GST Council to discuss categorising liquor as food

The GST Council meeting today briefly discussed a long-standing demand of the liquor industry - to consider 'alcoholic liquor for human consumption as food'. A member of the council had raised this demand of the liquor industry, and the Finance Minister said that the issue merits a discussion and she promised to discuss it in the next meeting.

But why would the liquor industry want to categorise alcoholic liquor as food, and why would the GST Council take this demand so kindly and promise to discuss the issue in the future meetings?

The demand to consider alcoholic liquor as food is primarily to ensure that a lower GST rate of 5 per cent (instead of 12 per cent) is levied on services provided to the industry by job workers.

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The liquor industry typically outsource a large number of their works - brewing, bottling, packaging, etc - to third parties or job workers. Such works which include processing of raw material or working on the semi-finished goods of a (GST) registered entity by another entity are called job works. The rate at which GST is levied on job work services is 12 per cent, barring a few exceptions like on food and food products.

Since GST is not levied on the sale of liquor, alcoholic beverage manufacturers end up paying GST on inputs but unable to claim input tax credit. This adds to the cost of manufacturing and puts pressure on the working capital of the manufacturers.

So, the liquor industry's argument is that by considering alcoholic liquor meant for human consumption as food, a lower GST rate of 5 per cent will be charged on job worker services, thus lowering their input cost.

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"This is a big issue for the liquor industry as they outsource a large number of processes to job workers and billing goes into hundreds of crores. The industry is pushing hard that their plea is heard by the government," says Rajat Mohan, partner, AMRG & Associates.

According to Dhaval Jariwala, Partner in chartered accountancy firm PNDJ & Associates, the controversy has arisen pursuant to a ruling of the Maharashtra Appellate Authority for Advance Ruling in the case of Crown Beers India Private Limited, wherein it was held that beer manufactured and supplied on a job work basis will attract GST at 18 per cent since beer is not a food or food product, which attract GST at 5 per cent.

This has really got the liquor industry in a dilemma and has pushed them to structure their liquor manufacturing operations appropriately because 18 per cent GST will only add to the cost, says Jariwala.

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