TaxTMI 
TaxTMI 
2010 (12) TMI 654
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....s entered with the suppliers every year, in its wholesale godowns/depots and sells the same from the said godowns/depots as well as through its retail outlets. Department received intelligence which indicated that KSBC receives liquor from the suppliers not as a buyer but as a consignee for its onward sale. That KSBC rendered various services to the suppliers in marketing their liquor and collected service charges from them. Three show-cause notices were issued proposing to recover Service Tax to the tune of Rs. 1,89,17,52,171 tentatively held to be due from KSBC on taxable services classified in the Finance Act, 1994 (the Act) under 'Business Auxiliary Service' during the period 1-7-2003 to 31-3-2007 as well as "Storage and Warehousing". Commissioner found that the affidavits filed by KSBC before the Hon'ble High Court of Kerala in a writ petition filed by the suppliers and against the SLP filed by the suppliers in the Apex Court against judgment in the said writ petition supported the allegation that the Corporation rendered various services to promote sale of liquor owned by the suppliers. These were corroborated by statements of the senior executives of KSBC recorded by the dep....
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....ffidavit wherein it was mistakenly submitted that the appellant was selling goods for and on behalf of the manufacturers/distilleries suggesting that the goods sold were not own goods of the appellant but that of the petitioner sellers. Distillers filed rejoinder before the Supreme Court pointing out that there was no principal-agent relationship between the distilleries and the Corporation. Service Tax Department issued show-cause notices based on the mistaken counter affidavit alleging that the appellant rendered Business Auxiliary Service imposed under section 65(105)(zzb) and 65(19) of the Act. Learning the mistake, the appellant filed additional counter affidavit before the Supreme Court. The distilleries also admitted that the transaction between them and the Corporation was sale simpliciter. The Apex Court dismissed the appeal filed by the petitioners. The officers of KSBC who had given statement under section 14 of the Central Excise Act were cross examined before the adjudicating authority when they deposed that the appellants had never rendered any service to anyone and the statements they had given were due to compulsions that arose out of the contention in the counter a....
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....sly made by the Commissioner as he was unaware of the statutory provision that sales tax on IMFL and beer was levied at the point of sale by the appellant vide legislative amendment. In the additional counter affidavit filed before the Apex Court on 2-2-2008, the General Manager of KSBC had deposed that the Corporation purchased goods from the suppliers and received and retained them as buyer and not as an agent of suppliers as earlier stated. The property in the goods purchased from suppliers passed to the respondent Corporation once the supplier raised invoice in the name of the respondent Corporation. The Corporation constituted by the Kerala Government for the purposes assigned by the Government could not act as an agent of the suppliers. No ownership rested with the suppliers beyond the point of time of invoicing. By transferring purchased goods to its own FL-1 shops, the respondent Corporation was not rendering any service to the suppliers. The amount collected under the head 'service charges' was not towards any service rendered. It could be seen from the rate contract that even before transfer of the goods to KSBC's premises, the property in goods and its ownership stood co....
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....istilleries (supra). In view of the finding of the Apex Court that the relationship between suppliers and the Corporation was as between principal to principal, the Commissioner had rendered a wrong finding ignoring the decision of the Apex Court. As per the Circular No. 96/7/2007-ST, dated 23-8-2007, issued by the CBEC "Service Tax is not leviable on a transaction treated as sale of goods and subjected to levy of Sales Tax/VAT.....payment of VAT/Sales Tax on a transaction indicates that the said transaction is treated as sale of goods". (iv) The Commissioner had wrongly relied on the observations of the Hon'ble High Court of Kerala in the judgment which had dealt with the maintainability of a writ petition filed by the suppliers challenging conditions prescribed by the Corporation in the contracts entered into between the Corporation claiming that the impugned conditions were arbitrary and unfair violating Article 14 of the Constitution. Their Lordships were not concerned with the relationship between the suppliers and the Corporation. The High Court rejected the challenge to the conditions imposed by the Corporation holding the same as part of the mutually agreed contrac....
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....nd distributor of the suppliers. 7. The learned counsel relies on and invites our attention to the following submissions made before the Apex Court in the rejoinder affidavit filed by petitioner M/s. McDowell & Company Ltd., in the SLP (Sl. No. 8103 of 2003). "It is submitted that apart from the above, the contention of the Corporation that it is only agent of manufacturer/supplier of IMFL is clearly misconceived and wholly inconsistent with the statutory provisions as also the terms of the rate contract entered into between the manufacturer and the Corporation regulating supply of IMFL by the manufacturer to the Corporation. A perusal of section 18 of the Abkari Act as also the notification issued under section 17 thereof would show that, the Corporation comes into possession of the IMFL which it stores in its godown and thereafter sells either as a wholesale dealer or as a retail dealer, as a purchaser of the goods. On delivery of goods at the warehouse of the Beverages Corporation, the title to the same passes on from the manufacturer to the Beverages Corporation and title vest in the Corporation. It thereafter holds the goods as its owner in its own right and not on behal....
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.... which included the price paid to the suppliers, excise duty paid by it to the Government, sales tax collected on sales effected to its customers, its administrative expenses and its profits. It was such turnover of the Corporation which became exigible to levy of turnover tax under section 5(2C) of KGST Act. The petitioners challenged the claim of the Corporation that it rendered services to the suppliers. The suppliers had claimed that the Corporation purchased goods from the suppliers as a principal and thereafter sold to others as a wholesale dealer or retail dealer on its own and not on behalf of the suppliers. The suppliers, therefore, challenged the levy of service charges by the Corporation in the SLP No. 8103/2010. The learned Counsel submitted that these submissions had to be considered in the backdrop of the Commissioner's findings that the Corporation rendered services exigible to Service Tax. 9. The learned counsel reiterated the argument that the transaction between the suppliers and the Corporation was sale and not service. The rate contract and the related sale bills proved this position. On all the sales by the Corporation, it paid sales tax. As per the statute,....
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.... the Act if the liquor received from the suppliers continued to be the property of various distilleries till its sale by the Corporation. In fine, if the Corporation takes over supplies of liquor from the various distilleries when it receives them in its warehouses on sale by the suppliers, the question of the Corporation rendering any taxable service to the distilleries in promoting the sale of liquor manufactured by the distilleries does not arise. The question is whether there is sale of liquor by the suppliers at the threshold. 12. KSBC is an instrumentality of the State and holds the monopoly for purchase and sale of foreign liquor, beer and wine throughout the State of Kerala under licences. The activities of the Corporation are governed by the Abkari Act of the State. KSBC holds exclusive licences for selling liquor in wholesale and retail in the form of FL-9 and FL-1 licences. KSBC is assessed to sales tax under the Kerala General Sales Tax Act, 1963 and the Central Sales Tax, 1956. 13. In the impugned order, the Commissioner found that the appellant rendered taxable service to distilleries in the State based mainly on the observations of the Hon'ble High Court of Ker....
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....y sold off to the consumer." (v) "The goods, even though in the custody of Beverages corporation, continues to be the property of the supplier till the time it is sold out either to a licensee or through the retail outlets of the Beverages Corporation or legally disposed off by auction or destroyal". (vi) "The Beverages Corporation stocks, transports, supplies and sells the goods of the manufacturer-suppliers like the SLP petitioner through its retail outlets. The liquor supplied by the manufacturers to the Beverages Corporation is for onward sale at the retail outlets to end consumer. In this process the corporation provides various services. Service charges are provided for these services." (vii) "The contract with the suppliers like the SLP petitioner is not a contract of sale. The title to the goods supplied by the suppliers like the SLP petitioner remains in the domain of the supplier until the goods are sold to the end consumer or licensees." (viii)"According to the rate contract the goods supplied by a Company is held in trust in the godowns of Beverages Corporation, which is in the nature of consignment arrangement." "The clauses 13 (a), (b), (c), o....
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....s. The status of the Corporation was that of agent till the stocks were disposed of. The rate contracts also supported the above averment. In the elaborate counter affidavit filed before the Apex Court, the Corporation had pleaded and laid its focus on the claim that the Corporation indeed rendered services to the distilleries to justify recovery of service charges. The rate contract provided for the Corporation paying for the supplies not immediately on receipt of the supplies. It also entrusted the Corporation to dispose the supplies at varying discounts if the demand was poor. The Corporation could even dispose the liquor free of charge or destroy if the same was not sold. Unless the supplies were sold out within 90 days of the receipt in the depots of KSBC, distilleries were not entitled to get the prices quoted in their invoices for supply to KSBC. The rate contract provided for Corporation charging Rs. 4 per case per month from the suppliers for the goods lying unsold after 90 days from date of receipt of the stocks as storage charges. KSBC was not required to pay any price in respect of goods received by it and not sold. The Corporation was liable to pay for the supplies aft....
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....oved name of the brand should be registered with the Kerala Excise Department. Brands quoted by a company shall not be a registered brand of another Company and shall not be in violation of any law that may be in force from time to time. If any such violation is noticed, the Corporation may take such action as it may deem fit including recovery of direct or indirect loss that may be suffered by the Corporation and forfeiture of EMD. (b) The price quoted for each brand of IMFL, FMFL and Beer shall be per case for destination, for free delivery at any of the Warehouses of the Corporation situated within the State of Kerala. Movement from one warehouse to another warehouse shall be at the risk and cost of the supplier. (c) The minimum price quoted as above will be Rs. 235 per case for IMFL. The brands quoted for less than Rs. 235 will be rejected. (d) The general payment terms for goods supplied will be after a period of 45 days from the date of delivery or after the goods are sold out whichever is later or 100 per cent of the value of actual sales in a fortnight after deducting 2 per cent discount or any other condition the Board of Directors d....
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....yments due to them. Subject to approval by Excise Authorities, the Corporation reserves the right to destroy all such stocks which are unsalable. The cost, duties, expenses incurred on such stocks will be debited to the account of the respective supplier. (i) The value of transit or godown breakage (if any) along with duties leviable thereon duly recorded by the Corporation shall be debited to the Supplier. Service charges as approved by the Board of Directors for all routine purchases to the corporation's FL-1 shops will be debited to the supplier. Transfer Fee for inter warehouse transfer, discount on special purchase to corporation's FL1 shops, revalidation charges, regularization fee, display charges etc. will also be debited to the supplier." 18. We find that sale of the supplies take place on delivery of goods to the Corporation in terms of the contract. The supplies received and retained in the warehouse of the Corporation are, therefore, the property of the Corporation. Though the Corporation charges the liquor manufacturers for services rendered by it to promote the sale of liquor, these are recoveries or penalties imposed on the suppliers as per the ....
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....marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation : For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client; (v) production or processing of goods for, or on behalf of, the client; (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision,and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods;" As per section 65(105)(zzb) of the A....
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....f their lordships holding that the Corporation received liquor from the suppliers as a consignee, who promoted the sale of the supplies and recovered service charges from the suppliers. In the judgment the High Court had held that there was no sale of liquor at the threshold and that the Corporation rendered a variety of services to the distilleries. The judgment had decided a dispute relating to two issues. One was whether it was within its jurisdiction to arbitrate a dispute between parties to a contract in respect of a term of the contract mutually agreed upon. The High Court held that it was competent to arbitrate a dispute between parties to a contract. The other issue was whether the condition requiring the distilleries to pay service charges including EMD of Rs. 40 lakhs was unfair and arbitrary. This dispute was decided in favour of the Corporation when the High Court held that there was no arbitrariness in the enhancement of EMD and recovering service charges in the conduct of a business by which the contracting parties earned profit. As rightly argued by the learned Counsel for the Corporation, a judgment can be relied on for what it decides. A decision is only an authori....
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....cognition may mature into rule of stare decisis. It is the rule deductible from the application of law to the facts and circumstances of the case which constitutes its ratio decidendi. Therefore, in order to understand and appreciate the binding force of a decision it is always necessary to see what were the facts in the case in which the decision was given and what was the point which had to be decided. No judgment can be read as if it is a statute. A word or a clause or a sentence in the judgment cannot be regarded as a full exposition of law. Law cannot afford to be static and therefore, Judges are to employ an intelligent technique in the use of precedents." From the above ruling of the Apex Court, it is apparent that the Commissioner could not have relied on the judgment of the Hon'ble High Court of Kerala to arrive at the conclusion that the Corporation received supplies of liquor from the distilleries as a bailee and not on sale. 23. An important evidence relied on by the Commissioner was the statements of the Executives of the Corporation as well as the counter affidavit KSBC filed before the Apex Court as a respondent in the SLP filed by M/s. McDowell & Others. Th....