GST on Manufacturer of Alcoholic Liquor on Job Work Basis

The 45th meeting of the GST Council was held on 17th September, 2021 in physical mode at Lucknow. The GST Council took various decisions inter alia, including exemptions, rate rationalization, extension of relaxations to Covid supplies, exports, ITC, debit notes, late fees, inclusion of some goods / services in tax net and so on. The details are captured on inside pages of this newsletter. All such recommendations shall be implemented in due course. CBIC has already issued few Circulars providing the much needed clarifications based on GST Council recommendations.

One of the important issues which was considered by the GSTC is the rate of GST applicable to job of GST applicable to job works undertaken in relation to alcoholic liquor meant for human consumption. As per the decision, alcoholic liquor for human consumption is not ‘food and food products’ for the purpose of the entry prescribing 5% GST rate on job work services in relation to food and food products.

Meaning of Food

What ‘food’ is, has not been defined in the GST law. However, according to Prevention of Food Adulteration Act, 1954, ‘Food’ means any article used as food or drink for human consumption other than drugs and water. The term includes-

a) any article which ordinarily enters into or is used in the composition or preparation of human food; and

b) any flavouring matter or condiments; and

c) any other article which the Central Government, having regard to its use, nature, substance or quality, declare, by notification in the Official Gazette, as food for the purposes of this Act.

As per Food Safety and Standards Act, 2006, ‘Food’ means any substance, whether processed, partially processed or unprocessed, which is intended for human consumption and includes primary food, genetically modified or engineered food or food containing such ingredients, infant food, packaged drinking water, alcoholic drink, chewing gum, and any substance, including water used into the food during its manufacture, preparation or treatment but does not include any animal feed, live animals unless they are prepared or processed for placing on the market for human consumption, plants prior to harvesting, drugs and medicinal I products, cosmetics, narcotic or psychotropic substances.

Other meanings of Food

• Food has been defined as “what is eaten for nourishment to organic bodies; nutriment; aliment; victuals; provisions.” [Century Dictionary]
• Food is what one takes into the system to maintain life and growth [The Shorter Oxford English Dictionary]

New rate of GST on job works

CBIC has vide Notification No. 06/2021-CT(Rate) dated 30.09.2021 prescribed that services by way of job work in relation to manufacture of alcoholic liquor for human consumption shall be taxed @ 18% (9% CGST and 9% SGST) w.e.f. 01.10.2021. This settles the interpretation dispute in relation to job work leading to manufacture of alcoholic liquor.

 Impact of GST Council not considering alcoholic beverages for 5% GST rate:

• Alcoholic beverage is not a food or food product
• It does not fit in the framework of ‘food / food product’ so as to deserve a concessional rate of 5% GST.
• The applicable rate for any job work will be applicable, i.e. 18%
• This clarifies doubts, whatsoever, on scope of rate application
• Will result in higher cost of liquor meant for human consumption to the extent of 13%. (i.e. 18% – 5% ) as per GST slab rates with no ITC benefit to brand owner.

GST rate at present in relation to food processing industries is as follows:

• Job work services in relation to food and food products falling under Chapters 1 to 22 of the HS Code (except packing of processed milk into packets) – 5%
• All other services not specified elsewhere – 18%

CBIC clarification

CBIC has clarified as follows vide Circular No. 164/20/2021-GST dated 06.10.2021:

“Services supplied by contract manufacturers to brand owners for manufacture of alcoholic liquor for human consumption

1. The job work services supplied by contract manufacturers to brand owners for manufacture of alcoholic liquor for human consumption attract GST @ 5% prescribed for job work services in relation to food and food products, in terms of Sl. No. 26 [Item 1(i)f] of notification No. 11/2017-Central Tax (R) dated 28-6-2017. This entry prescribes GST rate of 5% on services by way of job work in relation to food and food products falling under chapters 1 to 22 in the first Schedule to the Customs Tariff Act, 1975.

2. As recommended by GST Council, it is clarified that the expression “food and food products” in the said entry excludes alcoholic beverages for human consumption. As such, in common parlance also alcoholic liquor is not considered as food. Accordingly, services by way of job work in relation to manufacture of alcoholic liquor for human consumption are not eligible for the GST rate of 5% prescribed under the said entry. GST Council recommended that such job work would attract GST at the rate of 18%.” 

Thus, the recent clarification clears the doubt for one and all and henceforth GST shall be levied at 18% on all job works relating to production / manufacturing / bottling / distilling  of alcoholic liquor meant for human consumption.