2016 (8) TMI 250 - HC - Service Tax

Constitutional validity - levy of service tax on person manufacturing alcoholic liquor for human consumption on job work basis Section 66B of the Finance Act, 1994 read with 65B(40) and section 66D - Notification No. 14/2015/-ST dated 19th May 2015 Held that - what is sought to be made amenable to service tax is the activity of contract manufacturing of alcoholic liquors fit for human consumption by one entity for another. Such provision of service which is in pith and substance not covered under Entry 51 of List II of the Seventh Schedule to the Constitution of India is certainly amenable to levy of service tax by Parliament which is competent to legislate on that aspect with reference to Entry 97 of List I. The challenge to the Notification No.14/2015/-ST dated 19th May 2015 and the SCN is, therefore, negatived leaving it open to the Petitioner to urge all contentions available to it on merits before the adjudicating authority - writ petition dismissed decided in favor of revenue

Issues Involved:
1. Constitutional validity of Section 66B of the Finance Act, 1994 (FA 1994) read with Section 65B(40) and Section 66D of the FA 1994 as amended by the Finance Act, 2015 (FA 2015).
2. Constitutional validity of Section 113(A)(1) of the Finance Act, 2009 (FA 2009).
3. Legislative competence of Parliament to levy service tax on the manufacture of alcoholic liquor for human consumption on job work basis.
4. Validity of Notification No. 14/2015-ST dated 19th May 2015.
5. Validity of the Show Cause Notice (SCN) issued to Carlsberg India Pvt. Ltd. (CIPL).

Issue-wise Detailed Analysis:

1. Constitutional Validity of Section 66B of the FA 1994 read with Section 65B(40) and Section 66D as amended by FA 2015:
The petitioners argued that Parliament lacks legislative competence to enact these amendments as the manufacture of alcoholic liquor for human consumption falls exclusively under the State Legislature's domain (Entry 51 of List II of Schedule VII). The respondents contended that service tax is levied on the service aspect of the contract of manufacturing alcohol on behalf of the principal manufacturer/brand owner, traceable to the residual Entry 97 of List I. The court agreed with the respondents, stating that the service aspect of job work is distinct from the manufacturing aspect and thus falls within Parliament's legislative competence under Entry 97 of List I. The court upheld the validity of the amendments.

2. Constitutional Validity of Section 113(A)(1) of the FA 2009:
The petitioners challenged the amendment to Section 65(19) of the FA 1994 by Section 113(A)(1) of FA 2009, arguing that it usurps the State Legislature's exclusive jurisdiction to levy excise duty on alcoholic liquor for human consumption. The court held that the manufacturing activity undertaken by an entity for another for consideration qualifies as a "service" under Section 65B(44) of the FA 1994. Therefore, the amendment is valid as it pertains to the service aspect of manufacturing for another, which is distinct from manufacturing for oneself.

3. Legislative Competence of Parliament to Levy Service Tax on Manufacture of Alcoholic Liquor for Human Consumption on Job Work Basis:
The court applied the "pith and substance" and "aspect" doctrines to determine legislative competence. It concluded that while Entry 51 of List II covers the manufacture of alcoholic liquor for consumption, it does not encompass manufacture by one entity for another. The service aspect of job work, where one entity manufactures for another, falls under the ambit of service tax and is within Parliament's legislative competence under Entry 97 of List I. The court found that the service tax on contract manufacturing of alcoholic beverages is valid.

4. Validity of Notification No. 14/2015-ST dated 19th May 2015:
The notification specified 1st June 2015 as the date from which the amendments introduced by FA 2015 would come into force, thereby making the manufacture of alcoholic liquor for human consumption on job work basis subject to service tax. The court upheld the validity of this notification, stating that it is consistent with the legislative competence of Parliament under Entry 97 of List I.

5. Validity of the Show Cause Notice (SCN) Issued to CIPL:
The SCN demanded service tax from CIPL for "business auxiliary service" provided to United Breweries Ltd. (UBL) for the period from 23rd September 2009 to 30th June 2012. The court did not interfere with the SCN, leaving it open for the adjudicating authority to decide whether the service rendered by KBL to UBL qualifies as a business auxiliary service and is amenable to service tax. The court left the respective contentions of the parties to be urged in the adjudication proceedings.

Conclusion:
The court dismissed the writ petitions, upholding the constitutional validity of the challenged provisions and the notification. It found no reason to interfere with the SCN issued to CIPL, leaving the merits to be decided by the adjudicating authority. The petitions were dismissed with no order as to costs.

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