Equivalent Citation: ILR[2006]MP542,
(2007)7VST197(MP)
IN THE HIGH COURT OF MADHYA PRADESH (JABALPUR BENCH)
Decided On: 29.04.2006
Appellants: Vindhyachal Distilleries Pvt.
Ltd.
Vs.
Respondent: State of Madhya Pradesh
Judges/Coram:Vs.
Respondent: State of Madhya Pradesh
Counsels:
For Appellant/Petitioner/Plaintiff:
For Respondents/Defendant:
For Intervenor:
Subject:
Relevant Section:
·
FINANCE ACT,1994 - Section
65(76)(b)
Acts/Rules/Orders:
·
Finance Act, 2005 -
Section 65(76) ,
·
Finance Act, 2005 -
Section 68 ,
·
Finance Act, 2005 -
Section 69 ;
·
Central Excise Act, 1944 -
Section 2 ;
·
Madhya Pradesh Excise Act,
1915 ;
·
Central Excise Tariff Act,
1985 ;
·
Finance Act, 1994 -
Section 65 ,
·
Finance Act, 1994 -
Section 66 ,
·
Finance Act, 1994 -
Section 68(1) ;
·
Madhya Prades General
Sales Tax Act, 1958 - Section 2 ;
·
Madhya Pradesh Country
Spirit Rules, 1995 ;
·
Madhya Pradesh Country
Spirit Rules, 1995 - Rules 2A ,
·
Madhya Pradesh Country
Spirit Rules, 1995 - Rules 3(3) ;
·
Service Tax Rules, 1994 -
Rules 4A ,
·
Service Tax Rules, 1994 -
Rules 4A(1) ,
·
Service Tax Rules, 1994 -
Rules 6 ;
·
Service Tax (Amendemnt),
Rules 1997 - Rule 2 ;
·
Service Tax Rules, 1944
Cases Referred:
·
Vidhyachal Distilleries
Pvt. Ltd. case W.P. No. 2346/2006;
·
T.N. Kalyana Mandapam
Association v. Union of India and Ors. 2006 (3) S.T.R. 260 (S.C.) : 2004 (167)
E.L.T. 3 : (2004) 5 SCC 632;
·
India Cement Ltd. v. State
of T.N. (1990) 1 SCC 12;
·
Sudhir Chandra Nawn v. WTO
AIR 1969 SC 59;
·
Asstt. Commr. of Urban
Land Tax v. Buckingham and Carnatk Co. Ltd. (1969) 2 SCC 55 SCR 278 : SCC 63;
·
Second Gift Tax Officer v.
DM. Nazareth (1970) 1 SCC 749;
·
Union of India v.
Harbhajan Singh Dhillon (1971) 2 SCC 779 SCC 792;
·
Bhagwan Dass Jain v. Union
of India (1981) 2 SCC 135;
·
Western India Theatres
Ltd. v. Cantonment Board Poona AIR 1959 SC 582 SCR 69;
·
Doypack Systems (P) Ltd.
v. Union of India (1988) 2 SCC 299 SCC p. 302;
·
Laghu Udyog Bharati and
Anr. v. Union of India and Ors. 2006 (2) S.T.R. 276 (S.C.) : 1999 (112) E.L.T.
365 : (1999) 6 SCC 418;
·
Central Excise Bombay v.
S.D. Fine Chemicals Pvt. Ltd. 1995 (77) E.L.T. 49 (S.C.) : (1995) Supp. 2 SCC
336;
·
Central Excise Hyderabad
v. Jayant Oil Mills Pvt. Ltd. 1989 (40) E.L.T. 287 (S.C.) : (1989) 3 SCC 343;
·
Aditya Mills Ltd. v. Union
of India (1988) 4 SCC 315;
·
Collector of Central
Excise Madras v. Kutty Flush Doors and Furniture Co. (P) Ltd. 1988 (35) E.L.T.
6 (S.C.) : AIR 1988;
·
Som Distillers and
Breweries Pvt. Ltd. v. State of M.P. and Anr. 1997 (1) E.L.T. 319;
·
Ashirwad Ispat Udyog and
Ors. v. State Level Committee and Ors. (1999) 32 VKN 65
Citing Reference:
|
Aditya Mills Ltd. vs. Union of India (UOI) MANU/SC/0007/1988
|
Discussed
|
|
Ashirwad Ispat Udyog and Ors. v. State Level Committee and
Ors
|
Discussed
|
|
Bhagwan Dass Jain vs. Union of India (UOI) and Ors. MANU/SC/0529/1981
|
Mentioned
|
|
Collector of Central Excise, Hyderabad vs. Jayant Oil
Mills Pvt. Ltd. MANU/SC/0111/1989
|
Discussed
|
|
Collector of Central Excise, Madras vs. Kutty Flush Doors
& Furniture Co. (P) Ltd. MANU/SC/0091/1988
|
Discussed
|
|
Collector, Central Excise, Bombay vs. S.D. Fine Chemicals
Pvt. Ltd. MANU/SC/1018/1995
|
Discussed
|
|
Doypack Systems Pvt. Ltd. vs. Union of India (UOI) and Ors
MANU/SC/0300/1988
|
Mentioned
|
|
India Cement Ltd. and Ors. vs. State Of Tamil Nadu and
Ors. MANU/SC/0226/1989
|
Mentioned
|
|
Laghu Udyog Bharati and Anr. vs. Union of India and Others
MANU/SC/0444/1999
|
Discussed
|
|
Som Distillers & breweries Pvt. Ltd. v. State of M.P.
and Anr
|
Distinguished
|
|
Sudhir Chandra Nawn vs. Wealth Tax Officer, Calcutta and
Ors. MANU/SC/0032/1968
|
Mentioned
|
|
Tamil Nadu Kalyana Mandapmam am Assn. vs. Union of India
(UOI) and Ors. MANU/SC/0354/2004
|
Relied On
|
|
The Assistant Commissioner of Urban Land Tax and Ors. vs.
The Buckingham and Carnatic Co. Ltd., etc. MANU/SC/0068/1969
|
Mentioned
|
|
The Second Gift Tax Officer, Mangalore etc. vs. D.H.
Nazareth etc. MANU/SC/0309/1970
|
Mentioned
|
|
The Western India Theatres Ltd. vs. The Cantonment Board,
Poona, Cantonment MANU/SC/0154/1959
|
Mentioned
|
|
Union of India (UOI) vs. Shri Harbhajan Singh Dhillon MANU/SC/0062/1971
|
Mentioned
|
Industry:
ORDER
1. In these writ petitions the question involved
is whether service tax on packaging i.e. bottling and labelling of liquor, can
be exacted from the distillers and whether they can pass on this liability to
the contractors obtaining the supplies from them.
2. The petitioners are distillers/retail contractors,
licence has been granted for supply of country made liquor for the warehouses
situated in various districts of the State of Madhya Pradesh to distillers. The
retail contractors take supply from the distillers under the terms of CS-I
licence issued to distillers and CS-II licence issued to the retail
contractors. The distiller is entitled to receive the cost price of liquor from
the Government and the sealing and bottling charges from the retail contractors.
The retail contractors are required to deposit the bottling and sealing charges
in advance before lifting the country liquor from the warehouse. Licence (P-3)
was issued to M/s. Vidhyachal Distilleries Pvt. Ltd. (in W.P. No. 2346/2006).
3. It is further averred that on 16.6.2005 Section
65(76)(b) of the Finance Act, 2005 was amended and "Packaging
Activity" was also brought within the ambit of service tax. On 9th
September, 2005, the Commissioner, Customs and Central Excise, Indore wrote
letter (P-4) to the Excise Commissioner, M.P. It was clarified that under
Section 65(76)(b) inserted by the Finance Act, 2005 the service tax was imposed
w.e.f. 16.6.2005. The Excise Commissioner directed as per letter (P-5), dated
13.9.2005 all the distillers/service providers to get themselves registered
with department of Excise and to pay the service tax @ 10.2% on
packaging/sealing charges of Rs. 2.25 per bottle.
4. The petitioner M/s. Vindhyachal Distilleries Pvt.
Ltd. got the registration certificate (P-6) under Section 69 of the Finance
Act. After registration the distillers demanded the service tax @ 10.2% on the
packaging/sealing charges of Rs. 2.25 per bottle from the retail contractors,
same was disputed by them. There was some conflict of opinion as apparent from
letter (P-7) dated 27.9.2005. However, clarincatory letter (P-8) was issued on
27th September, 2005 by the Excise Commissioner, M.P. Gwalior, it was explained
that service tax was an indirect tax and though the liability of payment of the
same was on the distillers i.e. the service provider but the same could be
passed on to the retail contractors. The retail contractors could also pass it
on to the actual consumers. One Shri Akhilesh Rai filed a writ petition without
impleading M/s. Vindhyachal Distilleries Pvt. Ltd. and injunction was granted.
Suit was also filed, filing of suit was suppressed, an order (P-II) was passed
in W.P. Nos. 13906/05,14045/05,13052/05, in which this Court held that service
tax was to be realised by the Central Excise Department from the service
provider, however, distiller (service provider) was given liberty to seek
appropriate remedy as may be available in accordance with law. Whether service
tax could be passed on, was not adjudicated upon. It is submitted that
distiller has a right to pass on the service tax to the retail contractors.
Service tax by nature is such a tax, which is meant to be passed on to the
actual users. It was directed by District Excise Officer not to collect the
service tax from the retail contractors.
5. It is further submitted that under the Madhya
Pradesh Country Spirit Rules, 1995 the distillers are given a CS-1 licence to
manufacture country spirit from rectified spirit by essencing, colouring,
flavouring, reducing, blending etc. at the manufacturing warehouses. Colouring
and flavouring agents are added at the time of maturation. This is a process of
treatment given to over proof spirit in order to render it fit for human
consumption in the form of country liquor. This process is manufacturing of
country liquor in the real sense as well as within the meaning and scope of
Central Excise Act, 1944 and M.P. Excise Act, 1915. It is further submitted
that as the Packaging Activity is covered by and part of process of manufacture
within the meaning of Clause (f) of Section 2 of the Central Excise Act, 1944,
hence service tax cannot be levied on such an activity of packaging. Rule 3(3)
of M.P. Country Spirit Rules, 1965 and Rule 2-A has also been relied upon to
contend that manufacture of country spirit includes bottling of liquor hence
sealing of country liquor is not a packaging activity within the purview of
service tax but is a part of manufacturing process. No cost of country spirit
is recovered from the retail contractors except cost of rectified spirit, empty
bottles is recovered from the retail contractors and this amount is termed as
sealing charges, which has been misunderstood as packaging charges. Bottling
and sealing done is incidental to the process 6f manufacture to make it a
marketable commodity. Sealing charges form part of manufacturing cost, hence
does not attract service tax. The order not to recover the service tax is
against the provision of Rule 4-A of Service Tax Rules, 1994, which was
inserted w.e.f. 10th September, 2004, which provides that service tax can be
passed on in the bill to next person.
6. The counsel for respondent Central Excise has relied
upon the Gazette Notification which was issued for inviting the tenders for
bottling and supply of country spirit in sealed bottles in various districts of
State of M.P. It is submitted that bottling, labelling and sealing by pilfer
proof cap of glass bottles of volume is independent activity and is not part of
process of manufacture of country made liquor, it is a service provided, hence
service tax can be realised by Central Excise Department of Govt. of India. It
is also submitted that as per Section 2(d) of the Central Excise Act, excisable
goods means goods specified in the First Schedule and the Second Schedule to
the Central Excise Tariff Act, 1985. Chapter 22 of the Central Excise Tariff
Act, 1985 covers Beverages, Spirits and Vinegar, however, as per Chapter Note 4
alcoholic liquors for human consumption is not covered. The manufacture of
liquor is not taxable under Central Excise Act and the activity of distilling,
bottling and packaging liquor also not defined as the goods specified in
Section or Chapter Notes of the Central Excise Tariff Act, 1985. The bottled
country liquor or its packing or repacking activity has not been mentioned/specified
in Central Excise Tariff Act, and that is why it is not a Central Excise
manufactured product and therefore, it is correctly falling under the purview
of service tax under the head of Packaging Activity Service w.e.f. 16.6.2005.
It is further submitted on behalf of Central Excise that activity of bottling,
labelling and sealing of (plain/spiced) country liquor are covered as a
Packaging Activity and attracts service tax under Section 65(76)(b) inserted by
Finance Act, 2005. The tax is payable on the value of the taxable service
received by the service provider. Accordingly such distillers/bottlers shall
pay service tax being a service provider. The Central Excise can recover
service tax from the distillers/service provider only. The Packaging Activity
service is provided by Distillers/Bottlers by way of bottling the liquor and
being transferred to wholesale or retail dealer/contractors etc. The dispute of
passing liability of service tax onwards is inter se distillers and
contractors. It can be recovered by distillers from contractors as per Rule
4A(1) of the Service Tax Rules, 1994.
7. The stand of the State Government counsel is that
service tax is realised by Central Excise, it is the dispute between the
distillers/contractors. A letter was issued pursuant to the directives issued
by this Court, they have to abide by the decision to be rendered in the matter.
8. Shri H.S. Shrivastava, learned Sr. Counsel with Shri
Girish Shrivastava, Shri Kunal Thakrey and Shri Akshat Sharma appearing in some
of the petitions for petitioners and in some of the petitions for
respondents/interveners have submitted that it is not open to impose the
service tax on bottling and sealing of country made liquor as that forms part
of the process of manufacture as defined in Section 2(f) of the Central Excise
Act, 1944. In case packaging forms part of process of manufacture, it is
outside the purview of service tax as imposed as inserted under Section
65(76)(b) by Finance Act, 2005. It is submitted that without bottling and sealing,
process of manufacture is not complete, it is necessary to make it a marketable
commodity, hence service tax could not be imposed upon the distillers,
consequently it could not be passed on to the contractors and so on.
Alternatively it is submitted on behalf of distillers that in case this Court
come to the conclusion that the activity of packaging is liable for service tax
under Section 65(76)(b) as inserted by Finance Act, 2005, it being an indirect
tax, it is permissible to pass it on to the wholesalers/contractors by the
service provider.
9. Shri Dharmendra Sharma, Asst. Solicitor General
appearing for Central Excise has submitted that it is clear that the activity
is packaging activity within the purview of Section 65(76)(b) as inserted by
Finance Act, 2005, which means packaging of goods including pouch filling,
bottling, labelling or imprinting of the package, since it is not an item
covered within the purview of Central Excise Act, 1944. No Central Excise is
levied, it cannot be said to be part of process of manufacture within the
meaning of Clause (f) of Section 2 of the Act. Alternatively, he has submitted
that the process of packaging of goods including pouch filling, bottling,
labelling or imprinting of the package is specifically included within the
packaging activity and it is an independent activity than the process of
manufacture as contemplated under Section 2(f) of the Central Excise Act, 1944,
hence service tax was rightly levied, further considering the tender notice, it
is clear that activity of bottling and sealing is an independent process for
which separate charges are realised and for country spirit separate billing is
made, thus two activities are different. It has to be seen in the facts of the
each case whether packaging activity forms part of process of manufacture when
tender notice is considered. It is clear that it is an independent activity
(service provided) and cannot be said to be part of process of manufacture
under Section 2(f) of Central Excise Act. It can be passed on to the
wholesalers/contractors being an indirect tax.
10. Shri Sanjay Yadav, learned Dy. Advocate General
appearing for the State has submitted that the service tax is realised by the
Central Excise. The State has no concern with the service tax, which is
realised, hence dispute is inter se the distillers/contractors. He has also
submitted that charges for bottling, labelling and sealing are fixed @ Rs.
2.25/- per piece.
11. The "Packaging Activity'" has been
defined in Section 65(76)(b) as inserted by the Finance Act, 2005 thus:
(76)(b): "packaging activity" means packaging of goods including
pouch filling, bottling, labelling or imprinting of the package, but does not
include any packaging activity that amounts to "manufacture" within
the meaning of Clause (f) of Section 2 of the Central Excise Act, 1944 (1 of
1944);Section 2(f) of the Central Excise Act, 1944 defines the process of manufacture thus:
(f) : "manufacture" includes any process - (i) incidental or ancillary to the completion of a manufactured product;
(ii) which is specified in relation to any goods in the Section or Chapter notes of the First Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as amounting to manufacture; or
(iii) which in relation to the goods specified in the Third Schedule, involves packing or repacking of such goods in a unit container or labelling or relabelling of containers including the declaration or alteration of retail sale price on it or adoption of any other treatment on the goods to render the product marketable to the consumer;
Section 2(d) of the Central Excise Act, 1944 defines excisable goods; thus:
(d): "excisable goods" means goods specified in the First Schedule and the Second Schedule to the Central Excise Tariff Act, 1985 (5 of 1986) as being subject to a duty of excise and includes salt;
Service Tax was introduced in India vide Finance Act, 1994. Service Tax is legislated by Parliament under the residuary entry 97 of List I of the Seventh Schedule of Constitution of India. Section 65 of the Finance Act, 1994 provides for taxable service. Section 66 provides for charge of service tax by the person designated as person responsible for collecting service tax. Section 68 of the Act provides for collection and payment mechanism for service tax. Service tax is an indirect tax and has to be paid on all the services notified by the Government of India for the said purpose. The said tax is on the service and not on the service provider. The service provider is expected to collect the tax from the client for utilising his service as apparent from the provision of the Act and Service Rules of 1944. To enable the Government to widen the nature of service tax, certain changes are made time to time by making amendment in the Finance Act. Accordingly the packaging activity was inserted in Section 65(76)(b) by Finance Act, 2005. It has to be seen in every case whether packaging activity of packaging of goods including pouch filling, bottling, labelling or imprinting of the package is outside the purview of process of manufacture. In case it is a part of process of manufacture as defined within the meaning of Clause (f) of Section 2 of the Central Excise Act, 1944, it is of the packaging activity under Section 65(76)(b).
12. When we consider the transaction in question, which
is best reflected in the tender notice published in the gazette of M.P.,
pursuant to which distillers have been granted the licence for bottling and
supply of country spirit in various districts of State of M.P. published in
gazette notification dated 19.5.2005. The tenderer is required to be a
distiller holding appropriate licence for distillery from the competent
authority and the distillery should be in production. Every intending distiller
is free to tender for any one or more supply areas. Tenders are invited from
the distillers for grant of licence under the provision of Madhya Pradesh
Country Spirit Rules, 1995 to supply country spirit through bonded warehouses
to the retail sale contractors in sealed bottles for a period commencing within
seven days from grant of such licence and ending 31st March, 2006. The lowest
rate was to be accepted. The production capacity was one of the relevant
criteria. Every tenderer was required to follow certain conditions. No dues and
credibility certificate regarding past performance with respect to production
and supply of alcohol issued by the Excise Commissioner of the State or an
equivalent authority where the distillery is situated, was to be submitted. The
distillers situated outside of M.P. were also eligible to apply. An
unconditional consent regarding supply of the spirit from the distillery
situated outside M.P. to the warehouse situated in M.P. for fulfilment of
supply requirement of country spirit of the area for which the tender is
submitted, was to be submitted. The intention was to supply the country spirit
through bonded warehouses to the retail sale contractors in sealed bottles.
Spirit could be manufacture at any place out side the State also. There are
certain important conditions with respect to the supply of country spirit.
Condition No. 6 contains material provisions with respect to the responsibility
of successful tenderers to receive empty bottles from retail contractors at the
issue warehouses and charges for bottling, labelling and sealing by pilfer
proof cap of the glass bottles of volume are fixed at Rs, 2.25/- per piece.
Rates of deposit money for empty glass bottles payable by retail contractors
was also specified in the tender notice. Condition No. 6 of the Tender notice
is quoted below:
(i) : The successful tenderer shall supply country spirit filled in a
semiautomatic bottling plant in the supply area allotted to him. The bottling
can be done at one or more of the warehouses of each of the concerned supply
area. The list of warehouses of each of the supply area is annexed to this
tender notice.(ii) The successful tenderer shall use the plant during the period of the contract and on expiry of the contract, the plant shall have to be handed over to the new successful tenderer against its depreciated cost, to be paid by the new successful tenderer. The successful tenderer shall make all such arrangements of semi-automatic bottling at the respective warehouse as would be necessary to ensure that he is capable of supplying 1.5 time the estimated supply of the country spirit in that supply area.
(iii) It will be the responsibility of the successful tenderer to arrange supplies of country spirit (manufactured using standard rectified spirit manufactured in his distillery) to the area from the warehouses of the supply area during the entire period of the contract. It will also be the responsibility of the successful tenderer to receive the empty bottles from the retail contractor at the issue warehouses.
(iv) The country spirit, bottles, labels and bottling caps should be of such good quality, standard pattern and specifications, as prescribed by the Excise Commissioner.
(v) Charges for bottling, labelling; and sealing by pilfer proof cap of the glass bottles of volume 750 ml, 375 ml, 250 ml, and 180 ml are fixed at Rs. 2.25 per piece.
(vi) Rates of deposit money for empty glass bottles payable by retail contractors shall be as follows:
Glass bottle of 750 ml Rs. 3.50 Glass bottle of 375 ml Rs.
2.25 Glass bottle of 250 ml ["M.P. Excise" specially embossed] Rs.
2.80 Glass bottle of 180 ml Rs. 1.50
The deposit money is refundable to the retail contractor on return of glass
bottles at the supply warehouse.
(vii) The ratio of supply of country
spirit in different sizes of glass bottles to the retail contractors in the
area/areas is fixed as under:
750 ml 10 375 ml 20 250 ml and 180 ml 70
The above ratio means that every 100-bulk liters of supply of country spirit
to the retail contractor shall consist of 10-bulk liters in glass bottles of
750 ml size, 20 bulk liters in glass bottles of 375 ml size and 70 bulk liters
in glass bottles of 250 ml or 180 ml size 250 ml bottle will be used only for
60 degree under proof plain country spirit:Provided that if the retailer demands he will be supplied with country spirit of 25 degree under proof and 50 degree under proof in 180 ml and 60 degree under proof in 250 ml bottles in lieu of 750 ml and/or 375 ml bottles.
(viii) However the ratio shown in Clauses No. (vii) above may be changed at any time during the currency of the contract at the discretion of the Excise Commissioner.
(ix) Supply of country spirit for sale through the shops run by the Excise Department shall be made on the above terms and conditions by the successful tenderer.
(x) Minimum selling prices are to be printed on each kind and size of labels as directed by the Excise Commissioner.
13. It is clear that Section 65(76)(b) as inserted by
the Finance Act, 2005 clearly provides "Packaging Activity" to mean
packaging of goods including pouch filling, bottling, labelling or imprinting
of the package and it is clear that as per the conditions of tender notice
separate charges are levied for this service, which is provided by the
distillers as per conditions of tender notice. It is clear from condition No.
6(i) that the successful tenderer shall supply country spirit filled in a
semi-automatic bottling plant in the supply area. As provided in condition No.
6(iii) it will be the responsibility of the successful tenderer to receive the
empty bottles from the retail contractor at the issue warehouses. As per
condition No. 6(v) charges for bottling, labelling and sealing by pilfer proof
cap of the glass bottles of volume were prescribed at Rs. 2.25 per piece.
Condition No. 6(vi) provides for the rate of deposit of money for empty glass
bottles of different sizes payable by retail contractors, which is refundable
to the retail contractor on return of glass bottles at the supply warehouse.
Thus, it is clear that packaging activity cannot be said to be part of the
process of manufacture, as defined in Section 2(f) of Central Excise Act, 1944
it cannot be said to be a packaging activity which amounts to manufacture
within the meaning of Clause (f) of Section 2 of the Central Excise Act. The
excise is levied on the manufacture not on sale. The Apex Court in T.N. Kalyana
Mandapam Association v. Union of India and Ors. MANU/SC/0354/2004 considered
the question of imposition of service tax on Mandap Keepers, which were also
providing the catering services in addition to the other activities. The Apex
Court has laid down that service tax is a tax on services and not a tax on sale
or purchase of goods. It was permissible to levy the service tax on the
catering services provided by the Mandap Keepers. The submission that it
amounts to tax on land, was rejected. The definition of taxable services
provided by the Mandap Keepers is not limited to providing of premises on a
temporary basis for the purposes specified but includes even other facilities
supplied in relation thereto. The phrase "in relation to" is of the
widest amplitude. It was held not to be a tax directly on the land. The Apex
Court has laid down thus:
41. With regard to the first aspect, it is submitted
that in order to constitute a tax on land, it must be a tax directly on land
and a tax on income from land cannot come within the purview of the said entry.
This was affirmed by a seven-Judge Bench of this Court in India Cement Ltd. v.
State of T.N. MANU/SC/0226/1989 relying upon several judgments of this Court
including Sudhir Chandra Nawn v. WTO MANU/SC/0032/1968; Asstt. Commr. of Urban
Land Tax v. Buckingham and Carnatk Col Ltd. MANU/SC/0068/1969; Second Gift Tax
Officer v. DM. Nazareth MANU/SC/0309/1970 Union of India v. Harbhajan Singh
Dhillon MANU/SC/0062/1971 Bhagwan Dass Jain v. Union of India MANU/SC/0529/1981
and Western India Theatres Ltd. v. Cantonment Board Poona MANU/SC/0154/1959.
The proposition has been followed in several judgments of this Court.
47. The legislative competence of Parliament also does
not depend upon whether in fact any services are made available by the
mandap-keepers within the definition of taxable service contained in the
Finance Act. Whether in the given case taxable services are rendered or not is
a matter of interpretation of the statute and for adjudication under the
provisions of the statute and does not affect the vires of the legislation
and/or the legislative competence of Parliament. In fact, a wide range of
services is included in the definition of taxable services as far as
mandap-keepers are concerned. The said definition includes services provided
"in relation to use of mandap in any manner" and includes "the
facilities provided to the client in relation to such use" and also the
services "rendered as a caterer". The phrase "in rotation
to" has been construed by this Court to be of the widest amplitude. In Doypack
Systems (P) Ltd. v. Union of India MANU/SC/0300/1988, this Court observed as
under:
The expressions "pertaining to", "in relation to" and
"arising out of" used in the deeming provision, are used in the
expansive sense. The expression "arising out of" has been used in the
sense that it comprises purchase of shares and lands from income arising out of
the Kanpur undertaking. The words "pertaining to "and "in
relation to" have the same wide meaning and have been used interchangeably
for among other reasons, which may include avoidance of repetition of the same
phrases in the same clause or sentence, a method followed in good drafting. The
word "pertain" is synonymous with the word "relate". The
term "relate" is also defined as meaning to bring into association or
connection with. The expression "in relation to" (so also
"pertaining to"), is a very broad expression which presupposes
another subject-matter. These are words of comprehensiveness which might have
both a direct significance as well as an indirect significance depending on the
context. (SCC p.329, paras 48, 50).
51. Taxable services, therefore, could include the mere
providing of premises on a temporary basis for organising any official, social
or business functions, but would also include other facilities supplied in
relation thereto. No distinction from restaurants, hotels, etc. which provide
limited access to property for specific purpose.
14. It is clear that for supply of country liquor, the
distillers transport the rectified spirit to the warehouses/bottling plants.
The conversion of rectified spirit into plain/spiced country liquor is earned
out under control and supervision of the Warehouse Officer. He examines, tests
and approves under proof of the country liquor as per the calibrations/norms
fixed by the Government. During the process of converting the rectified spirit
into potable spirit plain/spiced country, the said rectified spirit do not
undergo any change. Only strength of the rectified spirit is reduced by adding
water to make it fit for human consumption, colour and essence is also added in
case of spiced liquor. In the bottling plant the said plain/spiced country
liquor is filled into glass bottles of different volume and sealed with pilfer
proof caps and labels of standard pattern and specifications, as prescribed by
the Excise Commissioner are pasted/affixed on the bottles to make country
liquor ready for supply at warehouse. The purchaser/contractor pays excise duly
@ 115 per proof liter through challan, in the treasury. On presenting the
challan to the Warehouse Officer, permit is issued to the contractors for
taking delivery of country liquor in sealed bottles of various volume, from the
distillers/bottlers. The distillers issue the stock of country liquor in sealed
bottles. At the time of supply of country liquor in sealed glass bottles, the
service provider recovers the deposit money of the said glass bottles by
raising bills, in terms of the condition Nos. (iii) and (vi) of the tender
notice dated 19.5.2005. However, the deposit money is refunded to the
contractor, when empty bottles are returned back. The glass bottles are not
sold but it is re-used again and again for bottling country liquor, for which
the distillers also issue a separate bill termed as sealing charges bills for
recovery of sealing charges i.e. Rs. 2.25 per piece/bottle on account of
filling the country liquor into glass bottle, cost/charge of label and pilfer
proof cap. After every month end, the cost price bill of liquor issued in
warehouses to the District Excise Officer, as per the rate. It is clear that
distillers receive the cost price of the country liquor from the District
Excise Officer by raising cost price bills. Further they deposit money of the
glass bottles used for filling the country liquor, from the contractors, by
raising separate bills and sealing (Packaging) charges of Rs. 2.25 per bottle
are separately raised for of packaging activity as defined in Section 65(76)(b)
as inserted by Finance Act, 2005.
It is clear from the transaction that only the service was to be provided
for the purpose of packaging, which was controlled under the condition of
tender notice and separate charges were paid for bottling, labelling and
sealing, which was not forming part of the price of the country spirit. For country
spirit separate bills were raised and for the aforesaid part of packaging
service charges were prescribed and there were service obligations to be
carried out in the form of bottling while undertaking the packaging activity.
There was obligation to reuse the bottle offered by the contractors. The entire
mechanism leaves no room for any doubt that it was packaging activity, which
was clearly a service activity under Section 65(76)(b) not process of
manufacture as defined in Section 2(f) of the Central Excise Act.
15. It may also be noted that Section 2(d) of the
Central Excise Act defines "excisable goods" means goods specified in
the First Schedule and the Second Schedule to the Central Excise Tariff Act,
1985 (5 of 1986) as being subject to a duty of excise and includes salt. The
Chapter 22 of the Central Excise Tariff Act, 1985 covers Beverages, Spirits and
Vinegar. However, as per the Chapter Note (4) this Chapter does not cover
alcoholic liquors for human consumption. Therefore, the activity of various
distillers do not come under the purview of manufacture as defined in Section
2(f) of Central Excise Act, 1944. The bottled country liquor or its packing or
re-packing activity has not been mentioned/specified in Central Excise Tariff
Act. Even if we consider the manufacturing activity, it is clear that
manufacturing activity de hors of event of its liability for the Central Excise
as defined in Section 2(f), in our opinion, packaging cannot be said to be part
of process of manufacture as defined in Section 2(f) in the facts and
circumstances of the instant case. It is clearly a service provided as per
terms of tender.
16. In the instant case in the entire process it is
clear that while packaging, it is only the service which is provided and for
was no discrimination made while making the classification. Decision was not in
context of Central Excise Act. The decision was not with respect to the
activity of packaging under Section 65(76)(b) and the definition under Section
2(f). It was also laid down that bottling fee, which is charged, is not excise
duty, though it is an excise revenue for the State and it was within the
competence of the State entry under the entry 66 of the list second and entry 8
of the list second of the Schedule of Constitution. We are concerned about the
service tax in the instant case, inserted by Finance Act, 2005. The
observations were made by the Division Bench in the context of classification
which was made under M.P. Excise Act, 1915 where definition of manufacture is
different and whether any service was rendered in the process was not the
question agitated or decided. The decision is distinguishable and has no
application to the controversy involved in the present petition.
Other decisions relied upon is Laghu Udyog Bharati and Anr. v. Union of
India and Ors. MANU/SC/0444/1999. The Rule 2(d)(xii) and (xvii) as amended in
the year 1997 of the Service Tax Rules, 1994, which provided that persons other
than the clearing and forwarding agents or the persons other than that, separate
charge is levied by separate bills. Packaging can be in the pouch or in
different forms in a given situation, thus it is a service part of the activity
which is being taxed, which is independent of the process of manufacture and
cannot be said to be integral part of process of manufacture as excluded in
section 65(76)(b) inserted by Finance Act, 2005 read with Section 2(f) of
Central Excise Act. The Apex Court in Collector, Central Excise Bombay v. S.D.
Fine Chemicals Pvt. Ltd. MANU/SC/1018/1995 : (1995) Supp. 2 SCC 336 has laid
down that whether a particular process is covered by manufacture as defined in
Section 2(f) is a question of fact, to be determined in the facts of each case.
In Collector of Central Excise Hyderabad v. Jayant Oil Mills Pvt. Ltd. MANU/SC/0111/1989,
the Apex Court held that all processes do not constitute manufacture, in our
opinion, merely by providing service for bottling a new commodity, does not
come into being new article, it is clearly a service provided. Manufacture is
complete as soon as by the application of one or more process, the raw material
undergoes some change. The moment there is transformation into a new commodity
commercially known as a separate and distinct commodity having its own
character and use, 'manufacture' takes place as held by the Apex Court in
Aditya Mills Ltd. v. Union of India MANU/SC/0007/1988. In Collector of Central
Excise Madras v. Kutty Flush Doors and Furniture Co. (P) Ltd.
MANU/SC/0091/1988, it is held that by conversion of timber logs into sawn timber,
no new product emerged by sawing of timber, therefore, higher excise duty on
sawn timber was not leviable.
17. Shri H.S. Shrivastava has placed reliance on the
decision of this Court in Som Distillers & breweries Pvt. Ltd. v. State of
M.P. and Anr. 1997 (1) E.L.T. 319 in which this Court
has considered the question of classification and imposition of special
bottling licence fee. It is held that if distillers bring the manufactured
liquor, then they will have to pay import duty under the garb of bottling. By
this device, they stand to gain save import duty. In order to save the excise
revenue a class which has obtained franchise and blending material for bottling
was separately classified as against the other class which is locally bottling
the liquor. Classification was held to be permissible. The decision is of no
assistance to the question involved in the present case. It was rendered in the
context of M.P. Excise Act, 1915 for imposition of duty and there good
transport operators collecting the service tax, was held to be ultra vires of
the Act. The decision renders no help to the petitioners as service tax is
being realised by the Central Excise from the service provider only.
18. Another decision which has been relied upon is
Ashirwad Ispat Udyog and Ors. v. State Level Committee and Ors. (1999)
32 VKN 65 in which definition of manufacture in M.P. General Sales
Tax Act, 1958 was considered, where the assessee treated iron and steel scrap
of considerable bulk by cutting it down by mechanical processes into pieces
that may be conveniently utilised in rolling mills and foundries. Such
treatment making saleable goods would, fall within the wide definition of
"manufacture" under Section 2(j) of the M.P. General Sales Tax Act,
1958. In the instant transaction the tender notice makes it clear that what is
provided by the distiller, is only a service and it cannot be said to be part
of process of manufacture in view of the conditions mentioned in the tender
notice.
19. As per provision of Section 68(1) of the Finance
Act, 1994, "Every person providing taxable service to any person shall pay
service tax at the rate specified in Section 66 in such manner and within such
period as may be prescribed" and as per the provisions of Rule 6 of the
Service Tax Rules, 1994, service tax is payable on the value of taxable
services. Accordingly such distillers/bottlers shall pay service tax being a
service provider.
20. Coming to the question whether liability can be
passed on by the distillers/bottlers to the wholesalers/retail contractors. It
is clear that service tax being an indirect tax, the element of service tax can
be passed on to the service receiver so held by the Apex Court in T.N. Kalyana
Mandapam Association v. Union of India and Ors. (supra).
21. It has not been disputed by Shri H.S. Shrivastava,
learned Sr. Counsel that once packaging activity is held to be outside purview
of Section 2(f) of Central Excise Act than service provider can pass on the
liability on the retail contractors and so on. The submission raised is right
and is supported by the aforesaid decision of the Apex Court, though the
service tax can be realised by the Central Excise only from the service
provider. In the decision (P-II) rendered by the learned Single judge of this
Court, the only question which was considered, was that "whether service
tax could be realised by the Central Excise from the retail contractors, who
were not service provider, in that context the decision was rendered. It was
not the question agitated or decided whether liability could be passed on by
the distillers (service provider) to the retail contractors, thus, in our
opinion, the letter issued by the respondents Nos. 2 and 4 restraining the
service provider from recovery of service tax from retail contractor cannot be
said to be justified, though at the same time the Central Excise has to recover
the service tax from service provider only and not from retail contractor.
22. Resultantly, it is held that it is open to the
Central Excise to recover the service lax from the service provider under
Section 65(76)(b) on the packaging activity as inserted by Finance Act, 2005
and service provider can pass on the liability to the retail contractors.
Accordingly writ petitions are disposed of. Parties to bear their own costs as
incurred.
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