HC upholds levy of 14% service tax on contract liquor makers

The Delhi High Court today upheld a government notification which brought into force from June 1 this year a levy of 14 per cent service tax on manufacture of alcohol on contractual basis.
A bench of Justices S Muralidhar and Vibhu Bakhru said that contract manufacturing of liquor for human consumption by one entity for another was a service "certainly amenable" to levy of service tax and Parliament was competent to legislate on the aspect.
"Consequently, in the present case the court is satisfied that what is sought to be made amenable to service tax is the activity of contract manufacturing of alcoholic liquors fit for human consumption by one entity for another.

"Such provision of service which is in pith and substance not covered under Entry 51 of List II of the Seventh Schedule to the Constitution of India is certainly amenable to levy of service tax by Parliament which is competent to legislate on that aspect with reference to Entry 97 of List I," the bench said.
The ruling came on the three petitions filed by Carlsberg India Pvt Ltd, International Spirits and Wines Association of India (ISWAI) and Confederation of Indian Alcohol Beverages Companies challenging imposition of the service tax on the ground that Parliament lacks the legislative competence to do so.

They had also challenged amendments made to the Finance Act, 2015 by which service tax was to be levied on those who manufacture alcohol for human consumption on "job-work basis".

The court while dismissing the three petitions, said the challenge to the notification of May 19, 2015, imposing 14 per cent service tax, was "negatived" and left it open to the petitioners "to urge all contentions" before the adjudicating authority.
The petitioners had argued there was only one activity, manufacture of alcoholic liquor for human consumption, and this fell under the ambit of the states.
The court, however, disagreed with this contention, saying, "A clear distinction is discernible between manufacture of such alcoholic liquor by oneself and for another. The latter partakes the character of rendition of a service which is not possible to be accommodated within the act of manufacture by oneself.

"Therefore, it is a fallacy to equate the two activities viz., manufacture of such alcoholic liquor by and for oneself and undertaking manufacture for another," the bench said.