CESTAT Allahabad Sets Aside Service Tax Demand On Bottle Cleaning and Repacking Done For Liquor Manufacturers

The Allahabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand of ₹49.70 lakh against a job work service provider.

It held that activities such as repacking old bottles, repackaging glass bottles, barcode sticking, and bottle cleaning carried out for liquor manufacturers constituted exempt intermediate production processes under Entry 30(c) of Notification No. 25/2012-ST.

The bench of Judicial Member P.K. Choudhary and Technical Member K. Anpazhakan observed that the activities undertaken by the service provider formed part of the process resulting in the manufacture or finishing of the article.

It held that once such job work was established as an intermediate production process essential for completing the manufacture of alcoholic liquor, the exemption under Entry 30(c) became available.

The appellant was engaged in carrying out job work for Wave Distilleries & Breweries Ltd. and other liquor manufacturers. Its activities included repacking old bottles, repackaging glass bottles, barcode sticking, bottle cleaning and other operations forming part of the manufacturing cycle of liquor.

The appellant claimed exemption from service tax under Entry 30(c) of Notification No. 25/2012-ST for the period from October 2013 to March 2015. Following the withdrawal of the exemption from April 1, 2015, it began paying service tax on these activities.

The department, however, alleged that the appellant had wrongly availed the exemption for the earlier period. It argued that the activities neither amounted to processing of raw materials or semi-finished goods nor constituted processes resulting in the manufacture or finishing of liquor, or operations essential to such manufacture. On this basis, it confirmed a service tax demand of ₹49.70 lakh along with interest and penalty. The Commissioner (Appeals) upheld the demand, prompting the appellant to approach the Tribunal.

Examining the nature of the work, the Tribunal observed that each of the appellant's activities facilitated a particular stage in the production, finishing and marketability of the final product. It noted that the activities formed part of the process resulting in the manufacture or finishing of liquor.

The Tribunal further observed that without bottling, bottle cleaning and barcode sticking, the finished product would not be ready for sale. Accordingly, it held that these intermediate processes were integral to completing the manufacture or finishing of liquor.

"we observe that all the intermediate processes undertaken by the Appellant are integral part for completing process of manufacture of liquor or their finishing. Once it is established that the job work undertaken by the Appellant is an intermediate production process essential for completion for the process of manufacturing of alcoholic liquor, the Appellant would be entitled to the exemption as provided under Serial No. 30(c) of Notification No. 25/2012-ST.", the tribunal ruled.

The Revenue argued that alcoholic liquor is not an excisable product under the Central Excise Act, 1944. It therefore contended that the appellant's activities could not be treated as amounting to manufacture and were not eligible for the exemption.

The Tribunal rejected this contention. It relied on a CBEC Circular dated October 27, 2008, which clarified that bottling and packaging of liquor are to be treated as part of the manufacturing process in light of the Supreme Court's decision in Sir Shadilal Distillery & Chemical Works.

It also referred to the Madhya Pradesh High Court's decision in Maa Sharda Wine Traders v. Union of India, which held that the manufacturing process includes any activity incidental or ancillary to the completion of a manufactured product. The Tribunal noted that the High Court had held bottling and packaging of liquor to be part of the manufacturing process and that this view had been affirmed by the Supreme Court.

Relying on these authorities, the Tribunal held that the appellant was entitled to the benefit of Entry 30(c) of Notification No. 25/2012-ST. It therefore set aside the service tax demand, along with the interest and penalty imposed under the Finance Act, 1994.

"we hold that the Appellant would be eligible for the benefit of Serial No. 30(c) of Notification No. 25/2012-ST.", the tribunal ruled.

However, the tribunal upheld the late fee of ₹38,300 for delayed filing of service tax returns and interest of ₹154 for the financial year 2016-17. It observed that there had been a delay in filing the returns and that these amounts remained payable. The appeal was disposed of on these terms

For Appellant: Advocate Pranzal Mishra, Chartered Accountant and Shri Mohd. Suhal,

For Respondent: A.K. Choudhary, Authorised Representative