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2018 (9) TMI 1668 - AT - Service TaxBusiness Auxiliary Service - appellants are engaged in distilling and bottling of Indian Made Foreign Liquor (IMFL) which includes their own brand as well as brands owned by United Sprits Ltd., Bangalore - Department also took the view that the amount charged by appellants towards provision of the said service would be the value of taxable service; that they would not be eligible to avail exemption under Notification No.39/2009-ST dt. 23.09.2009 - Time Limitation. Time Limitation - the issue in the present appeal is covered in by DAR No.4. This is a separate objection conveying that appellants had not complied with conditions of non-availment of cenvat credit and evidence showing value of inputs specifically in the invoices raised etc. hence they were requested to offer explanation in that regard along with contract / agreements, accounts relating to job work etc. - Held that - Just because the two audit objections were conveyed in a single letter dt. 05.12.2013 by the department to the appellants, the fact of first show cause notice having been issued on earlier date for the first objection cannot be put forth as a ground that second SCN issued subsequently is barred by limitation - contention of applicant is rejected. Taxability of activity of contract bottling - appellant has also contended that issue of taxability of activity of contract bottling is still pending before the Hon ble Apex Court since appeal of International Spirits Wines Association of India (ISWAI) 2016 (12) TMI 1739 - SUPREME COURT - Held that - N/N. 39/2009-ST concerns the manner of taxability of BAS provided by an assessee by way of manufacture or processing of alcoholic beverages for or on behalf of the service recipient. As per the notification for calculating taxable value, the value of inputs excluding capital goods, used for providing said service is to be excluded, provided the assessee satisfies the conditions (a), (b), (c) thereof; in particular, not taking any cenvat credit and there is documentary proof indicating the value of such inputs. Evidently then, the notification seeks to exclude predominant portion of the materials cost - In any case, it is found that the taxability of activity of contract bottling has already been confirmed by the High Court of Delhi in the Carlsberg India case 2016 (8) TMI 250 - DELHI HIGH COUR . The appeal filed by ISWAI has only been admitted by the Hon ble Apex Court. However, no stay on taxability has been ordered by the Hon ble Apex Court. Hence this contention of the appellant also does not stand to scrutiny and is therefore rejected. Benefit of N/N. 39/2009-ST - Reversal of CENVAT Credit alongwith Interest - Held that - The Hon ble Supreme Court in Chandrapur Magnet Wires 1995 (12) TMI 72 - SUPREME COURT OF INDIA has held that reversal of modvat credit is permissible to avail exemption - thus, the benefit of Notification No.39/2009-ST dt. 23.09.2009, which otherwise mandates non-taking of credit for duty exemption, will now become available to the appellant. However, appellant shall pay up the interest liability on the quantum of credit availed under the Cenvat Credit Rules, 2004 during the period of dispute within a period of four weeks, only after which the matter shall be taken up for de novo adjudication as ordered by the adjudicating authority. Appeal disposed off.
Issues Involved:
1. Extended period of limitation for issuing the show cause notice. 2. Taxability of contract bottling of alcoholic liquor under Business Auxiliary Service (BAS). 3. Eligibility for exemption under Notification No.39/2009-ST. 4. Reversal of CENVAT credit and its impact on exemption eligibility. 5. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994. Detailed Analysis: 1. Extended Period of Limitation: The appellants argued that the show cause notice (SCN) issued on 29.01.2015 was barred by limitation since an earlier SCN on a different issue was issued on 10.10.2014. The Tribunal found that the two issues raised in the SCNs were distinct and unrelated. The first SCN pertained to the wrong availment of CENVAT credit based on a debit note, while the second SCN concerned the non-compliance with conditions of Notification No.39/2009-ST. The Tribunal held that the extended period of limitation was applicable as the second SCN was issued after further investigations and was not barred by the earlier SCN. Therefore, the contention of limitation was rejected. 2. Taxability of Contract Bottling: The appellants contended that the activity of contract bottling of alcoholic liquor for human consumption is under the purview of the State Government and should not attract service tax. However, the Tribunal noted that the taxability of contract bottling under BAS had been confirmed by the Delhi High Court in the Carlsberg India case. Although the matter was pending before the Supreme Court, no stay on taxability had been granted. Hence, the Tribunal rejected the appellants’ contention and upheld the taxability of contract bottling under BAS. 3. Eligibility for Exemption under Notification No.39/2009-ST: The appellants claimed exemption under Notification No.39/2009-ST, which allows exclusion of the value of inputs used in providing the taxable service, provided no CENVAT credit is taken. The Revenue argued that the appellants had availed CENVAT credit on inputs and capital goods, thereby disqualifying them from the exemption. The Tribunal agreed with the Revenue that the appellants had not fulfilled the conditions of the notification, making them ineligible for the exemption. 4. Reversal of CENVAT Credit: The appellants proposed to reverse the CENVAT credit of ?1,22,93,434/- along with applicable interest, relying on precedents like the Supreme Court's judgment in Chandrapur Magnet Wires and the Allahabad High Court's judgment in Hello Minerals Water. The Tribunal noted that reversal of credit even at the Tribunal stage would make the appellants eligible for the exemption under Notification No.39/2009-ST. The Tribunal directed the appellants to reverse the credit and pay the interest, thereby allowing the exemption and reducing the net service tax liability. 5. Imposition of Penalties: The appellants argued against the imposition of penalties under Section 78 due to the lack of clarity on the taxability of contract bottling. They agreed to pay penalties under Section 77. The Tribunal, considering the various interpretations and disputes, found that penalties under Section 78 were not justified and should be set aside. However, the Tribunal upheld the penalties under Section 77. Conclusion: The Tribunal allowed the appeal on the condition that the appellants reverse the CENVAT credit of ?1,22,93,434/- and pay the applicable interest within four weeks. The matter was remanded to the adjudicating authority to confirm the payment of predeposit and interest and to rework the service tax liability after extending the benefit of Notification No.39/2009-ST. The penalties under Section 78 were set aside, but those under Section 77 were upheld. The appeal was allowed on these terms.
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