Goods and Services Tax – GST – By: – Dr. Sanjiv Agarwal – Dated:- 21-4-2018 – The manufacture, distribution and sale of alcoholic beverages is highly regulated by State Governments under the Constitution of India. While there is a requirement of obtaining a license from the State Governments to set up a distillery, no new licenses are being granted. Similarly, the distribution of alcoholic liquor meant for human consumption is regulated by the State Governments in most of the States. The states regulate the trade through Corporations setup by them to regulate licenses, trading, pricing etc and manufacturers have to supply the stock of liquor through these State public sector corporations, subject to liquor policy and state excise offices. In very few states like Gujarat and Bihar, there is a policy of prohibitions. These Corporations control liquor sales in the respective state and have special privilege under the State Excise Act, i.e., exclusive rights to wholesale foreign made fore
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cognized in the books of accounts of Corporation. The illustrative list of income heads, apart from trading margin (sales) are generally in the following form – Inactive stock penalties Transfer out order (TOO) fee OFS extension / cancellation fee Scarp sales Demurrage Handling charges Liquidity damage from suppliers etc. Based on the excise policy or liquor sourcing policy, the Beverages Corporation may have a system of open market pricing or fixed margin (i.e., gap between purchase and selling price of products) keeping into account the costs and profit margins. Even where the goods are sold on fixed trading margin as a percentage, it can not be termed as a commission, simply because substance over form would prevail and that also accounting and nature of transaction are important to determine taxability. Beverage Corporations effectively purchase liquor stocks of different brands from suppliers and sell them to licensee for onward retail sale / consumption. While the Corporation tre
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f service provided by the client; or any customer care service provided on behalf of the client; or 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; production or processing of goods for, or on behalf of, the client; provision of service on behalf of the client; or 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. In the above definition, commission agent meant any person who acts on behalf of
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rious licensees for retail consumer sale with a view to regulate supply of liquor through conferring the exclusive privilege of purchase and sale in the wholesale thereof upon the appellant. As a consequence of the monopoly assumed by the State Government in this area and conferment of the privilege on the appellant, it is mandatory for all manufacturers / distilleries /suppliers to sell liquor in the State only through the canalizing agency. The appellant was not registered as a Service Tax provider, had not filed returns of Service Tax nor had remitted Service Tax. While the revenue sought to tax these transactions as business auxiliary services u/s 65(19) read with section 65(105) (zzh) of Finance Act, 1994, the Corporation contended that it was a pure trading transaction and was not subject to levy of Service Tax. Revenue assumed that the appellant had provided the taxable Business Auxiliary Service (BAS) to manufacturers of liquor/distilleries and issued the show cause notice date
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n in following two cases: Hindustan Coca Cola Beverages Pvt. Ltd. v. Commissioner of Income Tax – DBITA No. 205 of 2005, decided on 11-7-2017 by Rajasthan High Court. [ 2017 (7) TMI 1076 – RAJASTHAN HIGH COURT ] Union of India v. Chhattisgarh Estate Beverages Corporation 2015 (3) TMI 744 – CHHATTISGARH HIGH COURT In Union of India v. Chhattisgarh Estate Beverages Corporation 2015 (3) TMI 744 – CHHATTISGARH HIGH COURT, high court held that corporation being engaged in purchase and sale of liquor could not be considered as a clearing and forwarding agent for the State Government and therefore no Service Tax was payable. The court while deciding that no Service Tax was payable observed as follows: 9. It is not disputed that if the Corporation was engaged in sale and purchase of liquor for the State, then no Service Tax was payable. 10. The Tribunal has recorded a finding of fact that the Corporation was engaged in purchase and sale of liquor and could not be considered as clearing and for
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