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2008 (3) TMI 313 - HC - Service TaxWhether bottling of liquor amounts to manufacture of liquor or only packaging so as to attract the Service Tax? Held that packaging and bottling of liquor come within the ambit and sweep of manufacture within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944 in view of the definition contained in Section 65(76b) of the Finance Act especially keeping in view the exclusionary facet and further regard being had to the circular issued by Central Board of Excise and Customs.
Issues Involved:
1. Constitutional validity of Section 65(76b) of the Finance Act, 1994 as amended by the Finance Act, 2005. 2. Whether bottling of liquor amounts to manufacture or merely packaging attracting Service Tax. Detailed Analysis: 1. Constitutional Validity of Section 65(76b) of the Finance Act, 1994: The primary contention was the lack of legislative competence to enact Section 65(76b) of the Finance Act, 1994, and its potential violation of Article 14 of the Constitution of India. However, during the proceedings, the petitioners chose not to pursue this constitutional challenge. Instead, they focused on the interpretative aspect of whether the bottling of liquor falls under the definition of Service Tax as per the amended provision. 2. Whether Bottling of Liquor Amounts to Manufacture or Packaging: The core issue was whether the bottling of liquor constitutes a manufacturing process or merely a packaging activity liable to Service Tax under Section 65(76b) of the Finance Act, 1994. Arguments by Petitioners: - The petitioners argued that bottling is an integral part of the manufacturing process of liquor, as defined under Section 2(f) of the Central Excise Act, 1944. They emphasized that the entire process, including bottling, is conducted under the supervision of excise authorities and is essential for the completion of the manufactured product. - They also referred to the M.P. Excise Act, 1915, and the M.P. Country Spirit Rules, 1995, which mandate the supply of liquor in sealed bottles, indicating that bottling is a part of the manufacturing process. Arguments by Respondents: - The respondents relied on the decision in M/s Vindhyanchal Distilleries Pvt. Ltd., which held that bottling and labeling of liquor are service activities and not part of the manufacturing process, thereby justifying the levy of Service Tax. Court's Analysis: - The Court examined the definition of "packaging activity" under Section 65(76b) of the Finance Act, which excludes activities amounting to "manufacture" as defined in Section 2(f) of the Central Excise Act, 1944. - Section 2(f) of the Central Excise Act defines "manufacture" to include any process incidental or ancillary to the completion of a manufactured product. The Court interpreted this to mean that bottling, being incidental to the completion of the liquor manufacturing process, falls within this definition. - The Court also referred to various circulars issued by the Central Board of Excise and Customs, which clarified that processes amounting to manufacture, even if not resulting in excisable goods, are excluded from the purview of Service Tax under the Finance Act. - The Court noted that the earlier decision in Som Distilleries & Breweries Pvt. Ltd. had correctly interpreted bottling as a part of the manufacturing process and distinguished it from the Vindhyanchal Distilleries case, which had incorrectly treated bottling as a service activity. Conclusion: - The Court concluded that the decision in M/s Vindhyanchal Distilleries Pvt. Ltd. did not correctly state the law, as it failed to recognize bottling as part of the manufacturing process. - The Court upheld the view in Som Distilleries & Breweries Pvt. Ltd., ruling that packaging and bottling of liquor are integral to the manufacturing process and thus fall within the definition of "manufacture" under Section 2(f) of the Central Excise Act, 1944. - Consequently, these activities are excluded from the ambit of Service Tax as per Section 65(76b) of the Finance Act, 2005. Final Directive: - The matter was directed to be listed before the appropriate Division Bench for final disposal, affirming that packaging and bottling of liquor come within the ambit of manufacture and are not subject to Service Tax.
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