M/S.Esveeaar Distilleries Private Limited vs. Assistant Commissioner (State Tax)

Held

The Court held that alcoholic liquor for human consumption does not fall within the definition of 'food or food products' for the purpose of availing the lower GST rate. The Court reasoned that while Chapter 22 of the Customs Tariff Act covers alcoholic beverages, the intention of the law, as interpreted by the Supreme Court in Collector of Central Excise Vs Parle Exports Pvt Ltd (1998), is not to extend exemptions to expensive items like alcoholic liquor under the guise of food products. The Court also noted that advertisements often warn of health risks associated with alcohol consumption, further distinguishing it from food. Regarding the second issue, the Court held that Notification No. 6/2021, dated 30.09.2021, which specifically includes services by way of job work in relation to the manufacture of alcoholic liquor for human consumption at 9% (total 18%), is clarificatory in nature. Therefore, it is retrospective in operation. The Court dismissed the writ petition, upholding the tax liability at 18%.

Facts

The petitioner, M/s. Esveeaar Distilleries Private Limited, manufactures Indian Made Foreign Liquor. The Assistant Commissioner (State Tax) made an assessment for the tax periods 2017-2018, 2018-2019, and 2019-2020, levying CGST amounting to Rs. 24,94,104/- with penalty and interest. The petitioner challenged this assessment, arguing that job work charges related to the manufacture of alcoholic liquor should be taxed at 5% as per Notification No. 6/2021-Central Tax (Rate) dated 30.09.2021, not the 18% imposed by the assessing authority. The petitioner contended that alcoholic liquor falls under Chapter 22 of the Customs Tariff Act and should be treated as food or food products eligible for the lower tax rate. The State argued that alcoholic liquor is not food or food products and that the notification's applicability and interpretation were disputed.

Key Issues

1. Whether alcoholic liquor for human consumption falls within the meaning of 'food or food products' for the purpose of applying the tax rate under Notification No. 11/2017-CT (Rate) dated 28.06.2017, as amended? 2. Whether the imposition of tax at 18% for job work done in relation to the manufacture of alcoholic liquor for human consumption is prospective or retrospective in operation? Petitioner's arguments: The petitioner argued that alcoholic liquor falls under Chapter 22 of the Customs Tariff Act and should be treated as 'food and food products' eligible for a 5% tax rate, citing various notifications. They contended that Notification No. 6/2021, effective from 01.10.2021, should only be prospective and that the imposition of 18% tax by the assessing authority was illegal. They relied on the interpretation that Chapter 22 items, when considered as food, attract a 5% rate. Revenue's arguments: The State argued that alcoholic liquor is not 'food or food products' and therefore not eligible for the 5% rate. They contended that only food and food products under Chapters 1 to 22 are included, and alcohol is not covered. They also argued that the notification, being silent on prospectivity, should be retrospective, and that the petitioner should pay 18% tax. The State also raised the issue of disputed facts, suggesting an appeal as the proper remedy.