ALCOHOLIC LIQUOR – GST LIABILITY

[Mr. M. GOVINDARAJAN]

In M/S. ESVEEAAR DISTILLERIES PRIVATE LIMITED, VERSUS ASSISTANT COMMISSIONER (STATE TAX) , TIRUPATI – II CIRCLE, TIRUPATI & FOUR OTHERS - 2022 (11) TMI 210 - ANDHRA PRADESH HIGH COURT the petitioner is a manufacturer of Indian made foreign liquor.  The petitioner is a franchisee of United Spirits Limited, Bangalore for manufacture of ‘McDowell’ brand alcoholic beverages like rum, whisky and brandy.  An assessment made by the Revenue for the tax periods of 2017-18, 2018-19 and 2019 – 20.  A show cause notice was issued to the petitioner and the petitioner replied to the show cause notice.  The petitioner contended in his reply that the alcoholic liquor is food product and therefore exemption is available to the petitioner.  The Assessing Authority did not accept the reply filed by the petitioner.  The demand of Rs.24,94,104/- was confirmed along with interest and penalty. 

The Assessing Authority held that as per Entry No. 26(f) of Notification No.11/2017-Central Tax (Rate), dated 28.06.2017, only food products are eligible for exemption.  Whether the alcoholic liquor for human consumption can be considered as food for the purpose of levy of tax at lower rate under the said Notification?  The Authority observed that there is no definition of ‘food and food products’ under the Central Goods and Services Tax Act, 2017.  The Supreme Court in COLLECTOR OF CENTRAL EXCISE VERSUS PARLE EXPORTS (P) LTD. - 1988 (11) TMI 108 - SUPREME COURT held that everything consumed by human cannot be considered as food or food products for the purpose of exemption.  It would have never been the intention of law to exempt expensive items under the category food and food products even though the same is used human consumption. 

Being aggrieved against the above said order the petitioner challenged the same before the High Court in the present writ petition.   The petitioner submitted the following before the High Court-

• The Notification No. 11/2017, 31/2017 and 06/2021 clearly establish that for the work done by the petitioner, it has to pay tax @ 5%.  Therefore the levy of tax @ 18% and imposition of penalty is bad in law.
• Since the liquor falls within the category of ‘food and food products’ under Chapter 22 of the First Schedule of Customs Tariff Act, the rate of tax payable is only @ 5%.
• The services by way of job work can only be taxed @ 5% and not @ 18% as per the Notification No. 06/2021 which came into force with effect from 01.10.2021.  The said notification is only prospective and not retrospective.

The Revenue submitted the following before the High Court-

• When the issue involves disputed questions of fact, the proper remedy for the petitioner is to be an appeal.  Therefore the writ petition is not maintainable.
• The argument of the petitioner that Notification No. 11/2017 has been substituted by the Notification No.06/2021 is not correct.
• Only food and food products falling under Chapters 1 to 22 in the First Schedule alone are included and the same would not cover alcohol.
• Since the Notification No. 06/2021is silent as to whether it is prospective or retrospective in operation, it is an established principle of law that the same would be retrospective in operation and that the petitioner has to pay 18% tax instead of 5%.

The High Court considered the submissions of the petitioner and the Revenue.  The following are the points considered by the High Court for its decision-

• Whether liquor is ‘food or food product’?
• Whether imposing of tax @ 18% for the job work done in relation to the manufacture of liquor for human consumption at 18% is prospective or retrospective?

The High Court observed that the Government of India issued Notification No.11/2017, dated 28.06.2017.  The food and food products or alcohol was not included under the Heading 9988 but however tax payable for products mentioned in the said notification was show as 2.5% + 2.5%.  The said Notification was amended by Notification No.31/2017, dated 13.10.2017 the food and food products are added but however the tax to be paid remained unaltered @ 5%.  The Notification No. 11/2017 was further amended vide Notification No.06/2021, dated on 30.09.2021 it was indicated that the services by way of job work, in relation to manufacture of alcoholic liquor for human consumption was chargeable @ 9% + 9%.

The High Court further observed that the Notification No. 06/2021 does not substituted the Notification No.11/2017.  It only clarifies the earlier Notification by incorporating a clause.  

The High Court observed that there is no definition for ‘food and food products’ under the CGST Act but at the same time whatever consumed by human beings cannot be construed as ‘food and food products’ for the purposes of exemption under GST.  There is no direct evidence as to consider the alcoholic products are to be considered as food products.  The exemption given to food products is to encourage food production and also to give boost to the production of goods in common use and need.  The exemption is given to food products so as the consumers can get it at cheaper price. 

The High Court further observed that the GST Council in its 45^th meeting considered whether alcoholic liquor is food.  It was clarified that food and food products excludes alcoholic beverages for human consumption.  In common parlance also it is not considered as a food.  As such the same is not eligible for GST @ 5%.  The GST Council also recommended that such job work attract GST @ 18%.   The High Court held that the alcoholic liquor is liable to be taxed @ 18%.

Notification No.06/2021 incorporates services by way of job work in relation to manufacture of alcoholic liquor for human consumption as item No. (ica) in Column 3 of Serial No. 26 and the rate of tax is mentioned at 9% (9%+9%).  The High Court held that since the manufacture by the petitioner relates to alcohol for human consumption by way of job work the petitioner is liable to pay tax @ 18%.

The High Court considered the next question as to whether the petitioner is liable to pay tax @ 18% with prospective or retrospective effect.  The High Court held that the Notification No.06/2021 is clarificatory in nature and therefore the petitioner is liable to pay tax @ 18% retrospectively.  The High Court dismissed the writ petition filed by the petitioner.