Mount Everest Breweries Limited Vs Commissioner of CGST & Central Exicse (CESTAT Delhi)
CESTAT Delhi held that extended period of limitation cannot be invoked in absence of suppression of facts with an intent to evade payment of service tax. Here, it was merely suppression of facts but intent to evade payment of service tax was absent.
Facts- The appellant is engaged in manufacturing, brewing and bottling of alcoholic beverages i.e. beer of their own brands as well as those owned by UBL. The appellant entered into an Agreement dated 01.03.2009 for manufacturing beer of brands own by UBL. A show cause notice dated 04.07.2014 was issued to the appellant for the period from September 2009 to June 2012 alleging that the transaction between the appellant and UBL would be taxable under the category of BAS as defined u/s. 65(19) and made taxable u/s. 65(105)(zzb) of the Finance Act, 1994 . The Commissioner confirmed the demand of service tax with interest and penalty. Being aggrieved, the present appeal is filed.
Conclusion- The Tribunal in Shiv-Vani Oil & Gas Exploration Services Ltd. vs. C. S. T., New Delhi, wherein the Tribunal after making reference to the decision of the Supreme Court in Cosmic Dye Chemical vs. CCE, Bombay, observed that there should be an intent to evade payment of service tax if the extended period of limitation has to be invoked.
Held that the Commissioner in the impugned order had concluded that merely because there was suppression of facts by the appellant, the suppression was with an intent to evade payment of service tax. Accordingly, the impugned order holding that the extended period of limitation has been correctly invoked, therefore, cannot be sustained and is set aside.
FULL TEXT OF THE CESTAT DELHI ORDER
The order dated 21.08.2018 passed by the Commissioner, CGST & Central Excise1 confirming the demand of service tax under the category of business auxiliary services2 provided by M/s. Mount Everest Breweries Limited3 to M/s. United Breweries Limited4 with interest and penalty has been assailed in this appeal.
2. The appellant is engaged in manufacturing, brewing and bottling of alcoholic beverages i.e. beer of their own brands as well as those owned by UBL. The appellant entered into an Agreement dated 03.2009 for manufacturing beer of brands own by UBL. A show cause notice dated 04.07.2014 was issued to the appellant for the period from September 2009 to June 2012 alleging that the transaction between the appellant and UBL would be taxable under the category of BAS as defined under section 65(19) and made taxable under section 65(105)(zzb) of the Finance Act, 19945.
3. The appellant filed a reply to the show cause notice and denied the allegations made in the show cause notice. The Commissioner, however, by order dated 21.08.2018 confirmed the demand of service tax with interest and penalty.
4. According to the appellant, the parties had agreed that:
(i) The appellant would manufacture the goods on principal to principal basis;
(ii) Under clause 6 of the Agreement, UBL authorized the appellant to produce the goods and sell the same in the State of Madhya Pradesh or export it out of the State;
(iii) The appellant had the sole authority and responsibility to procure the required raw materials and convert them into finished goods;
(iv) Under clause 6.3 of the Agreement, UBL undertook to purchase itself or through its nominees the entire quantity of the goods manufactured by the appellant;
(v) The appellant purchased the raw material, packing material and consumable in its name for manufacturing the goods;
(vi) Pursuant to the sale of goods by the appellant, the appellant discharged the central sales tax; and
(vii) Under the Agreement, UBL merely authorized the appellant to use the brand name and the recipe of the goods and sell them in exchange of a ‘brand fee’.
5. The impugned order holds that the appellant has not been conferred with the title of the goods nor it has been granted the right of ownership of the goods belonging to UBL and, therefore, even if the goods were removed on the invoices of the appellant, the entire proceeds were being deposited and controlled by UBL only.
6. Shri Tarun Gulati, learned senior counsel for the appellant assisted by Shri Abhishek Jaju and Shri Mihir Turakhia, contended that the nature of the operations carried out by the appellant was that of pure manufacturing and the appellant purchased the goods for itself and not ‘for, or on behalf’ of UBL. Learned senior counsel, therefore, contended that this activity cannot be subjected to service tax under the category of BAS. Learned senior counsel also contended that ‘control of UBL’ is not a test to determine the ownership of the Learned senior counsel further pointed out from the Agreement that it follows that the appellant manufactured the goods for itself and the contention of the department that the appellant manufactured the goods ‘for, or on behalf’ of UBL is not correct. Learned senior counsel also pointed out that in any view of the matter, the extended period of limitation could not have been invoked in the facts and circumstances of the case and since the entire demand falls under the extended period, it would have to be set aside.
7. Shri Ravi Kapoor, learned authorized representative appearing for the department, however, supported the impugned order and contended that it does not call for any interference in this appeal.
8. Though submissions have been advanced by learned senior counsel appearing for the appellant on merits, but the submission made by the learned senior counsel for the appellant that the extended period of limitation could not have been invoked in the facts and circumstances of the case needs to be examined first. This is for the reason that the entire period involved in the appeal is for the extended period of limitation and if the extended period of limitation could not have been invoked, the demand would have to be set aside.
9. For this purpose it would be necessary to examine the allegations made in the show cause notice for invoking the extended period of limitation. After noting that the appellant was providing BAS e.f. 23.09.2009 and the exclusion from BAS would be applicable only if the activity results in ‘manufacture’ of ‘excisable goods’, the show cause notice proceeds to state that the appellant appeared to have contravened the provisions of Chapter V of the Finance Act by reason of fraud, suppression of facts and willful mis-statement with an intent to evade payment of service tax.
10. The appellant filed a reply to the show cause notice and in relation to the invocation of the extended period of limitation pointed out as follows:
“53. That it is quite strongly established from the submissions in the foregoing paragraphs that the matter relates to a interpretative difference and as a matter of fact the appellant has always been genuine in their practices, thus treating the same as a penal offence would certainly result in lack of adherence to essential principles of justice. Also, As mentioned in the submissions above, the noticee in all times was under the interpretation that since the arrangement is purely a manufacturing agreement, there can be no levy of Service Tax, and rightly so, being the manufacturing activity, the noticee was not liable to pay tax on the same. Now, adding further to the fact that the notice in all times was under the actual belief of manufacturing operations, there was no question of levying Service tax at all, thus there can be no case of ‘Short’ payment as there has to be no payment in itself of tax at all, and therefore there can be no allegation as to fraud on part of the Noticee. “
11. The Commissioner, however, found that the appellant with mala-fide intention distorted the facts ‘by way of willful misstatement, suppression of facts and in contravention of the provisions of the Finance Act 1994 with intent to evade payment of the service tax’ and the relevant findings are as follows:
“73. From the above discussions, I find that M/s. MEBL’s contentions do not hold any ground and it is clear that MEBL are providing various services in relation to production or processing of alcoholic beverages for and on behalf of M/s. United Breweries, MEBL entitled to get fixed cost from UBL against the services provided by him, M/s. MEBL are not engaged in the manufacturing, brewing bottling etc. of alcoholic breweries of M/s. UBL, absolute ownership of the business alongwith operational control are remain with UBL as such Circular No. F. No. 334/13/2009-TRU, Circular F. No. 332/17/2009 TRU dated 30/10/2009 and Notification No. 39/2009 dated 23/09/2009 are applicable in this case. M/s. MEBL were providing services in relation to ‘Business Auxiliary Services’ as defined under section 65(19) of the Finance Act, 1994, as amended, which were taxable services as per section 65(105)(zzb) of the Act, ibid and as such, were levied to Service Tax under Section 66 of the Finance Act. Even though the services provided by M/s. MEBI were levied to Service Tax, they have not paid the same, (till the DGCEI have asked them to do so and consequently certain amount paid under protest) neither have registered themselves under the said category of services nor have reflected true facts in the returns fined under the provisions of the Finance Act, 1994.
74. I find that the Noticee with the mala-fide intention distorted the facts by way of willful misstatement, suppression of facts and in contravention of provisions of the Finance Act 1994 with intent to evade payment of Service Tax.
(emphasis supplied)
12. It would be seen that the entire period from September, 2009 to June, 2012 falls in the extended period of limitation as the normal period was of one year from 01.09.2009 upto 28.05.2012 and eighteen months from 29.05.2012 to 30.06.2012. The following chart would clearly depict the factual portion:
