Bringing Manufacture of Alcohol for Human Consumption within the Ambit of ‘Business Auxiliary Service’ is Constitutional: Delhi HC [Read Judgment]

The division bench of Delhi High Court today upheld the Constitutional validity of Section 66B of the Finance Act, 1994 read with 65B(40) and Section 66D of the FA 1994 as amended by Clause (f) of Section 107 and Clause (2) of Section 109 of Finance Act, 2015. The said amendment was introduced by the Parliament with an object to bring the activity of manufacture of alcohol for human consumption within the ambit of “business auxiliary service” and thereby imposing service tax on these items.

The Court was considering the batch of petitions filed by three petitioners viz., Carlsberg India Private Limited, International Spirits and Wines Association of India (ISWAI) and Confederation of Indian Alcohol Beverages Companies challenging the constitutional validity of Sections 66B of the Finance Act, 1994 read with 65B(40) and 66D of the FA 1994 as amended by Clause (f) of Section 107 and Clause (2) of Section 109 of Finance Act, 2015 respectively, along with Notification No. 14/2015/-ST dated 19th May 2015, which levies service tax with effect from 1 st June 2015, on persons who manufacture alcoholic liquor for human consumption on job work basis.

The Petitioners submitted that Parliament lacks the legislative competence to enact the said amendments since the activity of manufacture of alcoholic liquor for consumption, whether for oneself or for another person, lies exclusively within the domain of the State Legislature under Entry 51 of List II of Schedule VII to the Constitution.

The case of the Respondents on the other hand is that service tax introduced by way of Chapter V to the FA 1994 is within the legislative competence of the Parliament to impose service tax since the levy is on the service aspect of the contract of manufacturing of alcohol on behalf of the principal manufacturer/brand owner

The division bench comprising of Justice S Muralidhar and Justice VibhuBakhru observed that, “the present case is sought to be made amenable to service tax is the activity of contract manufacturing of alcoholic liquors fit for human consumption by one entity for another. Such provision of service which is in pith and substance not covered under Entry 51 of List II of the Seventh Schedule to the Constitution of India is certainly amenable to levy of service tax by Parliament which is competent to legislate on that aspect with reference to Entry 97 of List I”.

The bench also upheld the validity of the notification appointing the commencement date of the amendment as 1st June 2015 as the date on which the above provision would come into force.

The division bench also termed as the service rendered by KBL to UBL is a ‘business auxiliary service’ and amenable to service tax.While dismissing the petition, the Court also found that no reason to interfere with the Show cause notice issued to Carlsberg India Private Limited.

Read the full text of the Judgment below.