The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Allahabad Bench, has set aside a service tax demand of ₹49.70 lakh raised holding that activities such as repacking bottles, cleaning bottles, barcode sticking and other job work performed during the liquor manufacturing process qualify as exempt intermediate production processes under the erstwhile Service Tax regime.
The Division Bench comprising Justice P.K. Choudhary (Judicial Member) and K. Anpazhakan (Technical Member) allowed the appeal filed by the assessee and ruled that the services rendered to liquor manufacturers were covered under Serial No. 30(c) of Notification No. 25/2012-ST, which exempted intermediate production processes carried out as job work in relation to goods on which appropriate duty is payable by the principal manufacturer. However, the Tribunal upheld the late filing fee of ₹38,300 and interest of ₹154 for delayed filing of returns.
The appellant/assessee was engaged by liquor manufacturers to undertake activities including repacking old bottles, repackaging glass bottles, cleaning bottles, barcode sticking and similar operations forming part of the liquor manufacturing cycle.
For the period October 2013 to March 2015, the company claimed exemption from service tax under Entry 30(c) of Notification No. 25/2012-ST, believing that its activities constituted exempt job work. Following the withdrawal of the exemption from 1 April 2015 through Notification No. 6/2015-ST, the appellant began paying service tax on the services rendered.
The Department, however, alleged that the activities did not amount to an intermediate production process or job work eligible for exemption. It consequently raised a demand of ₹49,70,835 under Section 73 of the Finance Act, 1994, along with interest and a penalty of ₹24,85,418 under Section 78. Both the adjudicating authority and the Commissioner (Appeals) upheld the demand, prompting the appeal before the Tribunal.
The appellant argued that its operations formed an indispensable part of the manufacturing cycle of liquor. It submitted that cleaning bottles, repacking, repackaging and barcode sticking were all intermediate production processes carried out as job work for goods on which State Excise Duty was payable by the principal manufacturer.
The appellant further contended that although “job work” is not specifically defined under service tax law, the accepted definition includes any operation essential to the manufacture or finishing of an article. It emphasized that without these activities, liquor could not be made market-ready and therefore the exemption squarely applied.
The department argued that alcoholic liquor is not an excisable product under the Central Excise Act, 1944, and therefore the activities undertaken by the appellant could not be regarded as manufacturing processes under Section 2(f) of that Act. Consequently, according to the Department, the exemption under Entry 30(c) was unavailable.
Rejecting the Department’s arguments, the Tribunal observed that the appellant’s activities were performed at different stages of liquor production and directly contributed to the production, finishing and marketability of the final product.
The Bench noted that without bottle cleaning, repacking and barcode sticking, the finished liquor could not be marketed, making these operations integral to the manufacturing process. Accordingly, the services constituted an intermediate production process carried out as job work and were entitled to exemption under Notification No. 25/2012-ST.
The Tribunal also relied upon the CBEC Circular dated 27 October 2008, which clarified that packaging and bottling of liquor fall within the scope of “manufacture” in light of the Supreme Court’s decision in Sir Shadilal Distillery & Chemical Works.
Further, the Bench referred to the decision of the Madhya Pradesh High Court in Maa Sharda Wine Traders v. Union of India, which held that manufacturing processes need not necessarily relate to excisable goods and include processes incidental or ancillary to the completion of a manufactured product. The Tribunal noted that the Supreme Court had affirmed this legal position.
The CESTAT held that the appellant was entitled to the exemption available under Entry 30(c) and therefore the service tax demand was unsustainable. Consequently, it set aside the demand of ₹49.70 lakh, along with the associated interest and penalty.
However, the Tribunal maintained the liability towards late filing fees of ₹38,300 and interest of ₹154, observing that there had been a delay in filing statutory returns irrespective of the tax dispute.
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