By TIOL News Service

NEW DELHI, JULY 23, 2013: THE appellant a Government of Rajasthan Undertaking, registered under the Companies Act, 1956 is entrusted by the State Government with the business of purchase of IMFL and Beer (liquor) from manufacturers, transport of liquor to various depots of the appellant and for further sale thereon to various licensees (i.e. with the wholesale trade in liquor), with a view to regulate supply of liquor through conferring the exclusive privilege of purchase and sale in the wholesale thereof upon the appellant. As a consequence of the monopoly assumed by the State Government in this area and confirment of the privilege on the appellant, it is mandatory for all manufacturers/distilleries/suppliers to sell liquor in the State only through the canalising agency, namely the appellant.

Intelligence gathered by Revenue revealed that the appellant collected a commission of Rs. 45,06,33,440/- during the period 01.02.2005 to 31.08.2007 but failed to remit service tax amounting to Rs.5 ,21,25,843 /-. Revenue assumed that the appellant had provided the taxable Business Auxiliary Service (BAS) to manufacturers of liquor/distilleries and issued the show cause notice dated 11.07.2008, in substance alleging that the appellant had provided the taxable BAS and had wilfully suppressed information regarding liability to service tax by failing to file returns, disclosing the income received and failing to remit service tax, with an intent to evade payment of service tax. The show cause notice proposed assessment and levy of service tax, interest and penalties.

The Adjudication Order confirmed the demands in the Show Cause Notice and is now in appeal before the Tribunal.

The Tribunal observed,

Section 65 (19) of the Act defines BAS (to the extent relevant and material) to mean any service in relation to (a) promotion or marketing or sale of goods produced or provided by or belonging to the client; and (b) a service incidental or auxiliary to any activity specified in sub-sections (i) to (vi), such as billing, issue or collection or recovery of cheques , payments, maintenance of accounts or remittance, inventory management, evaluation or development of prospective customers or vendors, public relation services, management or supervision and including service as a commission agent but excluding any activity that amounts to manufacture of excisable goods;

Revenue assumed and the adjudicating authority proceeded on the basis that the appellant had provided BAS, a taxable service to the manufacturers / distilleries. The claim of the appellant is that since it had purchased liquor from manufacturers or distilleries and had thus become the owner of the liquor, if any service was provided it was service to itself and not to another and thus no service tax liability arises.

The Tribunal analysed the relevant terms and conditions of the agreement dated 31.03.2005 and noted,

On a true and fair construction of the relevant terms and conditions of the agreement and a holistic analysis of the same, it is apparent that the ownership/ property in the liquor continues all through with the manufacturers/distilleries. The appellant remits the agreed price (subject to various terms stipulated in the agreement with the manufacturer), only after the sale of liquor to the retail licensees (Clause 6.2). The stipulation regarding demurrage charges to be borne by manufacturer in respect of stock lying unsold beyond 90 days (clause 7.1); the provision stipulating that the manufacturer should bear the difference in cost of the supplied price and the price at which liquor lying unsold for a period of 120 days is disposed of by the appellant; and the provision pertaining to destruction of stocks of Beer remaining unsold for over six months from the date of bottling or the liquor declared unfit for human consumption, without any entitlement to payment for this stock to the manufacturer clearly signal the singular inference that the property/ownership of the liquor does not pass to the appellant, during the period the liquor is in the custody of the at its various depots.

On analysis of the transactional documents (the agreement between the appellant and the distilleries), considered in the light of the applicable statutory provisions, Section 65(19) read with 65 (105) (zzb), the inference is compelling that the activities of the appellant in relation to distilleries constitute BAS, since the appellant provides a service in relation to the sale of goods produced by the distilleries.

The Tribunal in the following cases held similar activities as outside the purview of Service Tax as the Corporations were purchasing and selling the liquor.

It requires to be noticed that in the aforesaid decisions this Tribunal is predicated upon the primary factual conclusion that ownership / Property in liquor had passed on to the State Beverages Corporations, on delivery by the manufacturer/suppliers/ distilleries. These conclusions on facts, in our respectful view do not constitute the ratio of those judgments. The core ratio is that to constitute a taxable service it should be a service rendered by the service provider to the service recipient, the later being a distinct person / entity. There can be no quarrel with this ratio/ proposition. The conclusion that the property in liquor stood transferred to the Beverages Corporations is a factual conclusion which , in our respectful view does not constitute the law declared by the Tribunal.

In the present case, the Tribunal found that the conclusion that the ownership/property in liquor continues with the distilleries and has not passed to the appellant, is inescapable and compelling. The several clauses of the agreement clearly demonstrate this variety. On analysis of the several clauses of the agreement, it is clear that the appellant was never the owner of the liquor nor had title in the liquor supplied to it. It was merely acting as the consignee of the goods belonging to the supplier/distilleries.

Held: 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, the conclusion is uncontestable that the appellant was rendering the taxable BAS since the appellant was clearly marketing and providing services in relation to sale of goods (IMFL , Beer etc.) produced / belonging to the distilleries.

Limitation: The Tribunal observed that there could be no cause for any doubt or a bonafide belief that the appellant was rendering the taxable BAS to manufacturers of liquor by providing a service in relation to the sale of goods (liquor) produced by such distilleries/ manufacturers. Despite the clear obligation enjoined by unambiguous provisions of the Act, the appellant neither obtained registration as a taxable service provider; nor filed periodical returns nor remitted service tax as mandated by the provisions of the Act. The tax evasion by the appellant came to notice of Revenue only when Intelligence Officers of the Anti Evasion Wing came upon information of the activities of the appellant. In these and the totality of circumstances, the conclusion by Revenue that there was wilful suppression of relevant material with a view to evade liability to tax, cannot be faulted nor considered inconsistent with the statutory prescriptions that justify invocation of the extended period of limitation.

Held: invocation of the extended period of limitation and the consequent assessment of the appellant to service tax, is impeccable.

(See 2013-TIOL-1110-CESTAT-DEL)