High Court rules service to liquor manufacturers by government undertaking not taxable under Section 65(105)(zzb)

The High Court ruled in favor of the appellant, holding that the service provided did not fall within the scope of Section 65(105)(zzb). The appellant, a government undertaking in Rajasthan, was not liable to pay service tax for the service provided to liquor manufacturers as the relationship was on a principal-to-principal basis. The court cited precedents from Chattishgarh and Rajasthan High Courts to support its decision. Consequently, the appellant was not obligated to remit service tax, interest, or penalties as proposed in the show cause notice.

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Issues:
1. Whether the appellant's service falls within the scope of Section 65(105)(zzb)Rs.
2. Whether the appellant is liable to pay service tax for the service providedRs.

Analysis:
Issue 1:
The appellant, a government undertaking in Rajasthan, was entrusted by the State Government with the exclusive privilege of purchasing and selling liquor in the wholesale market. The appellant collected a commission but failed to remit service tax. The Revenue alleged that the appellant provided taxable Business Auxiliary Service (BAS) to liquor manufacturers. The show cause notice proposed assessment and levy of service tax, interest, and penalties. The appellant contended that liquor service should not be considered a service under Section 65(105)(zzb).

Issue 2:
The High Court analyzed a similar case from the Chattishgarh High Court and another case from the Rajasthan High Court. In the Chattishgarh case, it was held that no service tax was payable if the corporation was engaged in the sale and purchase of liquor for the state. In the Rajasthan case, it was determined that the appellant was not liable to withhold tax at source under the Income Tax Act for sales to distributors. The High Court concluded that the appellant was not liable to pay service tax for the service provided, as the relationship between the appellant and the liquor manufacturers was on a principal-to-principal basis, and the appellant did not fall under the purview of Section 65(105)(zzb).

In summary, the High Court ruled in favor of the appellant, stating that the service provided did not fall within the scope of Section 65(105)(zzb), and therefore, the appellant was not liable to pay service tax for the service rendered.

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