2011 (2) TMI 349 - HC - Service Tax

Contract Bottling Units (CBU) - Applicability of service tax - it is a public limited company engaged in the business of brewing beer apart from marketing and sale of non-alcoholic beverages and mineral water and, operating its business in the entire country including Karnataka under the license issued by the State Excise Authorities - show-cause notice proposing to impose service tax on the basis of the technical know-how said to have been borrowed by the petitioner in its manufacturing activity and utilising the same for manufacturing beer or some other Indian made foreign liquor as per the agreement entered into between the petitioner and its contract company - It is very well open to the petitioner to urge all contentions before any order is passed by the Officer concerned who has issued the show-cause notice on 31-3-2009 - the petitioner has not suffered any order except certain propositions which are stated in the show-cause notice and, it is at liberty to suitably reply and have an opportunity of hearing so that appropriate order would be passed by the 3rd respondent - petitions are disposed of

Summary

Issues:
1. Whether the arrangement of brands at Contract Bottling Units (CBU) constitutes intellectual property service under the Finance Act, 1994.
2. Validity of levy of service tax by the Union of India on the petitioner's business activities related to liquor manufacturing.
3. Jurisdiction of the Central Government to tax liquor business under the Service Tax Act.

Analysis:

Issue 1: The petitioner sought a declaration that their arrangement of brands at Contract Bottling Units (CBU) does not fall under intellectual property service as defined in the Finance Act, 1994. They argued that the technical know-how received from a foreign company is not liable to service tax. The court noted that the show-cause notice proposing service tax was issued by the Officer of the Directorate General of Central Excise. The petitioner contended that the manufacturing activity and technical know-how borrowed fall within the State subject and not under the Central Excise Act or Service Tax Act.

Issue 2: The petitioner challenged the validity of the service tax levy by the Union of India on their liquor manufacturing business. They argued that the State has the authority to levy taxes on such activities under List II of the Seventh Schedule to the Constitution. The petitioner claimed that the Union of India has no jurisdiction over matters related to liquor manufacturing and taxation. They emphasized that the nature of their business falls within the State's domain and not under central taxation laws.

Issue 3: The court observed that the petitioner's challenge was based on a show-cause notice and no final order had been issued against them. The court highlighted that the petitioner had the opportunity to present their case before the concerned officer and challenge any adverse decision through appropriate legal recourse. The court concluded that since there was no cause of action, it was premature for the petitioner to approach the court, and all contentions could be raised at the appropriate stage of the proceedings.

In conclusion, the court disposed of the petitions with the observation that the petitioner had the opportunity to address their concerns during the administrative process before seeking judicial intervention. The judgment emphasized the importance of allowing the administrative process to unfold before resorting to legal remedies, especially in cases where no final decision adversely affecting the petitioner had been made.