Licence Fees Paid By Odisha Beverages Corp To State Government Not Consideration For Service: CESTAT Kolkata

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata has held that licence fees and additional licence fees paid by Odisha State Beverages Corporation Limited to the Government of Odisha do not constitute consideration for any taxable service.

A coram comprising Judicial Member R. Muralidhar and Technical Member K. Anpazhakan allowed the appeal filed by the state government undertaking. It set aside the service tax demand of ₹53.88 crore, along with interest and penalties.

The tribunal observed, “The mere statutory grant or continuance of a licence to carry on the regulated liquor trade cannot, by itself, establish the essential relationship of service provider and service recipient, as contemplated by the Finance Act, 1994.”

The tribunal held that the licence fees and additional licence fees were not consideration for any service provided by the state government.

Odisha State Beverages Corporation was incorporated by the state government to regulate wholesale trade and distribution of foreign liquor. Under Section 20A of the Bihar and Orissa Excise Act, 1915, the government vested it with the exclusive right and privilege of importing, exporting and carrying on wholesale trade and distribution of foreign liquor.

The corporation was required to obtain the requisite licences and pay prescribed fees. For 2015-16 and 2016-17, the state government also prescribed an “Additional Rounding Off Licence Fee”.

The Directorate General of GST Intelligence treated the exclusive privilege as a service provided by the state government. It treated the licence fees and additional licence fees as consideration for that service and proposed service tax of ₹53,88,08,005 for July 1, 2012 to March 31, 2017, along with interest and penalties.

The corporation contended that the fees were statutory imposts and not consideration for any service. The tribunal accepted this contention.

Under Section 65B(44) of the Finance Act, 1994, a service contemplated an activity carried out by one person for another for consideration. The tribunal found that the department had not identified any independent activity performed by the state government for the corporation in return for the licence fees.

The tribunal held that a statutory licence could not by itself create a service provider-service recipient relationship. It also found no reciprocity, quid pro quo or corresponding obligation on the state to provide a service against the payments.

For the period before April 1, 2016, the tribunal held that granting a liquor licence did not constitute “support services” under Section 65B(49). From April 1, 2016, the substitution of “support services” with “any service” only altered the scope of the Negative List. It did not remove the requirement that a taxable service must first exist under Section 65B(44).

The tribunal further noted that Section 117 of the Finance (No. 2) Act, 2019 retrospectively barred service tax on taxable services provided by the state government by way of grant of liquor licences against licence or application fees from April 1, 2016 to June 30, 2017. This covered the latter part of the demand.

Relying on Anheuser Busch InBev India Ltd. and United Spirits Ltd., the tribunal also held that the extended limitation period could not be invoked, as suppression of facts with an intention to evade tax was not established.

It consequently set aside the service tax demand, interest and penalties and allowed the appeal with consequential relief.

For Appellant: Arnab Chakraborty, Advocate

For Respondent: Argho Mukherjee, Authorised Representative