2021 (2) TMI 1023 - AT - Service Tax

Levy of service tax - Export Pass fee and Import fee - Storage License Renewal fee - Excise Staff Salary and Overtime charges - Permit fee paid to the State Excise department - Reverse charge Mechanism - Section 117 of the Finance Act, 2019 - HELD THAT - The learned Commissioner has wrongly considered the fee paid by the appellant to the State Excise department and various other Government departments/agencies as having an element of a quid pro quo in it and hence services provided by the State Excise department. We also note that the fee charged for grant of license is not a consideration for service, but a price charged for exclusive privilege parted by the State, the export fee does not have an element of service and therefore not a service and accordingly not subject to levy of service tax. The State Legislature is empowered to make laws in terms of Article 246 read with the Seventh Schedule of the Constitution of India. The State Legislature is empowered to make laws in respect of Entries 8 and 66 of the State List which cover production, manufacture, possession, transport, purchase and sale of intoxicating liquors and fees in respect of any of the matters in this List excluding fees taken in any court. We further note that to deal with intoxicating liquor is part of the State responsibility and it is in exercise of these privileges, State has exclusive rights to manufacture, possession, consumption, transport etc. of liquor within its territory and to grant licenses and permits to ensure compliance - in August, 2019, the Finance Act, 2019 was enacted amending Section 66B of the Act, to the effect that service tax was not leviable on services provided by the State Government by way of grant of liquor licenses against consideration in the form of license fee or application fee by whatever name called , during 01.04.2016 to 30.06.2017 along with this amendment the dispute regarding the leviability of service tax on fee paid to State Government in relation to alcoholic liquor for human consumption has come to an end and it is clear that service tax is not leviable on the said fees from April 2016 to June 2017. Specific inclusion of word by whatever name called , the Legislature made it abundantly clear that any fee paid under the purview of State Excise legislation would not be leviable to service tax. Further, it is pertinent to note that the word License Fee is defined by Oxford Dictionary to mean a fee paid to an organization for permission to own, use or do something . Levy of service tax on Storage License fee - HELD THAT - The learned Commissioner has observed that the said license is issued to the appellant by the State Excise department for the specific purpose of storing CO2. The appellant has paid the fee against the renewal of license for storing CO2 which fact is admitted by Ashish Jain, Manager of appellant in his statement dated 05.02.2018. The learned Commissioner has rightly upheld the demand of service tax on Storage License Renewal fee which cannot be considered as fee paid towards grant of liquor license - the demand of service tax on Storage License fee for CO2 along with interest is upheld. Liability on license fee and other application fee paid to the State authorities - HELD THAT - The issue with respect to tax liability on license fee and other application fee paid to the State authorities continued to be an issue under GST as well and the GST Council in its 26th meeting on 10.03.2018 recommended that GST was not leviable on license fee and application fee, by whatever name called , payable for alcoholic liquor for human consumption and that this would apply mutatis mutandis to the demand raised by the Service Tax/Excise authorities on license fee for alcoholic liquor for human consumption in the pre-GST era i.e. for the period from April 2016 to 30th June 2017. The appellant is not liable to pay service tax on Export Pass fee, Import Pass fee, Permit fee, Excise Staff Salary and overtime allowances/charges - the service tax demand on Storage License fee for CO2 which the appellant is liable to pay along with interest is confirmed - appellants are not liable to pay penalties in view of the fact that demand itself is not sustainable - appeal allowed in part.

Summary

Issues Involved:
1. Liability to pay service tax under Reverse Charge Mechanism on various fees paid to the State Excise department.
2. Interpretation of license fees and other related fees under the Finance Act, 1994 and Finance Act, 2019.
3. Validity of penalties imposed under Sections 77(2) and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Liability to Pay Service Tax under Reverse Charge Mechanism:
The primary issue was whether the appellant is liable to pay service tax under Reverse Charge Mechanism on fees such as Export Pass fee, Import Pass fee, Storage License Renewal fee, Excise Staff Salary and Overtime charges, Permit fee paid to the State Excise department. The Commissioner confirmed the service tax demand of ?4,89,95,805/- for the period from April 2016 to June 2017. However, the Commissioner dropped the demand on other fees like Brewery License Fee, Bond Registration Renewal Fee, etc., following the retrospective amendment in Section 117 of the Finance Act, 2019.

2. Interpretation of License Fees and Related Fees:
The appellant argued that the fees paid to the State Government are not for any service but are the consideration for parting with the State's "exclusive privilege" of trade in liquor. The appellant relied on several judicial precedents, including the Constitutional Bench of the Hon'ble Supreme Court in Har Shankar Vs Excise & Taxation Commissioner, which held that the license fee is not a fee or tax but a price for a privilege. The retrospective amendment in Section 117 of the Finance Act, 2019, clarified that no service tax is leviable on the license fee paid to the State Excise Department. The Tribunal agreed with this view, stating that the fees do not have an element of service and are not subject to service tax.

3. Validity of Penalties:
The appellant contested the penalties imposed, arguing that when the demand itself is not sustainable, the question of penalties does not arise. The Tribunal agreed, stating that the issue involved is one of interpretation of law and hence penalties are not imposable.

Conclusion:
The Tribunal concluded that the appellant is not liable to pay service tax on Export Pass fee, Import Pass fee, Permit fee, Excise Staff Salary, and Overtime charges. The demand on these services was set aside. However, the Tribunal upheld the service tax demand on Storage License fee for CO2 along with interest, as the appellant did not contest this part. The penalties imposed were also set aside. The appeal was partly allowed.