IS DISTRIBUTION OF LIQUOR TAXABLE UNDER ‘BAS’?
My good friend and a famous columnist in our portal, Santosh Hatwar, sent us this intaxicating proposal.
All the major liquor producing and consuming states in southern India have put in place a state owned distribution company for IMFL. They procure the liquor from distilleries from within the state and across the country by floating tenders and distribute them to the licensees through their depots.
Will this activity of procurement of liquor and distributing through the depots to the licensees amount to a service and if so is this service coming into the ambit of taxable services enlisted in Section 65 of Finance Act 1994?
This activity of the state owned liquor trading companies may come into the ambit of the taxable service head ‘Business Auxiliary Services’ (“BAS”). There is a possibility of classifying this activity under clauses (i) and (vi) of the definition of BAS. The two clauses referred to above are as follows:
“ …. (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or”…..
“…. (vi) provision of service on behalf of the client: or”….
The definition in clause (i) covers the activities of the trading companies and these trading companies are liable to service tax. But there are two potential issues involved in this transaction which may be stumbling blocks for the service tax department: (i) the value of taxable service for the trading company and (ii) whether the manufacturer of IMFL is a client of the trading company.
For solving these two riddles they have to look at the nature of contracts entered into by the trading company with the manufacturers on the one hand and the licensees on the other. However, if the service tax authorities overcome these stumbling blocks then they can expect a huge bonanza for the exchequer and the Hon’ble FM will be mighty pleased with this intaxicating boost to the revenue coffers from the liquor trade.
Some time back we had carried an article on the Service Taxability of bottling liquor. With drugs, liquor and horse racing all attracted to the tax net, is taxation all about vices?