Union of India vs Raj Wines

This tax appeal is against the order of the Customs, Excise & Service Tax Appellate Tribunal, Principal Bench, New Delhi (the Tribunal), dated 11-1-2012 Cassell and Co. Ltd. v. Broome, (1972) 1 All ER 801 partly dismissing the appeal of the Central Excise Department (the Department) in respect of M/s. Raj Wines (the Assessee) for the period 1-7-2003 to 31-8-2006 (the impugned-period).

THE FACTS

The Assessee markets and promotes various kinds of Indian Made Foreign Liquor (IMFL)/Beer manufactured by M/s. Skol Beverages Limited (SBL). It received payment of Rs. 2,84,34,153 towards the service for the impugned-period. However, Service Tax was not deposited.

The total amount received by the Assessee for the aforesaid period is also distributed in five different items. They are as follows:

The Adjudicating Officer (the AO) issued a show cause notice, dated 21-11-2006 asking the Assessee to show cause as to why Service Tax alongwith interest and penalty be not levied on the amount of money received from SBL.

The AO by its order, dated 30-8-2007 confirmed the notice for the Service Tax on the aforesaid amount alongwith the interest, the penalty of the same amount as that of the Service Tax was imposed under Section 78 of the Finance Act, 1994 (the Act), and the penalty of Rs. 100 per day was imposed for the period the Service Tax was not paid under Section 76 of the Act.

Aggrieved by the order, the Assessee filed an appeal. This appeal was partly allowed by the Commissioner (Appeals) by his order, dated 15-10-2007.

The Commissioner (Appeals) held that the Service Tax could only be levied on item No. 2 namely on the commission claim i.e. namely on the amount of Rs. 1,22,25,348. He set aside the order of penalty under Section 78 of the Act and reduced the penalty under Section 76 of the Act to Rs. 55,000.

Aggrieved by the aforesaid order, the Department filed an appeal before the Tribunal. The Tribunal partly allowed the appeal by its order, dated 11-1-2012.

The Tribunal held that the Assessee was further liable to pay the Service Tax on items 3 and 4 (namely merchandise expenses and fixed office expenses) as well as on part item No. 5 namely other expenses excluding miscellaneous expenses of registration and transportation.

However, the Tribunal upheld the order of the Commissioner (Appeals) excluding the Service Tax on the first item namely primary claim/retailer scheme. Hence, the present appeal.

THE DECISION

Notice of this appeal was served upon the Respondent/Assessee, however, no one has appeared on its behalf. Shri Neelabh Dubey, Advocate was requested to assist the court on behalf of the Assessee. We have heard them.

This appeal was admitted on 28-9-2012 on the following substantial question of law:

''Whether the impugned order passed by the Tribunal is in disregard and of contrary to the provisions of Section 68, 69 and 70 of the Finance Act and Rule 4, 5(2), 6 and 7 of the Service Tax Rules?''

The counsel for the parties state that the aforesaid question was wrongly framed and it should be re-framed as follows:

''Whether in the facts and circumstances of the case, the Assessee was liable to pay Service Tax on the amount received under the head - Primary claim/Retailer scheme or not?''

Section 67 of the Act is titled as ''Valuation of taxable services for charging Service Tax''. It defines how the valuation of taxable service is to be calculated on which the Service Tax is to be paid by the Assessee.

Section 94 of the Act is titled as ''Power to make rules''. It empowers the central government to frame rules for carrying out the provisions of the 1994 Act.

Sub-section (1) of Section 94(94)(1) of the Act empowers the central government to frame rules to carry out the provisions of the chapter. Sub-section (2) of Section 94(94(2)) of the Act provides the power to frame rules regarding the matter specifically mentioned therein.

Clause (aa) of Section 94(2)(94(2)(aa)) of the Act empowers the central government to frame rules for the determination of the amount and value of taxable service under Section 67 of the Act.

In pursuance of the powers conferred under Section 94(2)(aa) of the Act, the central government has framed Service Tax (Determination of Value) Rules, 2006 (the Rules).

Rule 5 of the Rules is titled as ''Inclusion in or exclusion from value of certain expenditure or costs''. Sub-rule (2) of Rule 5(5(2)) of the Rules provides exclusion of expenditure or cost incurred by the service provider as the pure agent. In different clause of Rule 5(2) qualify the conditions under which fixed expenses or costs incurred by the service provided is to be excluded.

The amount shown under the head of primary claim/retailer scheme is the amount which the service provider had given to the retailers on behalf of SBL for achieving certain quota of sales. It was then reimbursed to it.

The Commissioner (Appeals) after discussing the material on record, has recorded a finding that this was the expense that was done by the Assessee as a pure agent of SBL and this finding has been upheld by the Tribunal. There is no illegality in the reasoning or in the finding. The appeal has no merit. It is dismissed.