Negative list treatment of bar licence fees under statutory authority led to tax demand and penalties being set aside.

Licence fee received for granting the privilege to run bars and allied activities was treated as outside service tax under the negative list regime from 29.03.2013 onwards, because the activity was carried out under statutory authority and within the framework of section 65B(44) and section 66D of the Finance Act, 1994, read with the amended Tamil Nadu Liquor Retail Vending Rules. On that basis, the demand was held unsustainable. Penalties under the Finance Act, 1994 were also found unwarranted, as the dispute involved competing views on taxability of the activity performed by a State instrumentality. The penalties were accordingly set aside.

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Issues: (i) Whether the licence fee received for granting privilege to run bars and allied activities was liable to service tax for the period from 29.03.2013 onwards under the negative list regime; (ii) whether the penalties imposed under the Finance Act, 1994 were sustainable.

Issue (i): Whether the licence fee received for granting privilege to run bars and allied activities was liable to service tax for the period from 29.03.2013 onwards under the negative list regime.

Analysis: The activities were examined in the context of Section 65B(44) of the Finance Act, 1994 and Section 66D of the Finance Act, 1994, along with the amendment to the Tamil Nadu Liquor Retail Vending (in Shops and Bars) Rules, 2003 by insertion of Rule 9A. The statutory backing to grant the privilege by tender and the retention of 1% as agency commission were treated as material to the character of the activity. The Tribunal followed its earlier view that, from 29.03.2013 onwards, the activity was carried out under authority of law and fell within the negative list framework.

Conclusion: The licence fee was not liable to service tax for the period from 29.03.2013 onwards, and the demand was unsustainable.

Issue (ii): Whether the penalties imposed under the Finance Act, 1994 were sustainable.

Analysis: The dispute was treated as one of interpretation involving competing views on taxability of the activity performed by a State instrumentality. In that setting, the Tribunal held that penalty was not warranted.

Conclusion: The penalties imposed were unsustainable and were set aside.

Final Conclusion: The impugned orders confirming service tax demand and penalty were set aside, and the appeals succeeded with consequential relief.

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