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2019 (6) TMI 1328 - HC - Service TaxLevy of service tax - activity / privilege to sell eatables and collect empty liquor bottles - agency commission - Grant of Privilege to Run the Bar - payments made by Bar Contractors - devolution of sovereign rights of the State through the appellant - HELD THAT - Rule 9A of the Retail Vending Rules deals with grant of privilege to run the bar. It states that the privilege of running bar may be granted to private parties by tender, that the Board of the appellant may decide the upset price and other terms and conditions from time to time with the prior approval of the Commissioner of Prohibition and Excise, that the appellant, as agency, shall collect the tender amount from the successful tenderers and remit the same to the Government on or before 25th of the following month and that the appellant may retain 1% of the amount so collected as agency commission - though the said Rule states that it has a privilege of running bars, the appellant has not authorized private parties to vend liquor in the shops, which are annexed to the retail vending shops. It is no doubt true that the Retail Vending Rules empower the appellant to vend liquor not only in the shops established by them, but also in the bars. But, the factual scenario in the State of Tamil Nadu is that in the retail vending shops, vending alone is permissible and in the bars attached to the retail vending shops, a facility is provided for consumption of liquor thereby the liquor purchased in the retail vending shops is taken by the customer to be consumed inside the premises and this is with a view to prevent the customer to consume liquor in the open area causing nuisance to the general public. The use of the expression 'running bars' in Rule 9A of the Retail Vending Rules, in our considered view, is a misnomer. This is so because the Retail Vending Rules also permit the licences to be used by certain categories of establishments where they are permitted to vend liquor and allow the persons to consume the liquor within the same premises. Some examples are certain categories of hotels, resorts, etc. Therefore, the grant of privilege in the instant case, which we are presently dealing, is for the purpose of selling eatables and collecting empty bottles and cartons in the bars, which are adjacent or annexed to the retail vending shops. Whether such a right or privilege to sell eatables and collect empty bottles can be treated as a statutory right or a devolution of a statutory right? - HELD THAT - The answer to the question should be in the negative - The statutory right conferred on the appellant under the provisions of the Tamil Nadu Prohibition Act, 1937 read with the Retail Vending Rules is on account of a policy decision taken by the Government whereby the State of Tamil Nadu enacted the Tamil Nadu Prohibition Act, 1937 and framed various Rules. Therefore, there is no vested right granted to any private individual to trade in alcohol in the State of Tamil Nadu and already, the privilege has been vested with the appellant, which is a State Owned Corporation - to state that the right to sell eatables and collect empty bottles is a statutory right is an absurd proposition, which cannot be accepted. Tribunal was right in concluding that the activities assigned and performed for the period in dispute can never be treated as a sovereign function or a statutory right or an activity performed by a Public Authority under the authority of law. The Tribunal also took note of the circulars issued by the Central Board of Excise and Customs dated 23.8.2007 and 18.12.2006, which clarified that if a Sovereign/Public Authority provides a service, which is not in the nature of a statutory activity and if the same is undertaken for a consideration, which is not a statutory fee, then, in such cases, service tax would be leviable as long as the activity undertaken falls within the scope of taxable service as defined. Even when a Governmental Authority performs a service, which is not in the nature of a statutory activity, the same has to be held leviable to service tax. Whether this benefit, which was granted by the Tribunal, should be extended in favour of the appellant for the period covering July 2012 to March 2013? -HELD THAT - To term that Rule 9A is clarificatory in nature is an argument, which is stated to be rejected and we do not agree with the submission made by the learned counsel for the appellant that the benefit granted by the Tribunal for the period from April 2013 to till date by making the appellant/assessee liable to pay service tax on 1% of the revenue retained by them as agency commission can be extended for the period from July 2012 to March 2013 - the third substantial question of law is answered against the assessee. Appeal dismissed - decided against appellant.
Issues Involved:
1. Exigibility of service tax on payments by bar contractors as a devolution of sovereign rights. 2. Service tax liability for the period from July 2012 to March 2013 under the Negative List regime. 3. Applicability of 1% service tax on payments made by contractors from July 2012 onwards, similar to the period from April 2013 onwards. Issue-wise Detailed Analysis: 1. Exigibility of Service Tax on Payments by Bar Contractors as a Devolution of Sovereign Rights: The Tribunal held that for the period from October 2008 to June 2012, no service tax was liable on the activities performed by the assessee, classifying them under 'Business Support Services' as defined in Section 65(104c) of the Finance Act, 1994. The appellant argued that the activity was a statutory right devolved on licensees and thus not exigible to service tax. However, the Tribunal concluded that the activity could not be treated as a sovereign function or a statutory right. The Tribunal's decision was supported by the examination of audited balance sheets and relevant circulars from the Central Board of Excise and Customs, which clarified that non-statutory activities undertaken for consideration are subject to service tax. The court agreed with the Tribunal's reasoning and concluded that the activity was not a statutory right, thus affirming the Tribunal's decision. 2. Service Tax Liability for the Period from July 2012 to March 2013 under the Negative List Regime: For the period from July 2012 to March 2013, the Tribunal held the appellant liable for service tax, citing the broader scope of 'service' under Section 65B(44) of the Finance Act, 1994, introduced with the Negative List. The appellant contested this, arguing that the nature of the payments remained statutory and thus non-exigible. However, the Tribunal noted that the activities performed were not statutory functions or sovereign activities. The court upheld the Tribunal's decision, emphasizing that the activity could not be considered a devolution of a statutory right and was thus subject to service tax. 3. Applicability of 1% Service Tax on Payments Made by Contractors from July 2012 Onwards: From April 2013 onwards, the Tribunal held that the appellant was liable to pay service tax only on 1% of the revenue generated, following the amendment to the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003, which allowed the appellant to retain 1% as agency commission. The appellant sought to extend this benefit retrospectively to the period from July 2012 to March 2013. The court examined Rule 9A, which was inserted in March 2013, and concluded that it was prospective, not retrospective. The court rejected the appellant's argument that Rule 9A was clarificatory and should apply retrospectively, affirming that the benefit of paying service tax on only 1% of the revenue could not be extended to the period before April 2013. Conclusion: The court dismissed the appeals, affirming the Tribunal's decisions on all three issues. The activities performed by the appellant were not considered statutory rights or sovereign functions and were thus subject to service tax. The benefit of paying service tax on only 1% of the revenue retained as agency commission was held to be prospective from April 2013 and not applicable to the period from July 2012 to March 2013.
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