2022 (11) TMI 210 - HC - GST

HC upholds 18% GST on alcoholic liquor manufacturing job work, rejects food product classification argument

The Andhra Pradesh HC dismissed a petition challenging 18% GST on job work for manufacturing alcoholic liquor. The petitioner argued liquor qualified as ... Alcoholic liquor for human consumption not food or food products - services by way of job work in relation to manufacture of alcoholic liquor taxable at higher GST rate - interpretation of exemption entry for food and food products - clarificatory notification and retrospective operation - purpose of exemption - encourage production of essential food items - principles of statutory interpretation for clarificatory/amending notificationsAlcoholic liquor for human consumption not food or food products - interpretation of exemption entry for food and food products - purpose of exemption - encourage production of essential food items - Alcoholic liquor for human consumption does not constitute 'food and food products' for the purpose of the entry prescribing 5% GST on job work services relating to food and food products. - HELD THAT: - The Court held that the expression 'food and food products' in the exemption entry must be interpreted in light of the purpose of the exemption, which is to encourage production of goods in common use and need and to make food items more affordable. Reliance was placed on earlier judicial reasoning that not everything consumed by humans qualifies as 'food' for the purpose of fiscal exemptions and that it could not have been the legislature's intention to extend exemption to expensive or non-essential items such as alcoholic liquor. The GST Council's clarification excluding alcoholic beverages for human consumption from the entry prescribing 5% GST on job work services was noted and the textual placement of beverages under Chapter 22 was held insufficient to bring alcoholic liquor within the intended scope of the lower-rate entry. Consequently, job work relating to manufacture of alcoholic liquor cannot be taxed at the concessional 5% rate applicable to food and food products. [Paras 15, 17, 18, 19, 21]Job work in relation to manufacture of alcoholic liquor for human consumption is not entitled to the 5% GST concession and cannot be treated as a food or food product for that purpose.Clarificatory notification and retrospective operation - principles of statutory interpretation for clarificatory/amending notifications - Notification No.6/2021, insofar as it clarifies that job work relating to manufacture of alcoholic liquor for human consumption attracts 18% GST, is clarificatory in nature and operates retrospectively. - HELD THAT: - The Court examined the character of Notification No.6/2021 and, applying established principles of statutory interpretation, observed that a clarificatory amendment which explains or declares the meaning of an earlier provision is generally intended to operate retrospectively. The Court quoted the legal principle that explanatory or declaratory amendments correct omissions or clear doubts and therefore are retrospective unless the amending instrument contains clear words to the contrary. Given that the notification clarified the scope of the earlier entry and that no specific exemption for alcoholic liquor had ever been granted, the notification was treated as clarificatory and given retrospective effect. [Paras 21, 22]Notification No.6/2021 is clarificatory and retrospective; accordingly the higher rate (9%+9%) applies retrospectively to the job work services in question.Final Conclusion: Writ petition dismissed. The petitioner is not entitled to the concessional 5% GST for job work relating to manufacture of alcoholic liquor for human consumption; such job work is taxable at 18% and Notification No.6/2021 is clarificatory and operates retrospectively in relation to the tax periods in dispute. Issues Involved:1. Whether alcoholic liquor for human consumption falls within the meaning of food or food products.2. Whether imposing tax at 18% for the job work done in relation to the manufacture of liquor for human consumption is prospective in operation.Detailed Analysis:Issue 1: Whether alcoholic liquor for human consumption falls within the meaning of food or food products.The petitioner, a manufacturer of Indian Made Foreign Liquor, challenged the assessment levying CGST amounting to Rs. 24,94,104/- with penalty and interest for the tax periods 2017-2018, 2018-2019, and 2019-2020. The petitioner contended that the job work charges related to the manufacture of alcoholic liquor should be taxed at 5% as per Notification No.6/2021-Central Tax (Rate) dated 30.09.2021, rather than at 18%.The petitioner argued that since alcoholic beverages fall under Chapter 22 of the First Schedule to the Customs Tariff Act, they should be considered as 'food and food products' and taxed at 5%. However, the assessing authority held that not all products under Chapters 1 to 22 attract a 2.5% tax, and only food and food products are eligible for this exemption. The Supreme Court in Collector of Central Excise Vs Parle Exports Pvt Ltd (1998) held that non-alcoholic beverages were not eligible for exemption as food products, implying that expensive items like alcoholic liquor were never intended to be exempted under the category of food and food products.The court noted that there is no definition of 'food and food products' under the Act, and not everything consumed by humans can be considered as such for tax exemption purposes. The GST Council, in its 45th Meeting on 17.09.2021, clarified that food and food products exclude alcoholic beverages for human consumption. Therefore, services by way of job work in relation to the manufacture of alcoholic liquor for human consumption are not eligible for the 5% GST rate.Issue 2: Whether imposing tax at 18% for the job work done in relation to the manufacture of liquor for human consumption is prospective in operation.The petitioner argued that Notification No.6/2021, dated 30.09.2021, should be prospective and not retrospective. However, the court held that the notification does not substitute the earlier notification but clarifies it by incorporating a clause in line with the law laid down by the Supreme Court.The court referred to the Supreme Court's decision in CIT v Vatika Township Pvt Ltd, which stated that if a statute is curative or merely declaratory of the previous law, retrospective operation is generally intended. The court concluded that Notification No.6/2021 is clarificatory in nature and therefore retrospective in operation.Conclusion:The court dismissed the writ petition, holding that alcoholic liquor for human consumption does not constitute food or food products under Chapters 1 to 22 of the First Schedule of the Customs Tariff Act, 1975. Consequently, the petitioner is liable to pay tax at 18% as per Notification No.6/2021, and this notification is retrospective in operation. The petition was dismissed with no order as to costs, and any pending miscellaneous petitions were closed.