By TIOL News Service

MUMBAI, DEC 01, 2015: THE Assessee had entered into a contract with M/s. Kolhapur Sugar Mills Ltd. for manufacturing and sale of liquor in the name of M/s. KSM. The plant and machinery is owned by M/s. KSM, who allowed use of the entire infrastructure by the Respondent for a consideration of Rs.30lacs per annum. The Respondent conducted entire business of manufacture of liquor, its sale and even effected the recovery of the sale proceeds in the name of M/s. KSM. The books of account were maintained in the name of M/s. KSM and sale proceeds were also credited to the account of M/s. KSM. At the end of each financial year, after settlement of accounts, the balance in Profit and Loss Account was paid by M/s. KSM to the Respondent after retaining an amount of Rs.30 lacs being the consideration agreed against use of infrastructure. Such amount is termed as "conducting charges" in the books of account.

Revenue is of the view that the "conducting charges" is a taxable service under the category of 'Business Support Service'.

Consequently, a demand notice for recovery of ST of Rs.71,02,197/- was issued and upheld by the adjudicating authority.

In the case of the same assessee and in the matter of similar demands of Rs.4,39,66,593/- and Rs.85,40,423/- respectively, the CESTAT while allowing the appeal held -

ST - Business Support Service - appellant managing the business of distillery and country liquor division by undertaking the manufacturing activity as well as the sale of the products - no evidence on record to show that appellant had received any amount from M/s. Kolhapur Sugar Mills Ltd. for providing any service in relation to the business or commerce or manufacture and distribution of products - upon instructions from department M/s. Kolhapur Sugar Mills Ltd. are paying service tax under the category of franchise service and which fact is not in dispute - appellant have not provided any service which can be termed as 'business support service' - orders set aside and appeals allowed: CESTAT

We reported this order as - 2014-TIOL-1053-CESTAT-MUM.

The present case too received a similar treatment at the hands of the Tribunal - the order is dated 9 th June 2014.

Against this order, the CCE, Kolhapur is before the Bombay High Court and submits that the following substantial question of law would arise for determination:

"Whether on the basis of facts and circumstances of the case, the activity conducted by the Respondent is taxable under the category of 'Business Support Service' especially when the Respondent has received a sizable amount under the name and guise of "Conducting Charges" against the activities?"

After considering the submissions made by both sides, the High Court observed -

++ In that main order - 2014-TIOL-1053-CESTAT-MUM, the Tribunal held that it has gone through the agreement. Under the agreement, the Assessee agreed to pay to M/s. KSM an amount of Rs.30lacs towards use of infrastructure for manufacture of liquor. As per clause 2 of the agreement, all profits and losses in respect of the manufacturing and sale of the products in the distillery division are on account of the Respondent Assessee. The Respondent Assessee had actually taken over the distillery unit of M/s. KSM. It undertook the manufacturing activity as well as sale of products. There was no evidence on record to show that the Assessee had received any amount from M/s. KSM for providing any service in relation to the business.

++ It is in that light and in facts peculiar to the case of the present Assessee that the Tribunal concluded that clause (104c) of the substantive provision, namely, section 65 will not be attracted and is not applicable. In addition to this reason, the Tribunal concluded that on the same agreement for the same period, the Revenue directed M/s. KSM to pay service tax under the category of franchise service. M/s. KSM is paying service tax under the category franchise service regularly and this fact is not in dispute.

++ Upon a reading of the Tribunal's order, we find that the same is essentially based on the clauses of the conducting agreement. It is the conducting agreement which has been referred extensively. Its clauses have been read together and harmoniously to conclude that the arrangement or deal in the present case is of such nature that M/s. KSM's distillery unit is taken over for conducting and managing by the Assessee. The Assessee is, therefore, responsible for any profits being generated or losses sustained. The nature of the transaction, therefore, would not fall within the meaning of support services for business or commerce .

Holding that the appeals by the Revenuedo not raise any substantial question of law, they were dismissed.

(See 2015-TIOL-2693-HC-MUM-ST)