Classification Issue in Job work related to Alcoholic Liquor for levy of GST

When it comes to classification of food or food products, it is a contentious issue for the purpose of levy of Goods and Services Tax (GST) as to whether alcoholic liquor meant for human consumption is a ‘food’ item or product or not?

Recently, Andhra Pradesh High Court in the case of Esveeaar Distilleries Private Limited, v. Assistant Commissioner (State Tax), Tirupati –II Circle, Tirupati & Four Others (2022) 11 TMI 210; (2022) 144 taxmann.com 153 (Andhra Pradesh), decided on the questions as to:

• Whether liquor is a food or food product? And
• Whether imposing tax at 18% for the job work done in relation to manufacture of liquor for human consumption at 18% is prospective in operation?”

The court observed that it is an admitted fact that there is no definition of “food and food products” under the GST Law but at the same time, whatever consumed by human beings cannot be construed as “food and food products” for the purpose of exemption under G.S.T.

It relied on Collector of Central Excise v. Parle Exports (P) Ltd. (1988) 11 TMI 108 (Supreme Court), wherein Supreme Court held that it will never be the intention of legislature to exempt expensive items like alcoholic liquor under the category of food and food products though the same is for human consumption. While dealing with the meaning of the word “food products or food beverages”, the Supreme Court, in Parle Exports’ case, observed that there is no direct evidence, as such, as to how in commercial parlance, unlike in ordinary parlance, non-alcoholic beverage bases are treated or whether they are treated as food products or food preparations. The purpose of exemption is to encourage food production and also give boost to the production of goods in common use and need. After all, the purpose of exemption is to help production of food and food preparations at cheaper price and also help production of items which are in common use and need.

Notification No.6/2021, dated 30.09.2021, incorporates services by way of job work in relation to manufacture of alcoholic liquor for human consumption in and the rate of tax is mentioned @ 9% (i.e., 9%+9%=18%). Since the manufacture by the petitioner relates to alcohol for human consumption by way of job work, the petitioner is liable to pay tax at 18%. Moreover, court held that such GST shall be payable @ 18% with retrospective effect, i.e., 01.07.2017.

Earlier, Maharashtra Appellate Authority for Advance Ruling (AAAR), in the case of Crown Beers India Pvt. Ltd [(2019) 27 GSTL 468; (2019) 7 TMI 1507; (2019) 107 taxmann.com 468] had held that job work of liquor does not qualify for a reduced rate of GST at the rate of 5 percent as it cannot be categorised under food and food products.

Thus, it was held that alcoholic liquor is not ‘food or food product’ and job work related to manufacturing of such beverage will attract Goods & Services Tax (GST) at the rate of 18 percent. This rate will be levied retrospectively. It cannot be treated as an item of food for many a reasons, particularly, for the advertisements carried on the item that its consumption would be injurious to health. The liquor industry may have to enter into litigation as all the states would like to recover GST @ 18%