Prior to GST coming into play w.e.f. 1st July, 2017, there was a levy of service tax on services provided by service providers to service recipients and what is service was defined in Section 65B(44) of the Finance Act, 1994.
In one of the recent orders, the Chennai bench of Appellate Tribunal (CESTAT) vide Order dated 7th May, 2025 held that activity of issuance of licences permitting the contractors to conduct their business in the bar is not a service liable to be taxed to Service Tax and it falls in the negative list of services as statutory functions being carried out by them were based on authority of law and that there will not be any service tax liability for the period from 29.03.2013 onwards under the provisions of Section 65B(44) of the Finance Act, 1994. In Tamilnadu State Marketing Corporation Ltd. v. Commissioner of GST and Central Excise, Puducherry Commissionerate (2025) 5 TMI 1911 (Cestat, Chennai), the Tribunal decided bunch of three similar appeals.
Factually, the appellant had various shops (retail outlets) and many of them have Bars attached to them. The appellant was authorized by the State Government to float tenders for allowing selling of eatables in the Bar located within or adjoining the liquor shops, and also to collect the empty liquor bottles left by the patrons in the Bar. In lieu of such Licence given, the successful bidders (Contractors /Operators) had to pay a Licence Fee on which service tax was demanded.
The Department was of the view that such issuance of Licence, permitting contractors to conduct their business within the bar tantamount to service as defined under Section 65B(44) of the Finance Act, 1994, for which the License fee paid by the Contractors was the consideration liable to payment of service tax. It was also observed that such service is neither covered under the Negative list specified under Section 66D of the Finance Act, 1994, nor is covered under the mega exemption Notification No. 25/2012-ST dated 20.06.2012.
However, it was contended by the assessee, who happened to be an instrumentality of the State that it exercise its sovereign rights provided by the State Government of Tamil Nadu to retail liquor and liquor is a state subject. Such sovereign rights of the Appellant were best equated with rights such as mining rights, i.e. those rights which are all handled exclusively by the State.
It may be noted that in terms of Rule 9A inserted w.e.f. 29.03.2013, in Tamil Nadu Liquor Retail Vending (Shops & Bars) Rules, 2003, it was provided that “the privilege of running bars may be granted to private parties by tender. The Board of the Corporation may decide the upset price and other terms and conditions of tender, from time to time, with the prior approval of the Commissioner of Prohibition and Excise. The Corporation, as agency shall collect the tender amount from the successful tenders and remit the same to the Government on or before the 25th of the following month and the Corporation may retain 1% of the amount so collected as agency commission”.
The assessee enjoyed statutory backing and authority under law to grant the privilege of running bars, selling eatables and collecting empty bottles to private entities by tender. The entire tender amount from such successful tenderers, except for 1% of the collected amount retained as agency commission by appellant was remitted to the Government of Tamil Nadu. It paid service tax on such amount of commission.
It was, therefore, held that appellants will be exigible to service tax liability in respect of the impugned activities only for the period 1.7.2012 to 28.03.2013 as ‘taxable service’ under Section 65B (44) of the Finance Act, 1994. Further, there will not be any service tax liability during the period of dispute from 29.03.2013 onwards.
Author Bio
