2019 (3) TMI 537 - AAR - GST

Taxable Supply Determination: Contract Bottling Unit providing services to Brand Owner clarified

In Re: M/s. Allied Blenders And Distillers Private Limited

The Contract Bottling Unit (CBU) was found to be making a taxable supply to the Brand Owner (BO) as it manufactures IMFL for the BO under the BO's brand. ... Levy of GST - Supply of goods/services made by brand owner or not - Liquor licence - Contracting Bottling Units (CBU) scope of supply - Applicant permits the CBU to affix the labels etc. on the finished products and packaging. - CBU provides manufacturing services to the Applicant, and is remunerated in the form of bottling charges - whether the aforementioned surplus/ profit earned by the Applicant as the Brand Owner is liable to GST - maintainability of advance ruling aplication - Held that:- 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 - 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 - also the question whether the Applicant (i.e. Brand Owner) is paying consideration to the Contract Bottling Unit by way of bottling charges does not fall under any of the clauses of sub-section (2) of section 97 of the CGST Act, 2017 and is not maintainable. The only question that is being taken up in this ruling is, which falls under Section 97 (2) of the CGST Act, 2017 is 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? - Held that:- The Applicant, holding various registered brands in relation to Indian Made Foreign Liquor (“IMFL') 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 noaminated by the applicant, the selling price is as per the directions of the applicant, the sale price of the goods is received by the applicant, the applicant pays consideration to the CBU in the nature of bottling charges which are fixed on a per month case basis, and not the sale price of the manufactured products, the manufacturing activity by the CBU is carried out under the supervision of the Applicant, etc. The amount left with the Applicant after making all of the aforesaid payments is their profit. 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 actually 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 of the GST Act, 2017. Thus, the question “Whether the applicant (brand owner) is making taxable supply to the Contract Bottling Unit” is answered in the negative. Issues Involved:1. Whether the Contract Bottling Unit (CBU) is making a taxable supply to the Brand Owner (BO).2. Whether the BO is making a taxable supply to the CBU.3. Whether the BO is paying consideration to the CBU by way of bottling charges.4. Whether the CBU is paying consideration to the BO by way of brand owner surplus.Detailed Analysis:1. Whether the Contract Bottling Unit (CBU) is making a taxable supply to the Brand Owner (BO):The Authority found that the CBU is indeed making a taxable supply to the BO. The CBU undertakes the manufacture of IMFL for the BO, who holds various registered brands. The BO does not hold the necessary State Excise licenses to manufacture IMFL, hence contracts with CBUs. The CBUs manufacture IMFL under the BO's brand and deliver the goods to buyers as directed by the BO. The sale price is received by the BO, and the CBU is remunerated through bottling charges. This arrangement indicates that the CBU provides manufacturing services to the BO, which is a taxable supply under GST.2. Whether the BO is making a taxable supply to the CBU:The Authority determined that the BO is not making a taxable supply to the CBU. The BO contracts with the CBUs to get the IMFL manufactured under its brand name. The BO does not receive any consideration from the CBU for allowing the use of its brand/logo. The entire process is seen as the BO contracting with the CBUs to manufacture IMFL. There is no service rendered by the BO to the CBU, and thus, no taxable supply from the BO to the CBU.3. Whether the BO is paying consideration to the CBU by way of bottling charges:This question does not fall under the purview of the Authority for Advance Ruling as per Section 97(2) of the CGST Act, 2017. Therefore, it was not addressed in the judgment.4. Whether the CBU is paying consideration to the BO by way of brand owner surplus:Similar to question 3, this question pertains to the CBU and not the applicant (BO). As per Section 95(a) of the CGST Act, 2017, the advance ruling can only be provided in relation to the supply of goods or services undertaken or proposed to be undertaken by the applicant. Therefore, this question was also not addressed by the Authority.Conclusion:The Authority concluded that the BO is not making a taxable supply to the CBU. The CBU provides manufacturing services to the BO, which is a taxable supply. The questions regarding the payment of bottling charges and brand owner surplus were not addressed as they were outside the purview of the Authority. The judgment emphasizes that the true commercial nature of the arrangement is one where the CBU provides services to the BO, and the BO is not a service provider to the CBU.