Non Payment of Service Tax on Alcohol under Business Auxiliary Services under Bonafide Belief: CESTAT rules in Favour of Mount Everest Breweries [Read Order]

The Delhi bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) ruled in favour of Mount Everest Breweries Limited and held that service tax and penalty not demandable when non payment of service tax on alcohol under business auxiliary services under bonafide belief.  

The appellant is engaged in manufacturing, brewing and bottling of alcoholic beverages i.e. beer of their own brands as well as those owned by UBL. The appellant entered into an Agreement dated 01.03.2009 for manufacturing beer of brands own by UBL. A show cause notice dated 04.07.2014 was issued to the appellant for the period from September 2009 to June 2012 alleging that the transaction between the appellant and UBL would be taxable under the category of BAS as defined under section 65(19) and made taxable under section 65(105)(zzb) of the Finance Act, 1994 .

The Commissioner confirmed the demand of service tax with interest and penalty.  The impugned order holds that the appellant has not been conferred with the title of the goods nor it has been granted the right of ownership of the goods belonging to UBL and, therefore, even if the goods were removed on the invoices of the appellant, the entire proceeds were being deposited and controlled by UBL only.

Shri Tarun Gulati, senior counsel for the appellant assisted by Shri Abhishek Jaju and Shri Mihir Turakhia, contended that the nature of the operations carried out by the appellant was that of pure manufacturing and the appellant purchased the goods for itself and not “for, or on behalf” of UBL. Learned senior counsel, therefore, contended that this activity cannot be subjected to service tax under the category of BAS.

Shri Ravi Kapoor, authorized representative appeared for the department supported the impugned order.

A two member bench comprising Justice Dilip Gupta, President and  Ms. Hemambika R Priya, Member (Technical) observed that “the appellant is that it was always under a bonafide belief that service tax was not payable by it, as it was a manufacturer in its own right and was not manufacturing alcohol for or on behalf of a client. After noting that this contention of the appellant is not correct since it was providing BAS and service tax would be leviable, the order holds that the appellant with mala-fide intention made a willful statement and suppressed facts with intent to evade payment of the service tax.”

While allowing the appeal, the CESTAT set aside the order passed by the Commissioner.

To Read the full text of the Order CLICK HERE

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