CESTAT: No Service Charge on Alcohol

In a recent judgement, the Service Tax Tribunal (Cestat) ruled that blending, bottling, labelling, and packaging of Indian Made Foreign Liquor (IMFL) cannot be considered a taxable function, i.e. a business auxiliary service, and subject to Service Tax. It means that firms who mix, bottle, label, and package IMFL won’t be taxed as business auxiliary services. These services are not taxable under GST. In this case, a one-crore tax demand was withdrawn at adjudication, but revenue appealed.

The adjudicating authority erred in determining that the assessee’s blending, bottling, labelling, etc. of Indian Made Foreign Liquor (IMFL) amounted to manufacturing under Section 2(f) of the Central Excise Act, 1944, and dropped the whole demand.

As per the agreement, the assessee completed job work for the primary manufacturer and produced invoices for bottling costs, manufacturing charges, etc. incurred for IMFL production on behalf of clients and was paid. They followed instructions and vigilance from IMFL service receivers. Assessee has no control over IMFL product prices, which were previously set by clients.

Assessee raised invoices for bottling, manufacturing, etc. charges incurred for IMFL manufacture for clients and was paid. It was concluded that if the Contract Bottling Unit (CBU) manufactures alcoholic beverages under the ‘contract bottling arrangement’ stated above, such activity would not come within the taxable Business Auxiliary Services. If the CBU’s operation falls short of the definition of manufacture (such as packaging or labelling alone), then it comes under service tax.

Revenue’s appeal was denied because the Tribunal found no grounds to change the initial ruling. Though it’s about service tax, it’s important because many instances are still waiting. Under the current Goods and Services Tax (GST) structure, alcoholic liquor for human consumption is a State subject. In their current forms, service tax and GST cannot be applied to the manufacturing of alcoholic drinks for human use.

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