Tribunal modifies tax demand order, waives penalties, upholds penalty under Section 77. Constitutional challenge pending.

The Tribunal modified the order, directing the Adjudicating authority to re-determine the tax demand by excluding surplus/profit returned to Brand Owners and reimbursable expenses. Penalties under Sections 76 and 78 were waived, but the penalty under Section 77 was upheld. The constitutional validity challenge of the levy is pending before the High Court.

---

---

Issues Involved:
1. Constitutional validity of the levy of Service Tax on the manufacture of Alcoholic Beverages on a job work basis.
2. Proper quantification of Service Tax demand as per CBEC instructions.
3. Inclusion of surplus/profit retained by Brand Owners (BO) in the taxable value.
4. Inclusion of reimbursable expenses in the taxable value.
5. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Constitutional Validity of the Levy of Service Tax:
The appellants challenged the constitutional validity of the levy of Service Tax on the manufacture of Alcoholic Beverages on a job work basis before the Hon'ble Bombay High Court. The High Court admitted the Writ Petition and allowed the Revenue to proceed with the Show Cause Notice. Despite the ongoing litigation, the Adjudicating authority confirmed the demand of Service Tax along with interest and imposed penalties.

2. Proper Quantification of Service Tax Demand:
The appellants argued that the demand of Service Tax was not properly quantified in accordance with CBEC instructions 332/17/2009-TRU dated 30.9.2009. They claimed to have paid the tax based on their calculations and contended that there was no suppression of facts with the intent to evade tax. They also sought waiver of penalties under Section 80 of the Finance Act, 1994, citing the new levy and their compliance in payment of tax and interest.

3. Inclusion of Surplus/Profit Retained by Brand Owners (BO) in Taxable Value:
The Adjudicating authority included the surplus/profit retained by the Brand Owners (BO) in the taxable value, which the appellants contested, citing the Board Circular that excludes such amounts. The Tribunal found that the surplus/profit amount returned to BO should not be included in the taxable value, aligning with the Board Circular's instructions.

4. Inclusion of Reimbursable Expenses in Taxable Value:
The appellants argued that reimbursable expenses should not be included in the taxable value, referencing the Delhi High Court's decision in M/s Intercontinental Consultants and Technocrats Pvt Ltd vs UOI, which held Rule 5(i) of the Service Tax Valuation Rules, 2006 as ultra vires. The Tribunal agreed, stating that reimbursable expenses incurred by the service provider should not be included in the taxable value, as it would result in double taxation.

5. Imposition of Penalties under Sections 76, 77, and 78:
The appellants contended that the imposition of penalties was unwarranted given the new levy and their payment of tax and interest. The Tribunal noted that the appellants had challenged the levy and paid the tax with interest, demonstrating reasonable cause. Consequently, the penalties under Sections 76 and 78 were waived, but the penalty under Section 77 was upheld.

Conclusion:
The Tribunal modified the impugned order, directing the Adjudicating authority to re-determine the demand of tax by excluding the surplus/profit returned to BO and the reimbursable expenses. The penalty under Section 77 was upheld, while other penalties were set aside. The appellants' challenge to the constitutional validity of the levy remains pending before the High Court.

---