RAJ STATE BEVERAGES CORP JAIPUR V. COMMISSIONER OF CENTRAL EXCISE-I AND ANO

EXCIA/12/2013

AI Insights

The case revolves around the Rajasthan State Beverages Corporation (RSBC), a government undertaking responsible for the wholesale trade of liquor in Rajasthan, which was accused of failing to remit service tax on commissions earned from liquor sales. The central issue was whether the activities of RSBC constituted a 'taxable service' under the Finance Act, 1994. The Revenue argued that RSBC provided taxable Business Auxiliary Service (BAS) to manufacturers/distilleries, while RSBC contended that their activities fell outside the scope of taxable services as they were engaged in the purchase and sale of liquor under a state monopoly. The High Court of Rajasthan examined the definitions and scope of taxable services under the relevant sections of the Finance Act, 1994, and considered precedents from other jurisdictions.

• Counselvise Citation: [2017] 140 COUNSELVISE.COM (IT) 726231 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 12-10-2017
• Assessment Year: misc
• Other Referred Cases: Union of India vs. M/s. Chattisgarh Estate Beverages Corporation, M/s. Hindustan Coca Cola Beverages Pvt. Ltd. vs. Commissioner of Income Tax-III, Jaipur
• Laws Referred To: Finance Act, 1994
• Result in Favour of: Others
• Court: HIGH COURT
• Department Lawyers: KANISHKA GUPTA
• Assessee Lawyers: N M LODHA; R B MATHUR; MEENAL GHIYA; PRABHANSH SHARMA; C S KATARA
• Keywords: Business Auxiliary Service; Commission; Liquor; Monopoly; Service tax; Taxable service; Canalising Agency
• Section: 65(19); 65(105)(zzb)

Judgement Text

"HIGH COURT OF JUDICATURE FOR RAJASTHAN BENCH AT JAIPUR D.B. Central/Excise Appeal No. 12 / 2013 Rajasthan State Beverages Corporation, Vitta Bhawan, Jaipur. ----Appellant Versus The Commissioner, The Central Excise, Commissionerate, Jaipur-I, Jaipur. ----Respondent _____________________________________________________ For Appellant(s) :Mr. N.M. Lodha, AG assisted by Mr. R.B. Mathur with Ms. Meenal Ghiya & Mr. Prabhansh Sharma Mr. C.S. Katara, Legal Manager of appellant- RSBC For Respondent(s) : Mr. Kanishka Gupta _____________________________________________________ HON'BLE MR. JUSTICE K.S.JHAVERI HON'BLE MR. JUSTICE VIJAY KUMAR VYAS Judgment 12/10/2017 1. By way of this appeal, the appellant has assailed the judgment and order of the tribunal whereby tribunal has dismissed the appeal of the assessee. 2. This court while admitting the appeal on 5.9.2013 framed following substantial questions of law:- “(i) Whether in the facts & circumstances of the case even if it held to be a service, it is a service of the kind mentioned in clause (i) to (vii) of Section 65 (105) (zzb)? (ii) Whether in the facts & circumstances of the case, the transaction of purchase & sale of liquor falls within the ambit of service u/s 65(19) read with 65(105) (zzb) of the Act?” (2 of 9) [EXCIA-12/2013] 3. The facts of the case are that 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 licensee (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. 3.1 In the admitted factual scenario the appellant is not registered as a service tax provider, had not filed returns of service tax; nor had remitted service tax. 3.2 Intelligence gathered by Revenue revealed that the appellant collected a commission of Rs.45,06,33,440/- during the period 1.2.2005 to 31.8.2007 but failed to remit service tax amounting to Rs.5,21,25,843/-. Consequently Revenue addressed letter dt. 23.8.2007 and 16.11.2007 calling upon the appellant to produce the relevant documents/information. After some intermediary correspondence and furnishing of information by the appellant, on 1.11.2007 the appellant provided depotwise sale details of liquor and commission earned by the appellant, to Revenue. On the basis of information received. Revenue assumed that the appellant had provided the taxable Business Auxiliary Service (BAS) to (3 of 9) [EXCIA-12/2013] manufacturers of liquor/distilleries and issued the show cause notice dt. 11.7.2008, in substance alleging that the appellant had provided the taxable BAS and had willfully 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 show cause notice proposals were confirmed by the adjudication order, after a due process of considering the appellant’s response, analysis of the material on record and hearing the appellant. 4. Counsel for the appellant has taken us to the provisions of Clause (i) to (vii) of Sec.65 (105) (zzb) and Sec.65 (19) of the Finance Act, 1994 which reads as under:- Section 65 Clause (i) to (vii) (1) \"actuary\" has the meaning assigned to it in clause (1) of section 2 of the Insurance Act, 1938 (4 of 1938); (2) \"advertisement\" includes any notice, circular, label, wrapper, document, hoarding or any other audio or visual representation made by means of light, sound, smoke or gas; (3) \"advertising agency\" means any 3[person] engaged in providing any service connected with the making, preparation, display or exhibition of advertisement and includes an advertising consultant; (3a) “aircraft” has the meaning assigned to it in clause (1) of section 2 of the Aircraft Act, 1934 (22 of 1934); (3b) “aircraft operator” means any person which provides the service of transport of goods or passengers by aircraft;] (4 of 9) [EXCIA-12/2013] (3c) “airport” has the meaning assigned to it in clause (b) of section 2 of the Airports Authority of India Act, 1994 (55 of 1994); (3d) “airports authority” means the Airports Authority of India constituted under section 3 of the Airports Authority of India Act, 1994 (55 of 1994) and also includes any person having the charge of management of an airport or a civil enclave;] (4) \"air travel agent\" means any person engaged in providing any service connected with the booking of passage for travel by air; (5) \"Appellate Tribunal\" means the Customs, Excise and Service Tax Appellate constituted under section 129 of the Customs Act, 1962 (52 of 1962); (6) \"architect\" means any person whose name is, for the time being, entered in the register of architects maintained under section 23 of the Architect Act,1972 (20 of 1972) and also includes any commercial concern engaged in any manner, whether directly or indirectly, in rendering services in the field of architecture; (7) \"assessee\" means a person liable to pay the service tax and includes his agent; (7a) “auction of property” includes calling the auction or providing a facility, advertising or illustrating services, pre-auction price estimates, short- term storage services, repair or restoration services in relation to auction of property; (7b) “associated enterprise” has the meaning assigned to it in section 92A of the Income tax Act, 1961;] Sec.65(19) of the Act (19) “business auxiliary service” means any service in relation to, (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or [****] (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or (5 of 9) [EXCIA-12/2013] [Explanation.— For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, “inputs” means all goods or services intended for use by the client;] (v) production or processing of goods for, or on behalf of the client; or (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, 5[but does not include any activity that amounts to “manufacture” of excisable goods.] Sec.65 (105) (zzb) of the Finance Act, 1994 (105) \"taxable service\" means any 7[service provided or to be provided (zzb) to a client, by 1 2 [any person] in relation to business auxiliary service; 5. He further contended that all the authorities have committed serious error in taking into consideration the liquor service which is required to be considered as service mentioned in Section 65 (105) (zzb). 6. In fact, now the issue is squarely covered by the decision of Chattishgarh High Court in Union of India vs. M/s. Chattisgarh Estate Beverages Corporation, Tax Case No.6/2009 decided on 2.5.2013 wherein it has been observed as under:- “9. It is not disputed that if the Corporation was engaged in sale and purchase of liquor for the State, then no service tax was payable. (6 of 9) [EXCIA-12/2013] 10. The Tribunal has recorded a finding of fact that the Corporation was engaged in purchase and sale of liquor and could not be considered as clearing and forwarding agent for the State Government. It is finding of fact. No illegality in the finding has been pointed out.” 7. Taking into consideration the issue was held in favour of the assessee. Even otherwise, the controversy also covered by decision of this court in M/s. Hindustan Coca Cola Beverages Pvt. Ltd. vs. Commissioner of Income Tax-III, Jaipur DBITA No.205/2005 alongwith other connected matters decided on 11.7.2017 wherein it has been held as under:- “44. Now, the first question which has come up for our consideration is, ‘whether in the facts and circumstances of the case the learned Tribunal was right and justified in holding that assessee was liable to withhold tax at source under S. 194H of the Income Tax Act, 1961 amounting to Rs.19,74,842/- (including interest) in respect of sales to its distributors, which are on principal to principal basis and wherein property in the goods istransferred to the distributor’. 45. Taking into account the provisions of Section 182 of the Contract Act and the arrangement which has been entered into between the company and the distributor and taking into account the provisions of Section 194H, the Tribunal while considering the evidence on record, in our considered opinion, has misdirected itself in considering the case from an angle other than the angle which was required to be considered by the Tribunal under the Income Tax Act. The Tribunal has travelled beyond the provisions of Section 194H where the condition precedent is that the payment is to be made by the assessee and thereafter he is to make payment. In spite of our specific query to the counsel for the department, it was not pointed (7 of 9) [EXCIA-12/2013] out that any amount was paid by the assessee company. It was only the arrangement by which the amount which was to be received was reduced and no amount was paid as commission. 46. In that view of the matter, if we look at the provisions of Section 194H and even if explanation is taken into consideration, there is no occasion of invoking provisions of Section 194H, since the amount is not paid by the assessee. 47. Taking into account the conclusion which has been arrived at by the Tribunal is misdirected in view of the arrangement which has been arrived at between the company and the Distributor. Assuming without admitting, if the contention which has been raised before the Tribunal is accepted, the same can be at the most expenses which are not allowable under the Income Tax Act, if at all claimed without proper basis but to conclude that they are covered under Section 194H and the income tax or the TDS is required to be deducted is not correct and accordingly disallowance on that basis is not correct. In our considered opinion, from which amount of tax is to be deducted is a doubtful proposition inasmuch as the Management Information System which has been sought to be relied upon for alleging that expenditure has been claimed could not have been relied upon by the Tribunal or the authorities under the Income Tax Act. (i) The findings which are given by the Tribunal regarding Distributor being Agent in view of the discussion made here-inabove, the arrangement which has been made between the Company and the Distributor is on Principal to Principal basis and the responsibility is on the basis of agreement entered into between the parties. (ii) Regarding MRP, the findings which are arrived at is a price which has been fixed by the assessee company and other expenses, namely; commission given to the retailer and everything is to be managed by the Distributor. In that view of the matter, the restrictions which are put forward will not decide the relation-ship of Principal and Agent. (iii) The Distributor has all (8 of 9) [EXCIA-12/2013] rights to reduce his margin. He can increase the margin of retailer and will reduce the margin from 10% to anything between 1% to 10%. There is no restriction by the assessee to give commission amount to the retailer. (iv) Regarding area of operation, it is the business policy of the assessee to give Distributor-ship for a particular area. Only on that basis, it will be erroneous to held that it is on Principal to Principal basis. For deciding the relation-ship on Principal to Principal basis, the criteria will not be of area of operation but agreement entered into between the parties. (v) Regarding the change in price it is always between the assessee or the company and the Distributor to decide who will absorb the loss. In that view of the matter, the findings arrived at by the Tribunal is erroneous. (vi) Regarding the return of goods after expiry date, it is always the understanding between the manufacturer and company that the product is not for preparation or consumed before expiry date, the consumed items cannot be allowed otherwise manufacturer will invite criminal liability. To avoid any criminal liability or any criminal act is done for taking back the goods, will not deter the relation-ship of Principal to Principal basis. (vii) Regarding supervision, it is always for the manufacturer and the company to look into the matter that his Distributor or SubDistributor or Retailer will not induct in mal practice. (viii) Regarding goods sold to the Distributor, it is always a matter of contract how further goods will be distributed. Restriction on sub- distributor will not change the transaction from Principal to Principal. (ix) Regarding expenses which are described by the Tribunal and one of the reason is that it is always for the assessee to allow any special allowance or expenses to promote the sale. In a competitive world to promote the sale, if the Distributor is not given any encouragement, the business will not grow. In that view of the matter, in view of the observations of the Supreme (9 of 9) [EXCIA-12/2013] Court, the Income Tax Officer cannot enter into the shoes of the assessee. (S.A. Builders Vs. Commissioner of Income Tax- (2007) 288 ITR 1 (SC). (x) Regarding providing a vehicle it was very clear that by providing vehicle and getting list of expenses will not decide the relation-ship of Principal and Agent.” 8. In that view of the matter, the issue is answered in favour of the assessee and against the department. 9. The appeal stands allowed. (VIJAY KUMAR VYAS)J. (K.S.JHAVERI)J. Brijesh 59. "