Order Date – 03 July 2023

Parties: M/s. Rajasthan State Beverages, Corporation Limited Vs The Principal Commissioner

Facts –

• The Appellant, M/s. Rajasthan State Beverages, Corporation Limited, was incorporated to ensure quality of liquor and effective controlled distribution. For this purpose, all the manufactures and resellers have to sell their products to the corporation only. The Corporation gives advance planning of purchase and sale of liquor and the manufacturers have to abide by that. In case of failure, conditions are imposed under the Agreement and the consequence have to be borne by the liquor manufacturers.
• Two show cause notices dated 18.11.2016 for the period 01.04.2011 to 31.03.2015 and dated 05.04.2018 for the period 01.04.2015 to 01.06.2017 were issued alleging that the Corporation had earned commission on sale of liquor and the balance sheet/ trial balance also showed income under the head “other incomes‟, but the Corporation had not paid service tax which was required to be deposited by it under “business auxiliary services‟.
• The demand was confirmed partly. Being aggrieve both the appellant and revenue filed the appeal.

Issue –

• Whether the appellant was liable to pay service tax for sale of liquor of liquor manufacturers under BAS?

Order –

• The Tribunal observed that in Repco Home Finance, the Larger Bench of the Tribunal held that the consideration must flow from the service recipient to the service provider for a taxable service provided under the Finance Act. The service recipient may have to fulfil certain conditions of the contract but that would not necessarily mean that it would form part of the value of the taxable service.
• In South Eastern Coalfileds, the Tribunal held that liquidated damages recovered on account of breach or non-performance of contract are not consideration in view of any service but are in the nature of deterrent imposed so that such a breach or non-performance is not repeated. Further the Circular dated 28.02.2023 issued by the Central Board of Indirect Tax and Customs also provides that service tax cannot be levied on the amount collected for the said purpose.
• The Chhattisgarh High Court in Union of India vs. M/s. Chhattisgarh Estate Beverages Corporation and The Rajasthan High Court in M/s. Hindustan Coca Cola Beverages Pvt. Ltd. vs. Commissioner of Income Tax-III, Jaipur held that the transaction of purchase and sale of liquor by the Corporation will not fall within the ambit of BAS and would, therefore, not be taxable.
• Thus the appeal filed by the appellant is allowed and appeals filed by the department are dismissed.

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