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Judgment
The present appeal is directed against the impugned order dated 6.03.2020/18.03.2020 passed by the Commissioner of Central Tax, Bangalore
whereby the learned Commissioner has confirmed the demand of Rs.4,89,95,805/- along with interest under Section 75 of the Finance Act, 1994. The
Commissioner has also imposed penalty of Rs.10,000/- under Section 77(2) of the Finance Act 1994 and Rs.4,89,95,805/- under Section 78 of the
Finance Act, 1994. The period of dispute is from April 2016 to June 2017 and SCN was issued on 18.06.2018.
Briefly the facts of the present case are that the appellants are engaged, inter alia, in manufacture and sale of alcoholic beverages. Pursuant to the
enquiry initiated by the DGCEI, Bangalore, Zonal Unit, a SCN dated 18.06.2018 was issued to the appellant, inter alia, demanding service tax of
Rs.17,77,85,108/- under reverse charge mechanism on the following fees paid to the State Excise department:
(i) Brewery License Fee
(ii) Bond Registration Renewal Fee
(iii) Storage License Fee for CO2
(iv) Factory License Renewal Fee
(v) Excise Staff Salary and Overtime allowance/charges
(vi) Permit Fee (vii) Brand Registration Fee
(viii) Barcode Fee
(ix) Bottling Fee
(x) Export Pass Fee
(xi) Import Pass Fee
(xii) Appeal Filing Fee
2.1. It was further alleged in the SCN that the aforesaid fees paid by the appellant are with respect to the purported service provided by the State
Government and in view of the amendment made to Section 66D of the Finance Act vide Finance Act, 2015, read with Notification No.06/2016-ST
dated 18.02.2016, the appellant is liable to pay service tax under reverse charge mechanism on the same. During the course of investigation, the
appellant had deposited Rs.17,77,85,108/- under protest. Subsequently, vide Section 117 of the Finance Act, 2019, it was provided that no service tax
shall be levied or collected in respect of taxable service provided or agreed to be provided by the State Government by way of grant of liquor license,
against consideration in the form of license fee or application fee, by whatever name called, during the period commencing from 01.04.2016 and
ending with the 30.06.2017 (both days inclusive). Thereafter, after following the due process, the learned Commissioner, vide the impugned order
dated 18.03.2020, confirmed service tax demand of Rs.4,89,95,805/- with respect to Export Pass fee and Import fee, Storage License Renewal fee,
Excise Staff Salary & Overtime charges and Permit fee paid to the State Excise department. Further, the learned Commissioner dropped the demand
with respect to Brewery License Fee, Bond Registration Renewal Fee, Factory License Renewal Fee, Brand Registration Fee, Barcode Fee, Bottling
Fee and Appeal Filing Fee. Aggrieved by the Service Tax demand confirmed by the learned Commissioner, the appellant has filed the present appeal.
Heard both the parties and perused the records of the case.
Learned Counsel for the appellant submitted that the impugned order is not sustainable in law as the same has been passed without properly
appreciating the facts, law and the binding judicial precedents on the issue involved in the present case. He further submitted that in terms of Entry 8
of List-II of Seventh Schedule of the Constitution of India, production, manufacture, possession, transport, purchase and sale of intoxicating liquors is
the “exclusive privilege†of the State. He also submitted that the State Government instead of engaging itself, can part with its “exclusive
privilege†of trade in liquor on payment of such fee and on such terms and conditions as it can deem fit from time to time. Learned Counsel also
submitted that there is no quid quo in the license fee and service, if any, rendered by the State Government. The license fee charged by the State
Government is neither any tax nor fee, but it is the consideration charged by the State Government for parting with its privilege and granting it to
licensee for manufacture and sale of liquor. He relied upon the Constitutional Bench of the Hon’ble Supreme Court in the case of Har Shankar Vs
Excise & Taxation Commissioner, (1975) 1 SCC 737, wherein the Hon’ble Apex Court held, that the licensee fee is not a fee properly so-called
nor indeed a tax but is in the nature of the price of a privilege, which the purchaser has to pay in any trading or business transactions. It is his further
submission that the license fee charged by the State Government is not subject to tax as the same is not for any service. Pursuant to the retrospective
amendment vide Section 117 of the Finance Act, 2019, it became even more clear that no service tax is leviable or payable on the license fee paid to
the State Excise Department. He further submitted that the learned Commissioner has rightly dropped the service tax demand on license fee but has
erred in confirming the demand with respect to the Import Pass fee, Export Pass fee and Permit fee etc. He also submitted that the learned
Commissioner has erred in holding that permit granted for import/export of liquor cannot be treated as license. He further submitted that the learned
Commissioner has erred in not appreciating that like the License fee, Import Pass fee and Export Pass fee are also the consideration charged by the
State Government for parting with its exclusive privilege to import and export liquor. He relied upon the Constitution Bench of the Hon’ble
Supreme Court in the case of State of Punjab and Orissa Vs Devans Modern Breweries Ltd. and Others reported in (2004) 11 SCC 26 wherein it has
been held that import fee levied is the price for parting with the privilege given to the licensee to import beer in to the State. He further submitted that
the learned Commissioner has erred in holding that the Permit fee given for transportation of beer is temporary in nature and cannot be treated as
License. For this submission, he relied upon the decision of Hon’ble Rajasthan High court in the case of Inertia Industries Vs State of Rajasthan
and Others, 2001 SCC Online Raj 937 wherein it has been held Permit fee charged by the State for allowing transport of liquor is the consideration
charged by the State for parting with its exclusive privilege in favour of a person. He also relied upon the decision of Hon’ble Supreme Court in
the case of State of Orissa and Others Vs Narain Prasad and Others, (1996) 5 SCC 740, wherein it has been held that “privilege†means the
License or Permit granted by the State. He further submitted that the learned Commissioner has erred in giving a very narrow meaning to term
“Licensee Fee†whereas the term “Licensee Fee†shall include consideration charged by the State in any form for parting with its exclusive
privilege. He also cited Section 117 of the Finance Act, 2019 which uses the words “by whatever name called†and the learned Commissioner
has erred in not giving due meaning to the words “by whatever name calledâ€. As far as service tax on Excise Staff Salary and Overtime charges
are concerned, the learned Counsel submitted that the learned Commissioner has wrongly held that the Excise Staff Salary and Overtime charges are
with respect to service provided by the State Government. For this submission, he relied upon the decision of the Hon’ble Supreme Court in the
case of Gupta Modern Breweries Vs State of J&K and Others, (2007) 6 SCC 317 wherein it has been held that there is no quid pro quo between the
staff’s salary and service rendered. The Hon’ble Supreme Court further held that the administrative charges recovered by the State are in the
nature of tax. He also referred to Circular No.192/02/2016-ST dated 13.04.2016, wherein CBIC has clarified that taxes, cesses or duties levied are
not consideration for any particular service as such and hence not leviable to Service Tax. Hence, he has prayed that no service tax should be levied
on Excise Staff Salary and Overtime charges. Similarly, he has prayed that no service tax is payable on Storage License Fee for CO2. Learned
Counsel also contested the penalties imposed on the appellant on the ground that when the demand itself is not sustainable, the question of imposition
of penalty does not arise and further the issue involved is of interpretation of law and therefore penalty is not imposable.
On the other hand, learned AR reiterated the findings of the impugned order.
After considering the submissions of both the parties at length and after going through various provisions of the Finance Act, 1994 and the various
decisions relied upon by the appellant cited supra, we find that the only issue involved in the present case is whether the appellant is liable to pay
service tax under Reverse Charge Mechanism on the Export Pass fee and Import fee, Storage License Renewal fee, Excise Staff Salary and
Overtime charges, Permit fee paid to the State Excise department. With regard to other fees, learned Commissioner himself has granted relief in view
of the amendment made in Section 117 of the Finance Act, 2019 with retrospect. Here it is pertinent to refer to the amendment in Section 117(1) vide
Finance Act, 2019 which is reproduced herein below:
117(1) Notwithstanding anything contained in Section 66B of Chapter V of the Finance Act, 1994 as it stood prior to its omission vide
Section 173 of the Central Goods and Services Tax Act, 20107 with effect from the 1st day of July, 2017 (hereinafter referred to as the said
Chapter), no service tax shall be levied or collected in respect of taxable service provided or agreed to be provided by the State
Government by way of grant of liquor licence, against consideration in the form of licence fee or application fee, by whatever name called,
during the period commencing from the 1st day of April, 2016 and ending with the 30th day of June, 2017 (both days inclusive).
6.1. Further, we note that 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. Further, we find that 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 calledâ€,
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 calledâ€, 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 somethingâ€. The Hon’ble Apex Court in the case of State
of Orissa Vs Narain Prasad cited supra specifically explained the meaning of expression “Privilege†and held that “Privilege really means the
license or permit granted by the Stateâ€. Further, in view of State of Punjab and Orissa Vs Devans Modern Breweries Ltd. cited supra Import fee
levied as price for parting with privilege given to the licensee by the State. Further, in view of Inertia Industries Vs State of Rajasthan cited supra
Permit fee charged by the State for allowing transport of liquor is the considerations charged by the State for parting with its exclusive privilege and is
not liable to service tax. Further in view of the Hon’ble Supreme Court decision in the case of Gupta Modern Breweries Vs State of J&K cited
supra it is held that there is no quid pro quo between the Staff Salary and the services rendered hence the same is not liable to service tax. As far as
levy of service tax on Storage License fee for CO2 is concerned, we find that 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. In our view, 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.
Moreover, the learned Counsel for the appellant has also not pressed against the confirmation of this demand hence we uphold the demand of service
tax on Storage License fee for CO2 along with interest.
Further, we may also note 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 calledâ€, 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.
In view of our discussion above and by following the ratios of the various judgments relied upon by the appellant cited supra, we are of the
considered opinion that 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 and we set aside the demand on all these services. We confirmed the service tax demand on Storage License fee for CO2 which
the appellant is liable to pay along with interest. We also hold that appellants are not liable to pay penalties in view of the fact that demand itself is not
sustainable. In view of our discussion above, we allow the appeal of the appellant partly to the extent noted above. Hence, the appeal is partly
allowed.
(Order pronounced in the open court on 18/02/2021)