By TIOL News Service

MUMBAI, NOV 07, 2017: THE appellant is engaged in the business of manufacturing and bottling of alcoholic beverages. The appellant holds Potable Liquor Licence (PLL) and Rectified Spirit Licence. They entered into an agreement under which the appellants leased their licenses to M/s. Diageo India Pvt. Ltd.

The appellant had recovered lease charges at the rate of Rs.5,00,000/- per month from M/s. Diageo India Pvt. Ltd.

SCN was issued demanding service tax on this amount under the head of renting of immovable property service. The CCE confirmed the demand and imposed penalty.

The matter is before the CESTAT.

The AR emphasized that the licences have no meaning without the factory and both cannot be delinked in any manner;that licence is worthless without the factory and factory is worthless without the licence.

After considering the submissions, the Bench extracted the meaning of the term "manufactory" defined in Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966 and after perusal of the agreement between the appellant and M/s. Diageo India Pvt. Ltd. dated 25.09.2006 inter alia observed thus -

"From the above provisions, it is apparent that though licence is granted in respect of manufactory but the same is granted to the person. The licence given to a person in respect of a manufactory can be transferred to another manufactory on another site in the name of same person in terms of Rule 4-D & 164 of the said Rules. In view of above, it is apparent that while the licence is granted in respect of the manufactory it is not granted to the manufactory but to the person. In these circumstances, it is possible for a person to give on lease the licence while keeping the manufactory in his control. In this regard Rule 3 of the said Rules becomes relevant…"

The CESTAT concluded –

"From the said Rule it is apparent that licence can be granted even before the manufactory comes into existence. From the above Rules it is apparent that licence by itself is not a immoveable property and therefore leasing of licence cannot be treated as a renting of immoveable property service…"

The impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-3917-CESTAT-MUM)