T_44_2016

Prof. B. Parab

CCE vs. Agarwal Distiller (P)

Limited (2009)
BRIEF FACTS OF THE CASE
In the writ petitions the question involved is whether service
tax on packaging i.e. bottling and labeling of liquor, can be
exacted from the distillers.
The department had filed an appeal seeking an imposition
of penalty, stating M/s. Agarwal Distillers had a packaging
and bottling unit for the liquor they produced.
ISSUES BEFORE THE COURT
The court had to look into the activities pursued by M/s
Agarwal Distillers to arrive at a decision if they were liable
to pay service tax on the packaging i.e. labeling and bottling
of liquor.
CONTENTIONS OF THE TAX DEPARTMENT
The department claimed that M/s. Agarwal Distillers were
liable to pay service tax on the packaging unit i.e. for the
labeling and bottling of the liquor they produced as it was a
service, and thereby a taxable activity.
On 16.06.2005 Section 65(76)(b) of the Finance Act, 2005
was amended and "Packaging Activity" was also brought
within the ambit of service tax. It was clarified that under
Section 65(76)(b) inserted by the Finance Act, 2005 the
service tax was imposed w.e.f. 16.6.2005. The Excise
Commissioner directed as per letter (P-5), dated 13.9.2005
all the distillers/service providers to get themselves
registered with department of Excise and to pay the service
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T_44_2016

Prof. B. Parab

tax @ 10.2% on packaging/sealing charges of Rs. 2.25 per

bottle.
CONTENTIONS OF THE TAXPAYER
The appellant, M/s. Agarwal Distillers filed an application for
waiver of Service tax and penalty.
It is further submitted that as the Packaging Activity is
covered by and part of process of manufacture within the
meaning of Clause (f) of Section 2 which states that,
Manufacture" includes any process, (i) incidental or ancillary to the completion of a
manufactured product;
(ii) Which is specified in relation to any goods in the
Section or Chapter notes of the Schedule to the Central
Excise Tariff Act, 1985 as amounting to manufacture. And
the word" manufacturer" shall be construed accordingly and
shall include not only a person who employs hired labour in
the production or manufacture of excisable, goods, but also
any person who engages in their production or manufacture
on his own account. Sealing charges form part of
manufacturing cost, hence does not attract service tax.
Rule 2-A has also been relied upon to contend that
manufacture of country spirit includes bottling of liquor
hence sealing of country liquor is not a packaging activity
within the purview of service tax but is a part of
manufacturing process.
JUDGEMENT AND RULING OF THE COURT
The court cited a past case of similar nature:
o MAA SHARDA WINE TRADERS Versus UNION OF INDIA 2008 (3) TMI 319 - MADHYA PRADESH HIGH COURT
The court set aside the impugned order and allowed the
appeal filed by M/s. Agarwal Distillers Pvt. Ltd. and
dismissed the appeal filed by the department.
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T_44_2016

Prof. B. Parab

LEARNING FROM THE ANALYSIS

Section 65(105)(zzzf) defines taxable service as under "Any service provided or to be provided to any person, by
any other person, in relation to packaging activity".
The court cited a past case of similar nature:
MAA SHARDA WINE TRADERS vs. UNION OF INDIA 2008 (3) TMI 319 - MADHYA PRADESH HIGH COURT
Here it was decided that the packaging in the given case
was a part of the manufacturing activity and not a service.
Any person (including individuals) providing packaging
services to any other person shall be liable to pay service
tax and shall be treated as an assessee for service.
That any process incidental or ancillary to the completion of
a manufactured product is to be included in Manufacture
and not be seen as a service rendered.

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