Contract manufacture of alcoholic liquor for another became taxable from 1 June 2015.

The appellant manufactured and bottled liquor in Rajasthan under the brand name of Allied Blenders & Distillers Pvt. Ltd. (ABDPL), under a revenue-sharing arrangement.

It procured raw materials from vendors approved by the brand owner and followed the brand owner’s instructions.

The department issued two show-cause notices covering April 2010–March 2015 and April 2015–June 2017, alleging that bottling and packing for ABDPL constituted taxable business auxiliary service.

The adjudicating authority confirmed the demands and imposed penalties; the Commissioner (Appeals) upheld those orders, leading to these appeals.

The appellant argued that its activity amounted to manufacture and was not taxable, relying on Maa Sharda Wine Traders and Tribunal decisions; the Revenue relied on Carlsberg India Pvt. Ltd.

1. Whether the appellant’s manufacture of liquor for a brand owner constituted a taxable service for the periods covered by the notices.

2. Whether the authorities were bound to follow the Delhi High Court’s decision in Carlsberg India Pvt. Ltd., rather than the authorities relied on by the appellant.

Under Section 65(19) of the Finance Act, 1994, business auxiliary service included production or processing of goods for or on behalf of a client but excluded activities amounting to manufacture.

The Delhi High Court in Carlsberg India Pvt. Ltd. v. Union of India, 2016 (44) S.T.R. 349 (Del.), held that, under the pre-negative-list regime, contract manufacture of alcoholic liquor could be taxed as business auxiliary service.

From 1 July 2012, Section 66D(f), read with Section 65B(40), placed processes amounting to manufacture or production of goods—including alcoholic liquor for human consumption—within the negative list.

With effect from 1 June 2015, the Finance Act, 2015 amended those provisions to exclude alcoholic liquor from that treatment, making contract manufacture of such liquor for another person amenable to service tax.

The High Court also distinguished manufacture for oneself from manufacture for another for consideration, the latter being a service within Section 65B(44).

The Tribunal treated Carlsberg as governing the tax treatment of contract manufacture of alcoholic liquor and distinguished the appellant’s authorities: Maa Sharda Wine Traders had not considered the negative-list regime, and the cited Tribunal decisions followed that decision.

Applying Carlsberg, it found that the appellant manufactured liquor on behalf of ABDPL, rather than for itself, and therefore treated the activity as a service rendered for consideration.

The judgment concluded that the activity was liable to service tax.

The Tribunal found no merit in the appeals, and dismissed them.