is not receiving any consideration for allowing the CBU to use their brand/logo etc on the IMFL. In fact the entire process can be seen as the applicant is contracting with the CBUs to get the IMFL manufactured in under their brand name. There is no service rendered by the applicant in this case.
It is very clear from the terms of the agreement that there is neither any supply of goods nor services flowing from the applicant. The applicant act _tally gets the products manufactured by the CBUs. Hence as per GST laws there is no supply of goods or services or both by the applicant as per Definition of ‘supply’ under section 7 c f the GST Act, 2017, which reads as follows: — ‘supply’ includes
(a) all forms of supply of goods and/or services such as sale, transfer, barter, exchange, licence, rental, lease or disposal made or agreed to be made for a consideration by a person in the course or furtherance of business.
(b) ———
05. In view of the extensive deliberations as held hereinabove, we pass an order as follows :
ORDER
(under section 98 of the Central Goods and Services Tax Act, 2017 and the Maharashtra Goods and Services Tax Act, 2017)
NO. GST-ARA- 67/2018-19/B-155 Mumbai, dt. 15.12.2018
For reasons as discussed in the body of the order, the questions are answered thus –
Question :- Whether in the facts and circumstances of the present case, the Contract Bottling Unit is making a taxable supply to the Applicant (i.e. Brand Owner), oi . alternatively, whether the Applicant (i.e. brand owner) is making a taxable supply to the. Contract g Unit? Correspondingly, whether in the facts and circumstances of the present case, the Applicant (i.e. ‘brand Owner) is paying consideration to the Contract Bottling Unit by way of bottling charges, or, alternatively, whether the Contract Bottling Unit is paying consideration to the Applicant by way of brand owner surplus?
Answer:- In view of the discussions made above, the question “Whether the applicant (brand owner) is making a taxable supply to the Contract Bottling Unit” is answered in the negative. The remaining Questions, as discussed above, are not answered begin out of the purview of this Authority.