2018 (11) TMI 283 - AAAR - GST

Branded Beer Supply Taxable under GST: Appellate Authority Decision

IN RE: M/s. UNITED BREWERIES LIMITED

IN RE: M/s. UNITED BREWERIES LIMITED - 2018 (18) G. S. T. L. 855 (App. A. A. R. - GST) Issues Involved:1. Whether the manufacture of beer by Contract Brewing Units (CBUs) under the appellant's invoicing is considered a supply of service and whether GST is payable by the CBUs on the profit earned.2. Whether GST is payable by the brand owner on the 'surplus profit' transferred by the CBU to the brand owner out of such manufacturing activity.Issue-Wise Detailed Analysis:1. Supply of Service by CBUs and GST Liability:The appellant, engaged in the manufacture and supply of beer, also has arrangements with CBUs who manufacture beer under the appellant's brand names. The CBUs procure raw materials, incur manufacturing costs, and sell the beer directly to Government Corporations or wholesalers. The CBUs pay statutory levies and taxes, account for manufacturing costs, distribution overheads, and retain a profit before transferring the balance to the appellant.The appellant sought a ruling on whether the manufacture of beer by CBUs is considered a supply of service and whether GST is payable by CBUs on their profit. The Authority ruled that the CBUs are not engaged in the supply of service to the appellant and thus, no GST liability arises on the amount retained by the CBUs as their profit. This ruling was accepted by the appellant and not challenged in the appeal.2. GST on Surplus Profit Transferred to Brand Owner:The appellant also sought a ruling on whether GST is payable by the brand owner on the 'surplus profit' transferred by the CBU to the brand owner. The Authority ruled that GST is payable by the brand owner (UBL) on the surplus profit transferred by the CBU, classifying the service under Service Code 999799 and liable to GST at 18%.The appellant argued that the surplus profit is not a consideration for any service rendered by the brand owner to the CBUs. They contended that the arrangement is a consortium for earning profit from beer manufacture and supply, not a service provision. The appellant cited past litigations and case laws under the erstwhile Service Tax regime, arguing that similar arrangements were not considered taxable services.The Appellate Authority examined the agreement between the appellant and the CBUs, noting that the appellant grants the CBUs the right to use their brand, provides process parameters, and deputes personnel to supervise the manufacturing process. The CBUs pay a brand fee and transfer any surplus profit to the appellant. The Authority held that the brand fee and surplus profit are considerations for the service of granting the representational right to manufacture and supply branded beer, which is a supply of service under Section 7 of the CGST Act.The Authority further classified the service under Service Code 999799 as 'other services nowhere else classified' and held that the entire amount received by the appellant, including the brand fee and surplus profit, is chargeable to GST at 18%.Conclusion:The Appellate Authority upheld the ruling that the activity of granting the representational right to manufacture and supply branded beer is a supply of service and taxable under GST. The amounts received by the appellant from the CBUs, including the brand fee and surplus profit, are considered consideration for the supply of service and are chargeable to GST at the applicable rate of 18%. The appeal was disposed of accordingly.