Purchase And Sale Of Liquor By The Corporation Will Not Fall Within The Ambit Of BAS And Is Not Taxable: CESTAT

The Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that the corporation will not fall within the ambit of Business auxiliary services (BAS) and would, therefore, not be taxable.

The bench of Justice Dilip Gupta (President) and Hemambika R. Priya (Technical Member) has observed that if the Corporation was engaged in the sale and purchase of liquor for the State, then no Service Tax was payable.

The State Government of Rajasthan incorporated the Corporation to ensure the quality of liquor and effective controlled distribution. For this purpose, all the liquor manufacturers and 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 the Corporation. Thus, receipt, storage, and dispatch of liquor can only be done by corporations. To ensure optimum utilization of space and resources, the Corporation gives advance planning for the purchase and sale of liquor, and the manufacturers have to abide by that. In the event of failure, conditions are imposed under the agreement, and the consequences have to be borne by the liquor manufacturers.

The show cause notices alleged that the Corporation had earned commission on the sale of liquor, and the balance sheet/trial balance also showed income under the heading "other incomes". However, the Corporation had not paid service tax, which was required to be deposited by it under "business auxiliary services prior to July 1, 2012, and, as a taxable service, it was not covered either in the negative list of services or the exempted list of services. The show cause notice alleged that the Corporation was not a purchaser of liquor and was merely providing sales and marketing activities covered under BAS.

The show cause notice separated the taxability of service prior to July 1, 2012, and after July 1, 2012.

The appellant contended that the amount collected by the Corporation for the reason that the conditions stipulated in the agreement had not been complied with by the liquor manufacturers was not considered in view of any service. Therefore, it cannot be held to be taxable under Section 66E(e) of the Finance Act 1994.

The tribunal held that A contract to do something or to abstain from doing something cannot be said to have taken place unless there are two parties, one of which expressly or impliedly agrees to do or abstain from doing something, and the other agrees to pay consideration to the first party for doing or abstaining from such an act. Such a contractual arrangement must be an independent arrangement in its own right. There must be a necessary and sufficient nexus between supply and consideration.

Case Title: M/s. Rajasthan State Beverages Versus The Principal Commissioner

Case No.: Service Tax Appeal No. 52414 Of 2019

Date: 03.07.2023

Counsel For Appellant: Rajeev Kapoor

Counsel For Respondent: Ranjan Mehta

Click Here To Read The Order