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TMI Blog2010 (12) TMI 654X X X X Extracts X X X X X X X X Extracts X X X X ..... 04, 605, 625 & 626 OF 2009 - 116 TO 119 OF 2010 - Dated:- 21-12-2010 - M.V. RAVINDRAN, P. KARTHIKEYAN, JJ. Arshad Hidayatullah, V. Suresh and A.K.J. Nambiar for the Appellant. D.P. Nagendra Kumar for the Respondent. ORDER Appeal Nos. ST/625 626/2009 P. Karthikeyan, Technical Member. These two appeals are filed by M/s. Kerala State Beverages (Manufacturing Marketing) Corporation Ltd., (KSBC or Corporation for short) Trivandrum, a State Government Undertaking engaged in the procurement and distribution of Indian Made Foreign Liquor (IMFL), Foreign Made Foreign Liquor (FMFL), wine and beer in the State of Kerala pursuant to the policy adopted in this regard by the State Government. 2. KSBC receives liquor from manufacturers owning distillery/ brewery/blending unit (henceforth, also "suppliers"), as per the rate contracts entered with the suppliers every year, in its wholesale godowns/depots and sells the same from the said godowns/depots as well as through its retail outlets. Department received intelligence which indicated that KSBC receives liquor from the suppliers not as a buyer but as a consignee for its onward sale. That KSBC rendered various s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of 2002 etc., before the Hon'ble High Court of Kerala. The Hon'ble High Court had framed the following two questions for decision in the above Writ Petitions : "(1) Can the jurisdiction of the Writ Court be invoked in the circumstances of the present case? and (2) Are the impugned conditions arbitrary and unfair so as to be declared as violative of Article 14 of the Constitution?" The Hon'ble High Court had held that the conditions stipulated by the Corporation could be judicially reviewed, yet in the circumstances of the case, the Hon'ble High Court did not find any ground for interference. The petitioners in the above writ petitions moved appeal against the High Court's orders before Supreme Court in CA Nos. 1174 of 2004, 3417 of 2004, etc. In the civil appeal, the Company Secretary of the appellant had filed a counter affidavit wherein it was mistakenly submitted that the appellant was selling goods for and on behalf of the manufacturers/distilleries suggesting that the goods sold were not own goods of the appellant but that of the petitioner sellers. Distillers filed rejoinder before the Supreme Court pointing out that there was no principal-agent relationship between ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ional counter affidavit filed, the averments contained in the statements ceased to exist legally and factually. Moreover, the initial depositions were retracted during cross examination. The Commissioner had ignored the categorical submissions made by Shri Rajendra Prasad, former Finance Manager of the Corporation. He had deposed that goods received by KSBC were recorded in its accounts as purchases at the time of receipt of the goods in the godowns of the Corporation. The Company Secretary also had confirmed that the entire business done by the appellant was own business and the turnover in the sales tax return was that of the appellants. The allegation of agency business had no basis. The finding that the invoices for supply of liquor to KSBC indicated that no sales tax was paid in respect of such supply, was erroneously made by the Commissioner as he was unaware of the statutory provision that sales tax on IMFL and beer was levied at the point of sale by the appellant vide legislative amendment. In the additional counter affidavit filed before the Apex Court on 2-2-2008, the General Manager of KSBC had deposed that the Corporation purchased goods from the suppliers and received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion has not been constituted to extend service of any sort to any one in the course of its regular business activities. (iii) Rate contract was the lone document as per which the Corporation and the suppliers were engaged in the business of purchase and sale. There was no transaction between the parties other than on the strength of the rate contract. Sales Tax collection was not an ingredient essential for a transaction to constitute sale as per the Sale of Goods Act, the Central Sales Tax Act, 1956, Kerala General Sales Tax Act, 1963 or the Abkari Act. The Apex Court had examined the relationship between the Corporation and the suppliers and found that the relationship between the parties was one of buyer and seller in its judgment in the case of Maharashtra Distilleries (supra). In view of the finding of the Apex Court that the relationship between suppliers and the Corporation was as between principal to principal, the Commissioner had rendered a wrong finding ignoring the decision of the Apex Court. As per the Circular No. 96/7/2007-ST, dated 23-8-2007, issued by the CBEC "Service Tax is not leviable on a transaction treated as sale of goods and subjected to levy of Sales T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Corporation since the judgment did not deal with the question whether the relationship between the suppliers and Corporation was that of principal and agent. The High Court had dealt with different issues in the judgment and their lordships had no reason to examine the question of the relationship between the Corporation and the distillers. The judgment held that it was competent to entertain challenge to the terms of the contract between the Corporation and the suppliers in its writ jurisdiction and also that the service charges KSBC collected were not unfair and arbitrary. These were recovered by the Corporation in terms of the contract between the parties. The High Court also observed that the Corporation was a monopoly purchaser and not an agent and distributor of the suppliers. 7. The learned counsel relies on and invites our attention to the following submissions made before the Apex Court in the rejoinder affidavit filed by petitioner M/s. McDowell Company Ltd., in the SLP (Sl. No. 8103 of 2003). "It is submitted that apart from the above, the contention of the Corporation that it is only agent of manufacturer/supplier of IMFL is clearly misconceived and wholly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fortified by a reference to the annual report of the Corporation for the year 1984-85, the first report after the incorporation of the Beverages Corporation." 8. It is submitted that in a batch of writ petitions filed by the suppliers challenging levy of turnover tax made by the State under the provisions of Kerala General Sales Tax Act, in the case of Maharashtra Distilleries (supra), the categorical stand taken by the Corporation was that it purchased liquor from the manufacturers, paid excise duty in relation to the same and thereafter collected the excise duty as part of the price realized by it from its customers. The Corporation was an independent dealer under the KGST Act and its sales turnover under that Act was constituted by its selling price which included the price paid to the suppliers, excise duty paid by it to the Government, sales tax collected on sales effected to its customers, its administrative expenses and its profits. It was such turnover of the Corporation which became exigible to levy of turnover tax under section 5(2C) of KGST Act. The petitioners challenged the claim of the Corporation that it rendered services to the suppliers. The suppliers had claime ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distilleries constituted services taxable under the head Business Auxiliary Services . The impugned order therefore, deserved to be sustained. 11. We have examined the case records and studied the rival contentions. The dispute to be decided in this case is whether various activities undertaken by the appellant to promote sale of liquor manufactured by the suppliers are exigible under the Act under the head Business Auxiliary Service or Storage and Warehousing as found in the impugned order. There is no dispute that the impugned activities are undertaken by the Corporation with the sole object of promoting sale of liquor manufactured by various distilleries in Kerala. However, these activities would assume the character of services exigible under the Act if the liquor received from the suppliers continued to be the property of various distilleries till its sale by the Corporation. In fine, if the Corporation takes over supplies of liquor from the various distilleries when it receives them in its warehouses on sale by the suppliers, the question of the Corporation rendering any taxable service to the distilleries in promoting the sale of liquor manufactured by the distilleries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of working of the scheme and the terms and conditions of registration and the rate contract prove that ownership of goods does not pass to Beverages corporation by mere delivery and the goods of the supplier is held by Beverages Corporation on trust." "The status of Beverages Corporation is that of an agent till the time the stocks are disposed of and hence levy of service charges is justified." (iv) "The sales to consumers made by the Beverages Corporation through its retail outlets (FL-1 shops) is on behalf of the suppliers as their agent." "The services to the brands of the petitioner suppliers starts from the moment Beverages Corporation transfers goods from the wholesale godown till the goods are ultimately sold off to the consumer." (v) "The goods, even though in the custody of Beverages corporation, continues to be the property of the supplier till the time it is sold out either to a licensee or through the retail outlets of the Beverages Corporation or legally disposed off by auction or destroyal". (vi) "The Beverages Corporation stocks, transports, supplies and sells the goods of the manufacturer-suppliers like the SLP petitioner through its retail outlets. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... received goods as a consignee and held the goods as an agent of the supplier. KSBC realized service charges, etc., towards specific services rendered to the suppliers in relation to the goods supplied by them. In his statement dated 10-3-2006, Shri M.V. Sasikanthan, stood by the facts stated by him in the counter affidavit in SLP (Civil) No. 8801 of 2003 and admitted that the amounts collected by KSBC under the heads of 'service charges' and 'display charges' were in relation to and incidental to sale of goods belonging to the suppliers." 16. The Commissioner concluded that that all the goods continued to be the property of the distilleries even after delivery of the same by the distilleries. The status of the Corporation was that of agent till the stocks were disposed of. The rate contracts also supported the above averment. In the elaborate counter affidavit filed before the Apex Court, the Corporation had pleaded and laid its focus on the claim that the Corporation indeed rendered services to the distilleries to justify recovery of service charges. The rate contract provided for the Corporation paying for the supplies not immediately on receipt of the supplies. It also entrust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ween the Corporation and the distilleries. The consideration for the goods received is made over to the suppliers within the time limit as per the schedule prescribed in the rate contract i.e., within 45 days or after the goods are sold out whichever is later or 100 per cent of the value of actual sales in a fortnight after deducting 2 per cent discount. We reproduce relevant terms of a typical rate contract considered : "(a) Only those brands of IMFL, FMFL and Beer which have been registered with the Kerala Excise Department will be purchased by the Corporation. The name of the brand once quoted and approved by the Corporation will not be permitted to be altered. The same approved name of the brand should be registered with the Kerala Excise Department. Brands quoted by a company shall not be a registered brand of another Company and shall not be in violation of any law that may be in force from time to time. If any such violation is noticed, the Corporation may take such action as it may deem fit including recovery of direct or indirect loss that may be suffered by the Corporation and forfeiture of EMD. (b) The price quoted for each brand of IMFL, FMFL and Beer shall be p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n will be at liberty to offer such stocks for sale at a percentage of discount (not more than 50 per cent of the landed cost) as is considered reasonable for disposal of the stock. If the stock continues to be held up for more than 240 days the Corporation will be entitled to sell the stock at a discount of 100 per cent of the landed cost. The offerer will be entitled to only the amount realized on sales after deducting storage charges and other expenses incurred in the disposal of stock. The Corporation shall also debit all statutory levies incurred in this respect to the supplier and recover the same from the payments due to them. Subject to approval by Excise Authorities, the Corporation reserves the right to destroy all such stocks which are unsalable. The cost, duties, expenses incurred on such stocks will be debited to the account of the respective supplier. (i) The value of transit or godown breakage (if any) along with duties leviable thereon duly recorded by the Corporation shall be debited to the Supplier. Service charges as approved by the Board of Directors for all routine purchases to the corporation's FL-1 shops will be debited to the supplier. Transfer Fee for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... marketed/sold goods produced or provided by or belonging to the distilleries. The same liability is found against the Corporation for having rendered services incidental to activities defined as constituting Business Auxiliary Service in relation to goods belonging to the distilleries. KSBC also had stored the liquor belonging to the distillers prior to sale in its warehouses. The material portion of the definition of Business Auxiliary Service as per section 65(19) of the Act is reproduced below : " business auxiliary service means any service in relation : (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation : For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of, the client; (vi) provision of service on behalf of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nces, we find that the Commissioner erroneously relied on the observations of the High Court and the retracted submissions of the executives of the Corporation to hold that it rendered taxable services to the distilleries in relation to the liquor it sold through its network on the strength of the FL-1 and FL-9 licences issued to it by the Government of Kerala. 22. We find that the adjudicating authority placed strong reliance on the judgment of the Hon'ble High Court of Kerala particularly the observations of their lordships holding that the Corporation received liquor from the suppliers as a consignee, who promoted the sale of the supplies and recovered service charges from the suppliers. In the judgment the High Court had held that there was no sale of liquor at the threshold and that the Corporation rendered a variety of services to the distilleries. The judgment had decided a dispute relating to two issues. One was whether it was within its jurisdiction to arbitrate a dispute between parties to a contract in respect of a term of the contract mutually agreed upon. The High Court held that it was competent to arbitrate a dispute between parties to a contract. The other issue w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decidendi, ascertained on a consideration of the judgment in relation to the subject-matter of the decision, which alone has the force of law and which, when it is clear what it was, is binding. It is only the principle laid down in the judgment that is binding law under Article 141 of the Constitution. A deliberate judicial decision arrived at after hearing an argument on a question which arises in the case or is put in issue may constitute a precedent, no matter for what reason, and the precedent by long recognition may mature into rule of stare decisis. It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi. Therefore, in order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law. Law cannot afford to be static and therefore, Judges are to employ an intelligent technique in the use of precedents." From the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... en in a case where the exchange of consideration is deferred, or the consideration is determined subsequent to delivery in terms of the contract, the transaction has to be held as constituting sale, on delivery of the goods, since the property in the goods passes on, on such delivery. In the instant case, therefore, the Corporation received supplies of liquor from the distilleries on sale at the threshold. The supplies received in the warehouses of the Corporation belongs to the Corporation only. The activities undertaken by the Corporation to facilitate sale of liquor cannot be held to be services rendered to the distilleries. The Corporation took measures to expedite sale of goods belonging to it. The Corporation had rendered service to itself. These services cannot be taxed under Business Auxiliary Service of the Act. Therefore, the demand and penalty confirmed in the impugned order cannot be held to be legal or sustainable. 25. In the circumstances, we find that the impugned order is not sustainable. We vacate the same and allow the appeals. Appeal Nos. ST/604 605/2009 26. These appeals filed by the Revenue seek to modify the impugned order by imposing penalties on th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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