The Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) upheld the penalty imposed under section 76 of Finance Act, 1994 on Tamil Nadu State Marketing Corporation Ltd. (TASMAC) in the absence of Payment of Service Tax. It was observed that w.e.f. 1-7-2012, all services except those excluded by Section 65B (44), in particular, transfer of title in goods, deemed sale, transaction in money etc. will be liable to service tax or those falling in the negative list of services under Section 66D ibid or those which were specifically exempted otherwise, would be exigible to service tax levy.
M/s. Tamil Nadu State Marketing Corporation Ltd. (TASMAC), a 100% Government of Tamil Nadu undertaking is a company incorporated under the Companies Act, 1956 and the appellant is vested with the exclusive privilege of wholesale distribution as well as retail vending of Indian Made Foreign Liquor (IMFL) in the State of Tamil Nadu under the Tamilnadu Prohibition Act, 1937. The retail vending of IMFL is done through its outlets located throughout the State of Tamil Nadu.
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Directorate General of Central Excise Intelligence (DGCEI), Chennai conducted investigation against TASMAC on the issue of nonpayment of service tax on the amount received by them as license fee from bar operators. Investigation conducted by DGCEI revealed that TASMAC floated tender for giving license to run the bars and the successful bidders were issued with license by the District Manager of TASMAC. The contractors who are given such license by TASMAC can sell eatables in the bars located within or adjoining the TASMAC shops and can collect empty liquor bottles left by the consumers of liquor in the bar.
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In lieu of such license given to them, the contractors have to pay license fee. The contractors can do business as per the business timing of TASMAC shops. The license given by TASMAC is renewed subject to the performance of the contractor during the previous year and if any deficiency is noticed in service of the contractor or any misuse noticed, license can be cancelled. Other than eatables, no sale or stock of liquor by contractor is allowed.
The department viewed that upto the period 30.6.2012, services rendered by TASMAC by giving license and permitting contractors to do the business within the bars are liable to be treated as a taxable service under ‘Support Service for Business or Commerce’ as defined under sec. 65(104c) of the Finance Act, 1994 r/w sec. 65(105)(zzzq) and the amount received for providing the said service are liable to service tax. It further appeared that the services so provided by TASMAC are liable to service tax under Sec. 65B(44) of the Finance Act, 1994 as taxable after 1.7.2012 as the same is not covered under the Negative List as specified under sec. 66D of the Act nor the same is covered under the Mega Exemption Notification No. 25/2012-ST dated 20.6.2012.
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However, TASMAC had not taken service tax registration for the support services provided by them as above and had not paid service tax on the amount received by them as ‘License Fee’ from the bar contractors and hence the service tax payable by them is liable to be recovered under sec. 73(1) of Finance Act, 1994 along with appropriate interest under sec. 75 ibid.
Show Cause Notice were issued seeking to demand service tax on the amount collected as License Fee under the proviso to sec. 73(1) of the Act. The Adjudicating Authority vide Orders in Original, confirmed the demands of service tax along with interest and imposed penalties under sections 76, 77 and 78 of the Finance Act, 1994. Aggrieved by the said orders, the appellant has filed these appeals.
A two member bench of Shri P. Dinesha, Member (Judicial) and Shri M. Ajit Kumar, Member (Technical) observed that w.e.f. 1-7-2012, all services except those excluded by Section 65B (44), in particular, transfer of title in goods, deemed sale, transaction in money etc. will be liable to service tax or those falling in the negative list of services under Section 66D ibid or those which were specifically exempted otherwise, would be exigible to service tax levy.
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The Tribunal agreeed that the decision by the Board of Directors of TASMAC giving permission to award such contractors for running a bar, supplying eatables, cleaning, collecting empty bottles etc. is only a decision of the Board and cannot be brought on par with sovereign function exercised by the State.
The bench observed that the imposition of penalty under section 76 of the Finance Act, 1994 is statutory in nature and becomes payable when there is a failure to pay service tax in the normal course. It was found that the Tribunal in the appellants own case concluded that the entire dispute was one of interpretation and subsequently dropped penalties under section 77 & 78 of the Finance Act 1994. Relying that the CESTAT dropped all other penalties i.e. other than that of section 76.
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