Rajasthan State Beverages Corporation Limited Vs The Principal Commissioner (CESTAT Delhi)
CESTAT Delhi held that the transaction of purchase and sale of liquor by the Corporation will not fall within the ambit of ‘Business Auxiliary Services’ and would, therefore, not be taxable.
Facts- The State Government of Rajasthan incorporated the Corporation to ensure quality of liquor and effective controlled distribution. For this purpose, all the liquor manufacturers/ re-sellers have to sell their products only to the Corporation as per the excise laws of the State and all the retail licensees can purchase liquor only from Corporation. Thus receipt, storage and dispatches of liquor can only be done by Corporation. To ensure optimum utilisation of space and resources, the Corporation gives advance planning of purchase and sale of liquor and the manufacturers have to abide by that. In case of failure, conditions are imposed under the Agreement and the consequence have to be borne by the liquor manufacturers.
Accordingly, show cause notices alleging that the Corporation had earned commission on sale of liquor and the balance sheet/ trial balance also showed income under the head ‘other incomes’, but the Corporation had not paid service tax which was required to be deposited by it under ‘business auxiliary services’ prior to 01.07.2012 and, thereafter, as a taxable service not covered either in the negative list of services or exempted list of services. The show cause notice separated the taxability of service prior to 01.07.2012 and after 01.07.2012.
Conclusion- Held that in view of the decisions of the Rajasthan High Court in the case of M/s. Hindustan Coca Cola Beverages Pvt. Ltd. vs. Commissioner of Income-Tax-III, Jaipur and the decision of the Chhattisgarh High Court in the case of Union of India vs. M/s. Chhattisgarh Estate Beverages Corporation it has to be held that the transaction of purchase and sale of liquor by the Corporation will not fall within the ambit of BAS and would, therefore, not be taxable.
FULL TEXT OF THE CESTAT DELHI ORDER
Service Tax Appeal No. 52414 of 2019 has been filed by M/s. Rajasthan Renewable Energy Corporation Limited, Jaipur1 to assail the order dated 31.05.2019 passed by the Principal Commissioner CGST and Central Excise Commissionerate, Jaipur2 adjudicating the show cause notice dated 18.11.2016 for the period 01.04.2011 to 01.03.2015 and the show cause notice dated 05.04.2018 for the period 01.04.2015 to 30.06.2017. In regard to the first show cause notice dated 18.11.2016, the Principal Commissioner has confirmed the demand of Rs. 2,80,71,100/- with interest and penalty out of the total demand of Rs. 20,53,16,530/-and has dropped the demand for the remaining amount. With respect to the second show cause notice dated 05.04.2018, the Principal Commissioner has confirmed the demand of Rs. 3,42,50,377/- with interest and penalty out of the total demand of Rs. 17,12,17,363/-and has dropped the remaining demand. This appeal has been filed by the Corporation for setting aside the demand that has been confirmed by the Principal Commissioner.
2. Service Tax Appeal No. 52404 of 2019 has been filed by the department for setting aside the order passed by the Principal Commissioner to the extent it dropped the demand with regard to the first show cause notice dated 18.11.2016. Service Tax Cross Objection No. 50757 of 2022 has been filed by the Corporation with a prayer that this appeal filed by the department may be dismissed.
3. Service Tax Appeal No. 52405 of 2019 has been filed by the department for setting aside that portion of the order of the Principal Commissioner that dropped the demand proposed in the second show cause notice dated 05.04.2018. Service Tax Cross Objection No. 50730 of 2022 has been filed by the Corporation for dismissing this appeal.
4. The State Government of Rajasthan incorporated the Corporation to ensure quality of liquor and effective controlled distribution. For this purpose, all the liquor manufacturers/ re-sellers have to sell their products only to the Corporation as per the excise laws of the State and all the retail licensees can purchase liquor only from Corporation. Thus receipt, storage and dispatches of liquor can only be done by Corporation. To ensure optimum utilisation of space and resources, the Corporation gives advance planning of purchase and sale of liquor and the manufacturers have to abide by that. In case of failure, conditions are imposed under the Agreement and the consequence have to be borne by the liquor manufacturers. These conditions with the consequences are as follows:
(i) Late Inward Charges: The fines are chargeable from the manufacturers to discourage them to effect delayed supplies;
(ii) Order for Supply Extension/Cancellation Fee: Corporation issues the order for supply, which has to be adhered to. If a liquor manufacturer perceives that it will not be able to fulfil the order for supply in due time, it approaches the Corporation to extend/cancel the same against payment of this fee;
(iii) Transfer Out Order Fees: The Corporation has different area wise godowns in different districts where the liquor manufacturer send their goods. If a liquor manufacturer perceives that in a particular area the product is moving slowly, he can transfer it to other Depots through Transfer Out Order to save himself from losses;
(iv) RSBCL Margin: Expenditure incurred by the Corporation on draining the stock of beer and liquor lying unsold or that which has expired at the depot as otherwise it would have to be taken back by the manufacturer after bearing the demurrage;
(v) Inactive stocks/demurrage charges: Charges collected by the Corporation in respect of stock of liquor lying with the Corporation, which has not been sold over a certain period. To save itself from space constraint, the Corporation asks the suppliers to keep only active stocks and take back the inactive stock. These charges are levied to deter the manufacture and use the space in the most optimum manner;
(vi) Liquidity Damages from supplier: When the manufacturers default in preparing correct cost sheet for submission to the Corporation, a penalty is levied; and
(vii) Miscellaneous Receipts Other Non-Operating income and others: These Charges are recovered against shortage of stock in depot.
5. The aforesaid appeals pertain to the show cause notice dated 18.11.2016 for the period 01.04.2011 to 31.03.2015 and the show cause notice dated 05.04.2018 for the period 01.04.2015 to 01.06.2017. These two show cause notices allege that the Corporation had earned commission on sale of liquor and the balance sheet/ trial balance also showed income under the head „other incomes‟, but the Corporation had not paid service tax which was required to be deposited by it under „business auxiliary services‟3 prior to 01.07.2012 and, thereafter, as a taxable service not covered either in the negative list of services or exempted list of services. The show cause notice alleged that the Corporation was not a purchaser of liquor and it was merely providing sales, marketing activities covered under BAS. The show cause notice separated the taxability of service prior to 01.07.2012 and after 01.07.2012. The relevant portion of the show cause notice dated 18.11.2016 is reproduced below:
“Taxability of the service prior to 01.07.2012.
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11. Whereas, it appears that when the above referred documents namely LSPs and agreement with the manufacturer/suppliers of the liquorare examined in the light of the applicable statutory provisions i.e. Section 65(19) read with 65(105) (zzb) ibid, the only conclusion which is coming out is that the activities of the RSBCL in relation to liquor stored by the manufacturer/supplier of the liquor in their Godown constitute provision of Business auxiliary service (hereinafter ‘BAS’), since they provide a service in relation to the sale of goods produced by the manufacturer/supplier of the liquor. Further, it appears that any argument that they were engaged in trading of the liquor is not tenable being contrary to the stipulations made in LSPs as well as agreement entered with the manufacturer/supplier of the liquor as on analysis of the several clauses of the agreement (referred to above), it appears that the RSBCL was never the owner of the liquor nor had title in the liquor supplied to it. It appears that they were just acting as the consignee of the goods belonging to the manufacture/supplier. Therefore, it appears that within the framework of the agreements, considered in the context of the taxable BAS, as defined in Sections 65(19) read with 65(105) (zzb) of the Act ibid, there appears to be overwhelming evidences present to show that the RSBCL, was rendering the taxable BAS as they were clearly marketing and providing services in relation to sale of goods (IMFL, Beer etc.) produced/belonging to the manufacturer/suppliers.
Taxability of the service post 01.07.2012.
12. Whereas after introduction of negative list of services with effect from 1.7.2012, as per section 65(B)(44) of the Finance Act, 1994, service” means any activity carried out by a person for another for consideration. Since the RSBCL is engaged in the activity of sale on behalf of the manufacturer/suppliers of IMFL/Beer and charging fixed consideration for the same, therefore for, the activities of the RSBCL falls with the definition of the “service given in the Finance Act, 1994. Further “taxable service” has been defined under Section 65(B) (51) of the Act ibid to mean any service on which service tax is leviable tinder Section 66B of the said Act. Service tax under Section 66B of the Act ibid, is leviable on all the services except for the services mentioned in the Negative list of services provided under Section 66D of the Act ibid or where Government has extended exemption to any service by way of Notification issued under the said Act. It appears that the service so provided by the RSBCL is not covered in negative list of services given in Section 66D of the Act ibid and there appears to be no exemption to the said service from payment of service tax which is leviable under Section 66B ibid, therefore, the RSBCL is liable to pay service tax on the said taxable service provided by them even after 1.7.2012.
(emphasis supplied)
6. The show cause notice also invoked the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act 19444.
7. For the period 01.04.2015 to 01.06.2017, a second show cause notice dated 05.04.2018 was issued to the appellant on allegations similar to the allegations contained in the first show cause notice dated 18.11.2016.
8. It transpires that for the period 01.02.2005 to 31.08.2007 a demand of service tax, by a show cause notice dated 11.07.2018, was created against the Corporation for providing BAS for sale of liquor of Liquor manufacturers. This demand was upheld by the Tribunal, but the Rajasthan High Court set aside the order of the Tribunal on the ground that the Corporation was involved in sale of goods only and no services were provided. The department filed a Special Leave Petition before the Supreme Court which was dismissed. The review petition filed before the Rajasthan High Court was also dismissed.
9. It also transpires that for the period 01.09.2007 to 31.03.2011,
a demand for service tax was created by a show cause notice dated 11.10.2012 but the Tribunal, relying on the Rajasthan High Court judgment, decided the issue in favour of the Corporation and the order confirming the demand of service tax was set aside.
10. It would, therefore, transpire that prior to the issue of the two show cause notices dated 18.11.2016 and 05.04.2018 which are the subject matter of in the present appeals, the issue as to whether the Corporation was liable to pay service tax for sale of liquor of liquor manufacturers under BAS had been settled by the Rajasthan High Court holding that the Corporation was involved in sale of goods only and no services were provided for the period prior to 01.07.2012.
11. The appellant filed a detailed reply to the two show cause notices dated 18.11.2016 and 05.04.2018 pointing out that it was not liable to pay in service tax. The Principal Commissioner, however, adjudicated both the aforesaid show cause notices by a common order dated 31.05.2019. The demand raised for the amount collected as commission was dropped in view of the decision of the Rajasthan High Court, but the demand raised on the amount shown as „other incomes‟ or „miscellaneous income‟ was confirmed. The relevant portions of the order passed by the Principal Commissioner are reproduced below:
31.1 The show cause notices proposed to collect Service Tax on the commission charged by the noticee and also other incomes collected from the suppliers.
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34.8 In view of the foregoing discussions, wherein Hon‟ble High Court of Rajasthan has held that the noticee was engaged in sale and purchase of liquor for the state, then no Service Tax was payable; which has been upheld by the Apex Court and that there has been no change in the terms and conditions of the agreement between the notice and suppliers, except the rates of commission; I find that Service Tax cannot be demanded from the noticee on the commission charged by them even in the service tax regime post 1-7-2012.
35. Having decided that the commission or the margin collected by the noticee do not come within the mandate of the service tax by virtue of sale of goods, the next allegation in the show cause regarding levy of service tax upon other incomes or miscellaneous income, as shown in balance sheets of various years of the notice, need to be examined.
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38.2 The noticee has also placed reliance upon the decision of the Apex Court in the case of Intercontinental Technocrats and Consultant Pvt. Ltd. contending that any reimbursement made by the supplier is ultra-virus section 67 of the Finance Act. It would appear from the said contention is that the assessee is claiming that the charges collected or paid to them by the suppliers fall in the category of reimbursement for certain activities undertaken by them. However, I find that the said contention is not applicable in the case in hand as these are matters of other income and miscellaneous income rather than reimbursement.
39. Having held some amounts other than Commission received by the noticee under Para 37 above as taxable, I now quantify/calculate the Service Tax payable by the assessee as under:
(Amount in Rs.)
