The Authority of Advance ruling has held that, Brand owner is liable to pay Goods and Services Tax ( GST ) on ‘Surplus Profit’ from Manufactures.
The applicant is the owner of brands of beer, permits the CBUs to manufacture beer according to their specifications, label them with the brands of the applicant and then sell them as per the State excise laws.
As per the agreement between the applicant and the CBUs, the applicant gets a brand fee in lieu of the permission granted to the CBU to utilize their brand. Further, the surplus amount over and above the brand fee is taken as a reimbursement or business surplus by the applicant.
The applicant sought for an advance ruling on the tax liability on this amount in the hands of the applicant received from the CBU after the deduction of all costs related to CBU.
The applicants relied on the decision of the Supreme Court that the activity of permitting the CBUs to manufacture alcoholic beverages on behalf of the principal does not amount to the rendering of taxable service under the category of IPR service.
Relying upon the CBIC dated 28.06.2017, the Authority held that the Notification applies to ‘All Service’ and the applicant is indeed engaged in the supply of service to the CBUs.
“Now the question is the classification of the Service under appropriate Chapter or Heading. The Annexure to the Notification provides the scheme of services. This classification of various services provides an entry at Group 99979 and Service Code 999799 reading “other services nowhere else classified‘. Since it is beyond doubt that the applicant is engaged in the supply of service and the service does not find mention at any other entry in the Classification table it has to be placed in the residual entry. The applicable rate of Central Tax is as at serial number 35 of the Notification,” the authority said.
It was, therefore, held that the applicant is engaged in the supply of service classified under Service Code (Tariff) 999799 and are liable to pay GST at the rate of 18 per cent on the amount received from the CBUs.
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