GST ON BY–PRODUCTS OF ALCOHOLIC BEVERAGES

[Dr. Sanjiv Agarwal]

 Although alco-beverages meant for human consumption are outside the scope of levy of Goods and Services Tax (GST), as per the present scheme of Constitution of India and GST law, yet by-products obtained during the manufacture of alcohol could be taxed under the GST law.

The by-products such as Distillery Dry Grain Soluble (DDGS) and Distillery Wet Grain Soluble (DWGS) which are brewing and distilling activity’s by-products are obtained as a by-product during the manufacture of alcohol. Such products are sold and used as cattle feed. These are not exempt from levy of GST but liable to levy of GST @ 5 percent (i.e., 2.5% CGST, 2.5% SGST) as per S.No. 104 of First Schedule to Notification No. 1/2017-CT (Rate) dated 28.06.2017 and not exempt wide S.No. 104 of Notification No. 2/2017-CT (Rate) dated 28.06.2017.

In one of the Appellate Advance Rulings reported recently, IN RE: M/S. ALLIED BLENDERS AND DISTILLERS PRIVATE LIMITED - 2022 (12) TMI 809 - APPELLATE AUTHORITY FOR ADVANCE RULING, TELANGANA, this issue came up in an appeal against advance ruling where in ruling was given as follows :

Issue:

Whether the sale of produces Distillery Wet Grain Soluble ('DWGS') and Distillery Dry Grain Soluble ('dDgS') -'Cattle feed' undertaken by the applicant is covered under serial no 102 of Notification No. 02/2017 -Central Tax (Rate) dated 28 June 2017 and whether these commodities are exempt from payment of GST?

Ruling:

No. Both the commodities fall under S.No. 104 of Notification No. 01/2017 and are taxable at the rate of 5%.

M/s Allied Blenders are primarily engaged in manufacture of alcohol. In the process of manufacturing alcohol, the applicant produces certain bye-products by names distillery dry gain soluble (DDGS) and distillery wet grain soluble (DWGS). They contended that these are sold only as cattle feed as they have no other 'known commercial uses'.

In appeal, it was submitted that no attempt was made by the AAR to appreciate the submissions made by the appellant in support of the contention that based on end use and common parlance, the goods namely DDGS and DWGS are considered as cattle feed and consequently exempt from tax in terms of Sl.No.102 of notification No.02/2017 Central Tax (rate) dated: 28.06.2017.

Further, Tariff Heading 2309 covers "Preparations of a kind used in animal feeding". The end user test requires to examine the end use or the dominant use of the product i.e. how is the product used by the end user or the dominant user. The end user test will however, have to be applied depending upon the nature of the Tariff Entry.

However, the Appellate Authority observed that the plea of the applicant is not tenable in view of the fact that the impugned product is a by-product of brewing or distilling activity. Only end use of the product could not be a criterion for arriving at a classification. Further, when a specific entry under a notification is available, the same will override the general entry in a notification. Since in this case, Sl. No. 104 of Notification No. 1/2017-CT(R) covers brewing or distilling dregs and waste, the same will override the entry at S.No. 102 of Notification No. 2/2017-CT(R), dated 28.6.2017.

Also, CBIC had issued a Circular No. 163/19/2021-GST dated 06.10.2021which clarified that Brewers' spent grain (BSG), Dried distillers' grains with soluble [DDGS] and other such residues are classifiable under heading 2303, attracting GST at the rate of 5% (S. No. 104 of schedule I of notification No. 1/2017-Central Tax (Rate) dated 28.06.2017).

The original ruling was therefore, upheld and such by products held to be taxable @ 5 percent.

It can therefore be inferred from this appellate advance ruling is that manufacturers of alco-beverages should be careful in classification of their products and by – products and choose their classification / tariff / HSN code keeping in mind the intent of legislature. All that comes from distilling or brewing processes may not be out of tax net. Only and only alcoholic beverages, that too meant for human consumption, shall not be taxed to Goods and Services Tax.