2017 (11) TMI 1112 - HC - Service Tax

Business Auxiliary Services - C&F service - regulate supply of liquor through conferring the exclusive privilege of purchase and sale in the wholesale thereof - sale of liquor only through the canalising agency - Held that - the issue is decided in the case of Union of India vs. M/s. Chattisgarh Estate Beverages Corporation 2015 (3) TMI 744 - CHHATTISGARH HIGH COURT , where it was held that The Tribunal has recorded a finding of fact that the Corporation was engaged in purchase and sale of liquor and could not be considered as clearing and forwarding agent for the State Government. It is finding of fact. No illegality in the finding has been pointed out. Appeal allowed - decided in favor of appellant-assessee.

Summary

Issues:
1. Whether the appellant's service falls within the scope of Section 65(105)(zzb)?
2. Whether the appellant is liable to pay service tax for the service provided?

Analysis:
Issue 1:
The appellant, a government undertaking in Rajasthan, was entrusted by the State Government with the exclusive privilege of purchasing and selling liquor in the wholesale market. The appellant collected a commission but failed to remit service tax. The Revenue alleged that the appellant provided taxable Business Auxiliary Service (BAS) to liquor manufacturers. The show cause notice proposed assessment and levy of service tax, interest, and penalties. The appellant contended that liquor service should not be considered a service under Section 65(105)(zzb).

Issue 2:
The High Court analyzed a similar case from the Chattishgarh High Court and another case from the Rajasthan High Court. In the Chattishgarh case, it was held that no service tax was payable if the corporation was engaged in the sale and purchase of liquor for the state. In the Rajasthan case, it was determined that the appellant was not liable to withhold tax at source under the Income Tax Act for sales to distributors. The High Court concluded that the appellant was not liable to pay service tax for the service provided, as the relationship between the appellant and the liquor manufacturers was on a principal-to-principal basis, and the appellant did not fall under the purview of Section 65(105)(zzb).

In summary, the High Court ruled in favor of the appellant, stating that the service provided did not fall within the scope of Section 65(105)(zzb), and therefore, the appellant was not liable to pay service tax for the service rendered.