Clarification regarding service tax payable by manufacturers of alcoholic beverages on job work basis
Letter F.No. 332/17/2009-TRU, dated 30-10-2009
It may be recalled that vide Finance (No.2) Act, 2009, the definition of taxable service, namely, Business Auxiliary Service (BAS) was suitably amended so as to include the manufacture of alcoholic beverages on job work basis. In practice, the brand owners (BOs) of alcoholic beverages get the products (Indian Made Foreign Liquor) manufactured on job work basis under a contract manufacturing arrangement with distilleries having facility to manufacture such beverages. In trade parlance, such job workers/distilleries are called as 'contract bottling units' (CBU). The aforesaid arrangement has come under tax net w.e.f. 01,.09.2009.
2. Under section 67 of the Finance Act, 1994, service tax is chargeable on the 'gross amount charged' by the service provider for providing taxable services. As per CIABC the gross value of sales, as per invoices, includes the following elements:
1) Bottling/job charges - paid to CBU
2) Distribution costs including freight, transit insurance etc. – paid to CBU
3) Other reimbursables – paid to CBU
4) Cost of raw materials – paid to CBU
5) Cost of packaging materials – paid to CBU
6) State excise duty and VAT – paid to State Government
7) Surplus/profit – retained by BO
It was their plea that if the entire amount charged by CBU is subject to service tax, it would amount to charging tax on goods. The CIABC, therefore, requested that the service tax should be charged on the amount representing the charges for service alone. Accepting their plea, Notification No.39/2009-ST dated 23.09.2009 was issued wherein exemption from service tax has been provided on the value which represents the value of inputs i.e. raw materials and packaging materials used in the manufacture of such alcoholic beverages.
3. The CIABC has now sought clarifications on the tax base on which the service tax would be chargeable after allowing the deduction provided in the notification. In short, they want to know as to how many of the above 7 elements (para 2 above) would be includible in the value for the purpose of charging service tax.
4. For removal of doubts and with a view to avoid disputes on valuation, it is clarified that :-
a) Service tax would be payable on the bottling/job charges, distribution costs and other reimbursables.
b) So far as inputs i.e. raw materials and packing materials are concerned, one of the conditions of exemption notification No.39/2009-ST is that there should be documentary proof specifically indicating the value of these inputs. Therefore, service tax on the value of raw materials and packaging materials would be exempt only when such charges are specifically mentioned in the invoice raised/documents maintained by the CBU.
c) As regards the statutory levies, namely, excise duty /VAT, they do not present any 'consideration' for rendering the service. Whether such amount is paid by BO or by CBU, they have no nexus with the provision of service. As such, these levies will not be included for charging service tax.
d) Similarly, the surplus/profit earned by the BO being in the nature of business profit (which falls within the purview of direct taxes), will not be chargeable to service tax.
5. This position may be clarified suitably to the field formations.
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