Service tax demand overturned for alcoholic beverages manufacturer due to lack of evidence for willful suppression

The Tribunal set aside the Commissioner's decision to confirm the demand of service tax under Business Auxiliary Services (BAS) against the appellant, engaged in manufacturing alcoholic beverages for another company. The Tribunal found that the extended period of limitation was incorrectly invoked due to insufficient evidence of willful suppression of facts to evade tax. As a result, the service tax demand for the extended period was deemed unsustainable, and the appellant's appeal was allowed, overturning the previous order dated 21.08.2018.

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Issues Involved:

1. Taxability under Business Auxiliary Services (BAS)
2. Invocation of Extended Period of Limitation

Summary:

Taxability under Business Auxiliary Services (BAS):

The appellant, engaged in manufacturing, brewing, and bottling of alcoholic beverages, entered into an Agreement with UBL for manufacturing beer of UBL's brands. A show cause notice was issued alleging that the transaction is taxable under BAS as defined under section 65(19) and made taxable under section 65(105)(zzb) of the Finance Act, 1994. The appellant argued that the operations were pure manufacturing and not "for, or on behalf" of UBL, thus not subject to service tax under BAS. The Commissioner, however, confirmed the demand of service tax with interest and penalty, holding that the appellant did not have ownership of the goods and the proceeds were controlled by UBL.

Invocation of Extended Period of Limitation:

The primary issue examined was whether the extended period of limitation could be invoked. The show cause notice alleged that the appellant contravened provisions by reason of fraud, suppression of facts, and willful misstatement with intent to evade payment of service tax. The appellant contended that there was a bona fide belief that service tax was not payable as they were engaged in manufacturing. The Commissioner found that the appellant distorted facts with mala-fide intention to evade payment of service tax.

The Tribunal noted that the entire period involved falls under the extended period of limitation and examined whether the necessary ingredients for invoking the extended period, namely willful suppression of facts with intent to evade payment of service tax, were present. Citing various Supreme Court and High Court judgments, it was emphasized that suppression of facts must be deliberate and with intent to evade payment of duty. The Tribunal concluded that the factors indicating willful suppression and intent to evade payment were not examined properly by the Commissioner.

Conclusion:

The Tribunal set aside the impugned order, holding that the extended period of limitation was not correctly invoked. Consequently, the demand of service tax for the extended period was not sustainable. The appeal was allowed, and the order dated 21.08.2018 was set aside.

(Order pronounced on 03.07.2023)

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