Bottling of liquor – Board realizes reality?
Please recollect our article Beer manufacture and service tax - intaxicating? and the High Court judgement in 2006-TIOL-268-HC-MP-ST. regarding Service Tax on bottling of liquor. The article suggested and the High Court held that the activity of bottling liquor was liable to Service Tax. Under Business Auxiliary Service definition, manufacturing activity within the meaning of clause (f) of Section 2 of Central Excise Act is excluded from its purview. Since bottling of liquor does not amount to manufacture under Central Excise as liquor is not excisable at all, the obvious conclusion was that it would fall under Service Tax. But one of our enlightened netizens, Unnikrishnan had pointed out,
“As per section 2 (f) of the CEA, 1944 'any activity incidental or ancillary to the completion of a manufactured goods amounts to manufacture'. There is no condition that the process should be carried out for the completion of excisable goods. So any activity incidental or ancillary for the completion of non-excisable goods also comes under the purview of section 2 (f). Accordingly, it is only to find out whether the bottling is essential for the completion of liquor. As such the liquor cannot be marketed without bottling; the activity of bottling has to be considered as manufacture for the completion of liquor. So, it is pertinently seen that activity of liquor bottling is outside the purview of 'packaging service' under Section 65 of Finance Act, 1994. It appears that the aforesaid law point was not argued in the HC . Hope the said point will be presented in the apex court.”
Before the issue is decided by the Supreme Court, perhaps Board wants to get its share in the liquor business. Board has released a draft circular which stipulates that,
the activity of blending, manufacture, bottling or labelling, etc on job work basis by a distiller, in respect of Indian Made Foreign Liquor on behalf of brand owner, would be covered under the category of business auxiliary service.
While we are happy that Board has taken note of the issue pretty fast, we wish the Board would take into consideration the issue raised by Unnikrishnan, which has serious ramifications.
Incidentally is it legal and right for the Board to clarify an issue already decided by a High Court? Fortunately in this case the Board agrees with the High Court.
Interestingly, the Board circular has a disclaimer, “This Draft Circular has been put up only to elicit public response. No final decision has been taken by Government/ Board. Government/ Board will proceed further in the matter only after due examination of the responses received.”
Is it to preempt the powerful liquor lobby from going to court? Trouble is brewing fast for the brewing industry and the concept of contract brewing is likely to undergo a major change. Intaxicating days ahead? If you have any comments, send them to the Board by 20th October.
Draft Circular in F.No.