2018 (8) TMI 1343 - AT - Service Tax

Tribunal upholds taxability of contract bottling under Business Auxiliary Service, sets aside penalty under Section 78

The Tribunal rejected the appellant's argument that the second show cause notice (SCN) was time-barred, upheld the taxability of contract bottling under ... Business Auxiliary Service - appellants are engaged in distilling and bottling of Indian Made Foreign Liquor (IMFL) which includes their own brand as well as brands owned by United Sprits Ltd., Bangalore - N/N. 39/2009-ST dt. 23.09.2009 - Time Limitation. Time Limitation - Held that:- Just because the two audit objections were conveyed in a single letter dt. 05.12.2013 by the department to the appellants, the fact of first show cause notice having been issued on earlier date for the first objection cannot be put forth as a ground that second SCN issued subsequently is barred by limitation - time limitation not invoked. Taxability of activity of contract bottling pending before the Hon’ble Apex Court - Held that:- The appeal filed by ISWAI has only been admitted by the Hon’ble Apex Court. However, no stay on taxability has been ordered by the Hon’ble Apex Court. Hence this contention of the appellant also does not stand to scrutiny and is therefore rejected. Benefit of N/N. 39/2009-ST dt. 23.09.2009 - Held that:- The intention of disallowing taking of credit to become eligible for any duty / tax exemption is to disallow double enrichment to the assessee in such cases. Discernably therefore, when credit has been taken, the duty / tax exemption cannot be availed. However if such credit taken is reversed with interest even after clearance of final products, there is no reason why the assessee cannot thereafter become ab-initio eligible for the benefit of such exemption notification - though cenvat credit had been taken by the appellant herein, if it is reversed with interest, after clearance of the final products even at the Tribunal stage, the benefit of Notification No.39/2009-ST dt. 23.09.2009, which otherwise mandates non-taking of credit for duty exemption, will now become available to the appellant. The Annexure-I to the SCN gives the value of the raw materials used in the manufacture of the IMFL under contract bottling during the impugned period. As the details have been worked out by the department themselves it appears to reason that condition (b) of the notification namely, “there is documentary proof specifically indicating the value of such inputs “ is also fulfilled. - thus, the appellants should be extended the benefit of Notification No.39/2009-ST dt.23.09.2009 subject to the appellants paying up the disputed quantum of credit taken during the impugned period and also paying up the interest as applicable thereon. The matter is remanded to the adjudicating authority for the limited purpose of confirming the fact of payment of such predeposit, payment of interest on the cenvat credit amount taken by the appellant and re-work the service tax liability accordingly after extending the benefit of N/N. 39/2009-CE. - appeal allowed by way of remand. Issues Involved:1. Limitation period for issuing the second show cause notice (SCN).2. Taxability of contract bottling under Business Auxiliary Service (BAS).3. Eligibility for exemption under Notification No.39/2009-ST.4. Reversal of CENVAT credit and its impact on eligibility for exemption.5. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.Detailed Analysis:1. Limitation Period for Issuing the Second SCN:The appellant argued that the second SCN issued on 29.01.2015 was barred by limitation because the first SCN on a related issue was issued on 10.10.2014. The Tribunal examined the letter dated 05.12.2013, which conveyed various audit objections, including the issues in both SCNs. It was found that the objections were distinct and not intrinsically related. The first SCN addressed the wrong availment of CENVAT credit based on a debit note, while the second SCN concerned non-compliance with conditions for exemption under Notification No.39/2009-ST. The Tribunal concluded that the second SCN was not barred by limitation and rejected the appellant's contention.2. Taxability of Contract Bottling under BAS:The appellant contended that the manufacture of alcoholic liquor for human consumption falls under the purview of the State Government and should not attract service tax. However, the Tribunal noted that the High Court of Delhi had confirmed the taxability of contract bottling under BAS in the Carlsberg India case, and the Supreme Court had only admitted the appeal without granting a stay on taxability. Therefore, the Tribunal upheld the taxability of contract bottling under BAS.3. Eligibility for Exemption under Notification No.39/2009-ST:The appellant claimed exemption under Notification No.39/2009-ST, which allows exclusion of the value of inputs from the taxable value provided no CENVAT credit is taken on those inputs. The Tribunal found that the appellant had availed CENVAT credit on inputs and capital goods, thereby failing to meet the conditions for exemption. The Tribunal emphasized that the exemption is conditional upon non-availment of CENVAT credit and documentary proof of input values. Since these conditions were not met, the exemption was not initially available to the appellant.4. Reversal of CENVAT Credit and Its Impact on Eligibility for Exemption:The appellant proposed to reverse the CENVAT credit of Rs. 1,22,93,434/- along with applicable interest, relying on the Supreme Court judgment in Chandrapur Magnet Wires and other related cases. The Tribunal agreed that subsequent reversal of CENVAT credit could make the appellant eligible for the exemption. It was held that if the appellant reverses the credit and pays the interest, they would satisfy the conditions of Notification No.39/2009-ST, and the exemption could be extended to them. The Tribunal directed the appellant to reverse the credit and pay the interest within four weeks for the adjudicating authority to rework the service tax liability accordingly.5. Imposition of Penalties under Sections 76, 77, and 78 of the Finance Act, 1994:The appellant argued against the imposition of penalties under Section 78 due to lack of clarity on the taxability of contract bottling and the contradictory conditions in the exemption notification. The Tribunal noted that the issue of taxability was still pending before the Supreme Court and acknowledged the appellant's willingness to pay penalties under Section 77. Given the complexities and ongoing disputes, the Tribunal found merit in the appellant's argument and set aside the penalty under Section 78, but upheld the penalty under Section 77.Conclusion:The Tribunal allowed the appeal on the terms that the appellant reverses the CENVAT credit and pays the applicable interest. The matter was remanded to the adjudicating authority for verification of the predeposit, interest payment, and reworking the service tax liability after extending the benefit of Notification No.39/2009-ST. The appeal was pronounced in court on 23.08.2018.