18% GST Payable On Manufacturing Of Alcohol For Human Consumption By Way Of Job Work: Andhra Pradesh High Court

The Andhra Pradesh High Court has held that 18% GST is payable on the manufacturing of alcohol for human consumption by way of job work.

The division bench of Justice C. Praveen Kumar and Justice A.V. Ravindra Babu has observed that alcoholic liquor is not considered a food. Services by way of job work in relation to the manufacture of alcoholic liquor for human consumption are not eligible for 5% GST.

The petitioner/assessee is a manufacturer of Indian-made foreign liquor having its distillery at Karakambadi Village, Chittoor District, and is a franchisee of M/s. United Spirits Limited, Bangalore, for the manufacture of "McDowell" brand alcoholic beverages like rum, whisky, and brandy. It purchases extra-neutral alcohol from various distilleries, food flavours, special spirits, and caramel from registered dealers situated within the state of Andhra Pradesh as well as from dealers located outside the state of Andhra Pradesh.

An assessment was made by the respondent for the tax periods of 2017–2018, 2018–2019, and 2019–2020 in levying CGST amounting to Rs. 24,94,104 with penalty and interest under CGST and IGST.

The petitioner challenged the GST and penalty levy on the grounds that the job work charges associated with the manufacture of alcoholic liquor at 18% rather than 5% are illegal and unconstitutional.

The petitioner contended that since liquor also falls within the category of "food and food products" under Chapter 22 as it was sought to be inserted at Serial No. 26 after Clause 'e', the rate of tax payable is only 5%. According to Notification No. 6/2021, dated September 30, 2021, and taking effect on October 1, 2021, job work services can only be taxed at 5%, not 18%, because no notification is published in the Gazette until September 30, 2021.

The department contended that on September 30, 2021, Notification No. 6/2021 was issued, making further amendments to Notification No. 11/2017, by which the initial 5% tax imposed was enhanced to 18% in respect of services by way of job work in relation to the manufacture of alcoholic liquor for human consumption.

The court relied on the decision of the Supreme Court in the case of Collector of Central Excise vs. Parle Exports Pvt. Ltd., in which it was held that it will never be the intention of the legislature to exempt expensive items like alcoholic liquor under the category of food and food products, even though the same is for human consumption.

The court dismissed the writ petition.

Case Title: M/s.Esveeaar Distilleries Private Limited Versus Assistant Commissioner (State Tax)

Case No: Writ Petition No.15534 of 2022

Citation: 2022 LiveLaw (AP) 137  

Date: 20.10.2022

Counsel For Petitioner: S. Suri Babu

Counsel For Respondent: Y.N. Vivekananda

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