2017 (10) TMI 403 - AT - Service Tax

Tribunal allows appeal on Service Tax demand for leasing licenses in alcoholic beverages sector.

The Tribunal ruled in favor of the appellant, a company in the alcoholic beverages manufacturing sector, in a case involving the demand of Service Tax on ... Inapplicability of Renting of Immovable Property Service to lease of statutory manufacturing licence - characterisation of lease of licence vis-a -vis renting of immovable property - definition of manufactory under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966 - transferability of licence and grant of licence to a person (not to the premises)Inapplicability of Renting of Immovable Property Service to lease of statutory manufacturing licence - definition of manufactory under the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966 - transferability of licence and grant of licence to a person (not to the premises) - Whether lease payments received for transfer of Potable Liquor Licence (PLL) and RS II licence constitute consideration for 'Renting of Immovable Property Service' attracting service tax. - HELD THAT: - The Tribunal examined the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966, including the definition of 'manufactory' and the statutory scheme for grant and transfer of licences (Rules 3, 4-D, 15 and related provisions). Those provisions show that a licence is granted to a person and may be dealt with independently of the physical manufactory; a licence can be granted even before a manufactory exists and may be transferred in the manner permitted by the Rules. The licence, while linked functionally to the premises and subject to stringent conditions (including access and operational controls under Rule 17), is not the same as immovable property. Applying these legal and factual findings to the agreement between the parties (which identified the licence and the plant separately and described the scope of job-contract bottling), the Tribunal held that what was leased was the statutory licence and not an immovable property interest susceptible to classification as 'Renting of Immovable Property Service.' On that basis the demand confirmed under the head of renting of immovable property service was found unsustainable. [Paras 4]Appeal allowed; lease of the licences does not amount to Renting of Immovable Property Service and the demand thereunder is not sustainable.Final Conclusion: The Tribunal allowed the appeal on the ground that the amounts received for leasing the statutory PLL and RS II licences cannot be treated as consideration for 'Renting of Immovable Property Service,' since the licence is granted to a person and is not immovable property under the statutory scheme in the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, 1966. Issues:1. Demand of Service Tax under Renting of Immovable Property Service and penalties imposed under Finance Act, 1994.2. Applicability of Service Tax on lease charges collected for licenses.3. Denial of Cenvat Credit on photocopy of invoices.4. Issue of limitation.5. Confirmation of demand on lease and receipt amounts.Analysis:1. The appellant, engaged in manufacturing alcoholic beverages, leased licenses to another company and provided bottling services. The dispute arose regarding the collection and non-deposit of Service Tax, availing credit, and demand for bottling charges. The Commissioner confirmed some demands, which the appellant contested. The appellant argued that the license leased was not immovable property, emphasizing the definition of immovable property under the taxable service section. The Tribunal analyzed the agreements and ruled in favor of the appellant, stating that leasing a license is distinct from renting immovable property, thus allowing the appeal.2. The appellant contested the demand for Service Tax on lease charges collected for licenses, arguing that licenses are not immovable property. The Assistant Commissioner argued that licenses cannot exist without the premises, citing relevant rules. The Tribunal examined the Maharashtra Distillation of Spirit and Manufacture of Potable Liquor Rules, emphasizing that licenses can be transferred to different premises, indicating they are granted to individuals, not the property itself. The Tribunal upheld the appellant's argument, ruling that leasing licenses does not constitute renting immovable property.3. The appellant disputed the denial of Cenvat Credit on photocopies of invoices, arguing they provided detailed explanations and submitted records. The Commissioner did not address the appellant's response adequately. The Tribunal noted the appellant's efforts and the lack of findings by the Commissioner, leading to the allowance of this appeal.4. The issue of limitation was raised by the appellant, indicating a procedural concern. However, the judgment did not provide detailed analysis or resolution on this matter.5. Lastly, the confirmation of demand on lease and receipt amounts was addressed. The Tribunal considered the arguments presented by both parties regarding the nature of licenses and the leasing transactions. The ruling favored the appellant, emphasizing the distinction between licenses and immovable property, leading to the allowance of this appeal.In conclusion, the Tribunal analyzed various aspects of the case, focusing on the nature of licenses, immovable property, Service Tax applicability, and Cenvat Credit denial. The judgment provided clarity on these issues, ultimately favoring the appellant in most aspects, highlighting the importance of legal definitions and agreements in tax disputes.