AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2019 (7) TMI 1507
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....02 dated 04.09.2018 = 2018 (12) TMI 843 - AUTHORITY FOR ADVANCE RULING, MAHARASHTRA. BRIEF FACTS OF THE CASE A. The Appellant is a company incorporated under the provisions of the Companies Act, 1956. The Appellant has entered into the Agreement with PIL to brew / manufacture, package and supply Products, as specified under the Agreement, from its bottling unit to buyers / distributors in the territory identified by the Appellant. PIL holds valid licenses, permits and permissions necessary under the applicable laws for manufacture of Products at its bottling unit. B. In order to understand the transactions being undertaken under the Agreement, the Appellant has summarized the relevant terms of the Agreement below: a. In accordance with the instructions received from Appellant during the term of the Agreement, PIL undertakes to manufacture the Products at its Bottling Unit and perform certain other allied activities, including the following: (Clause 2.1 of the Agreement): i. Purchasing the required materials, arranging labour and all other facilities and inputs, in compliance with the standards prescribed under the Agreement, for the purpose of ma....
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....nd ingredients used to manufacture the Products, based upon parameters agreed under the Agreement on actual price basis; ii. Labour and manpower cost upon actual cost, based upon parameters agreed under the Agreement; iii. Cost of consumables towards boiler fuel, cost (initially furnace oil and later rice husk / briquette), demineralised water, carbon dioxide, effluent treatment plant, water treatment plant, laboratory supplies, inkjet printers, ink and any other consumables which is consumed in routine working of the Bottling Unit; iv. Power cost based upon parameters agreed under the Agreement on actual price basis; v. Bottling fee (including without limitation franchise fee and label registration charges) that may be levied by the excise department of the State of Maharashtra; vi. Other duties, taxes and fees levied by the State Government or Central Government payable in relation to the dispatch of Products as applicable on the date of Agreement; vii. Cost for taking insurance as contemplated under Clause 4.11 of the Agreement; viii. Cost of any permit fees or levies to be submitted under any applicable rule, regula....
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.... liquor for human consumption. e. PIL is entitled to a fixed fee for manufacture and supply of alcoholic liquor for human consumption. For this purpose, sales invoices are raised by PIL for delivery of alcoholic liquor for human consumption in favour of buyers/ distributors identified by the Appellant. f. The transaction is one of supply of alcoholic liquor for human consumption alone. The physical transfer of alcoholic liquor for human consumption is made by PIL in favour of buyers/ distributors which are identified by the Appellant. The entire sale consideration for the supply of alcoholic liquor for human consumption is split into three parts viz., (1) fixed fee which is retained by PIL, (2) the surplus which belongs to the Appellant, and (3) costs for the manufacture of alcoholic liquor for human consumption which is reimbursed to PIL. g. No part of the above sale consideration for alcoholic liquor for human consumption is subject to GST as the supply of alcoholic liquor for human consumption itself is outside the purview of the GST provisions. All the above components of the sale consideration, whether retained by the Appellant or by PIL, are only pa....
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....dependent of each other. Grounds of Appeal Merely because the cost of raw materials and inputs used in the manufacture of Products is reimbursed by the Appellant to PIL, it cannot be concluded that PIL is providing job work to the Appellant 1. It is humbly submitted that the Ld. Authority has erroneously concluded that the Appellant is paying fixed fees to PIL under the Agreement for providing job work services to the Appellant. As per Section 2 (68) of the CGST Act, 'job work' is defined as "any treatment or process undertaken by a person on goods belonging to another registered person" and the expression 'job worker' has to be construed accordingly. An identical definition of 'job work' is provided under Section 2 (68) of the MGST Act. In terms of Section 2 (24) of the IGST Act, the abovementioned definition of 'job work' under the CGST Act shall also apply to the IGST Act. In this regard, it is humbly submitted in terms of the above 2. mentioned definition of 'job work', an activity can be said to be 'job work' only if such treatment or process is undertaken by a person on 'goods belonging to another registered person'. 3. In the present case, it is clearly stated....
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....e Agreement. In any case, it is most humbly submitted that the definition of 'job work' under the CGST Act does not envisage any concept of notional or beneficial ownership of the goods for determining whether an activity amounts to job work. Accordingly, it is humbly submitted that the manufacturing activity undertaken by PIL cannot be said to be in the nature of 'job work', as defined under Section 2 (68) of the CGST Act. 4. In this regard, it is humbly submitted that merely the fact that the cost of raw materials and ingredients used to make the Products is reimbursed by the Appellant does not change the fact that such raw materials and ingredients are procured by and owned by PIL. It is respectfully contended that in any case of supply of goods or services, the consideration charged for supplying such goods or services can be broadly split into (1) the cost incurred for supplying such goods or services; and (2) the amount of profit. The fact that the cost of raw materials used for supplying such goods or services is recovered from the recipient of goods or services at the time of supply does not imply that the raw materials always belonged to the said recipient (i.e. even be....
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....or for human consumption". Similarly, the MGST Act provides for provisions for levy and collection of GST on intra-State supply of goods or services or both by the State Government of Maharashtra. Under the MGST Act, Section 9 (1) specifically provides for the levy of MGST on "all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption". As far as the IGST Act is concerned, the same provides for provisions for levy and collection of tax on inter-State supply of goods and services or both by the Central Government. Under the IGST Act, Section 5 (1) specifically provides for the levy of IGST on "all inter-State supplies of goods or services or both, except on the supply of alcoholic liquor of human consumption". 7. Based on a plain reading of Article 366 (12A) of the Constitution of India, Section 9 (1) of the CGST Act / MGST Act and Section 5 (1) of the IGST Act, it is respectfully submitted that 'supply of alcoholic liquor for human consumption' has been expressly excluded from the ambit of levy of CGST / MGST / IGST. Further, the amendment in Entry 54 in List Il of Seventh Schedule (State List) to the Constitution of Ind....
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....ucts into fixed fees and costs 9. The Ld. Authority failed to appreciate that there is no independent service provided by PIL to the Appellant. The alleged service gets subsumed in the manufacture of alcoholic liquor for human consumption and finally what is supplied is only alcoholic liquor for human consumption. Therefore, it would be incorrect to sub-divide the transaction of alcoholic liquor for human consumption and attempt to tax the service portion, if any, which already stands subsumed in the final product which is alcoholic liquor for human consumption alone. For instance, if the manufacturer enters into an agreement to supply packaged pens, the activity of packaging pens gets subsumed in the manufacture and no separate service of packaging pens will be said to be undertaken. Therefore, observing that there is a job work activity which is being done for which fixed fee is being paid is entirely incorrect. 10. In this regard, it is humbly submitted that the following facts are undisputed: a. That PIL is a manufacturer of alcoholic liquor for human consumption and holds the requisite licences under the State excise laws (Recital (b), Clause 1.3.1(a) and (d) of....
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....tion of the legal provisions to observe that there is a supply of job work service to the Appellant which is taxable under GST. It is submitted that it is well settled that taxing statutes are to be strictly construed i.e. a taxing statute has to be looked at merely in terms of its language and there is no room for any intendment. The reasoning behind such construction of taxing statutes is that there is no concept of equity in taxation law. This principle has been upheld by the Hon'ble Supreme Court in a series of judgments, including by a Constitutional Bench of the Hon'ble Supreme Court in Hansraj Gordhandas v. HH Dave, (1969) 2 SCR 253 = 1968 (9) TMI 112 - SUPREME COURT as well as in Sales Tax Commissioner v. Modi Sugar Mills, AIR 1961 SC 1047 = 1960 (10) TMI 65 - SUPREME COURT. 13. In light of the above mentioned rule of construction relating to taxing statutes, it is humbly submitted that the definition of 'job work' only includes such treatment or process undertaken by a person on 'goods belonging to another registered person'. In the present case, it is already established that PIL is working on its own goods and not on Appellant's goods. Further, the language of Article....
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....a well-settled principle of law that a thing which cannot be done directly cannot be done indirectly". Relying on these judgments, it is humbly contended by the Appellant that once the supply of alcoholic liquor is excluded from the very definition of GST under the Constitution of India as well as from the charging provisions levying CGST / MGST / IGST under the CGST Act / MGST Act / IGST Act, there is a total bar on imposing GST on such a supply in any form, including by way of creating a deeming fiction. Advance Ruling No. KAR ADRG 9/2018 dated 29.06.2018 = 2018 (7) TMI 835 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA supports the Appellant's contention that the manufacturing activity undertaken b PIL is not in the nature of supply of services and, therefore, no GST is liable to be paid on the same 15. The Ld. Authority erred in ignoring the fact that the Advance Ruling No. KAR ADRG 9/2018 dated 29.06.2018 = 2018 (7) TMI 835 - AUTHORITY FOR ADVANCE RULINGS, KARNATAKA given by the Authority for Advance Ruling, Karnataka ('Karnataka Advance Ruling') in the case of M/s. United Breweries Limited ('UBL')actually supports the Appellant's contentions. The facts of the Karnataka Adva....
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....ng / manufacturing, packaging and supplying beer by PIL to the Appellant for which PIL is receiving a consideration. In its answer to the Appellant's query, the Cd. Authority has merely held that supply of beer per se is not taxable and that what is taxable in the subject case is the job work which is a service provided by PIL to the Appellant. 19. It is humbly submitted that the Appellant had not sought a response on the nature of service which is taxable but the specific rate at which GST will be charged, if brewing, bottling and supplying Products is considered to be a taxable supply. In this regard, it is the Appellant's humble contention that all the activities under consideration i.e. brewing, bottling and supplying Products are in relation to beer which is classifiable as Customs Tariff Item 2203 00 00 of the First Schedule to the Customs Tariff Act, 1975. 20. Accordingly, it was the Appellant's respectful contention that if brewing, bottling and supplying Products is considered to be a taxable supply, the same shall be levied CGST (in case of intra-State supply) at the rate of 2.5% in terms of Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017, as amended by....
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....llied activities required for carrying out the said manufacturing of beer, e.g. purchasing the raw materials, arranging labour and all other facilities and inputs as per the Product and Performance Standard, clearly laid out by the Appellant in the said agreement, is towards the supply of the alcoholic liquor for human consumption and therefore, will not come under the ambit of GST as per the provision of Article 366(12A) of the Constitution of India and also as per the levy and collection provision carved under Section 9(1) of the CGST Act. (ii) They have also contended that since PIL is the actual owner of the raw materials and other ingredients required for the manufacture of the beer as the said raw materials are purchased by the PIL on their own account in accordance with the terms and covenants of the agreement, they are not performing any treatment or process on the goods belonging to another registered person, which is an essential requirement of the activity of 'Job work' as provided under Section 2(68) of the CGST Act, 2017. (iii) The Appellant, further, contended by submitting that merely the fact that the cost of raw materials and other ingredients use....
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....entered between PIL and the Appellant, which stipulates that "Crown would be entitled to specify inter alia, as part of the Product and Performance Standards, the quality, specific varieties, sources and terms for procurement of Materials........." Thus, PIL does not have any stake in deciding the quality, varieties and even the source of the materials, which are used to manufacture the Product i.e. been This fact is also reflected from the entry 4.5 of the said agreement, which is reproduced herein under: "4.5 PIL shall not settle without Crown's prior written consent any claims or disputes with any supplier of the materials identified by the crown or any third parties in relation to activities undertaken by PIL pursuant to this agreement including operation of the Bottling unit." Thus, from the above, it is aptly clear that though PIL is undertaking the purchase transaction of the raw materials and other ingredients used in the manufacture of beers, it is the Appellant, who is deciding not only the qualities and varieties of the materials, but also the suppliers from whom these materials are to be purchased along with the terms and conditions for the purchase trans....
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.... said Agreement that "The costs incurred on purchase of Materials, other expenses set out in Schedule Il and the sale revenue generated from the sale of products will always be incurred on account of and inure to the benefit of Crown. It is therefore clearly understood and acknowledged by the parties that any surplus arising or recorded in the Manufacturing and Sales Account will always belong to Crown and would be utilized by Crown at its sole discretion." Entry 3.1 contemplates that PIL shall be entitled only to the Fixed Fee for performance of its obligations under this agreement to the reasonable satisfaction of Crown. Entry 7.8 of the said Agreement stipulates as under: "The Parties agree and acknowledge that Crown shall be responsible for the collection of proceeds from the sales of products and crediting of the same in the Account." All these above clauses clearly establishes that the actual owner of the finished Product is the Appellant and not the PIL as the entire sale process viz.- identification of the actual and potential buyers and recovery of the sale proceeds etc. is controlled and administered by the Appellant, making them accountable for the sale....
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....d not be proper and legal to interpret the provision by adding, altering the words used by the legislature by going against the well settled rule of literal construction of interpretation even if the provision does not have any ambiguity. 29. It is worth noting here that in erstwhile Service Tax regime also, the said activities of CBI-Js of manufacturing alcoholic liquor on behalf of Brand Owners (BOs) against a consideration, were subjected to Service Tax and this was clarified also by CBIC(earlier CBEC) vide Circular No. 249/1/2006-C.X.4 dt. 27.10.2008 and Circular No. 332/17/2009-TRU dt. 30.10.2009. This levy of Service Tax continued upto 30.06.2012. Thereafter, with effect from 01.07.2012, the activity of production of or process amounting to manufacture was covered under Section 66D (Negative List) implying that the activity undertaken by the CBIJ went out of purview of Service Tax. The statute was yet again amended and process undertaken by CBUs once again came under the purview of Service Tax with effect from 01.06.2015 and remained there till 30.06.2017. Therefore, it is observed that the activities of CBUs were subjected to Service Tax just prior to introduction of GST.....