The tax department has reportedly failed to prove that the supply of syrup, used as raw material for preparing soft drinks through post-mix machines, is subject to Federal Excise Duty (FED) at the rate of 50 percent under the relevant law.
According to available details, the case originated when the tax department received information regarding the sale of soft drinks via post-mix machines installed at various locations in the city. This prompted the deputation of a two-member official team to investigate and submit a report.
Investigation Findings
The deputed team subsequently visited an outlet and the manufacturing plant of the beverage company in question. Their report noted that the company was supplying cylinders containing various soft drink flavors along with carbon dioxide gas to fast food chains. These cylinders were connected to specialized dispensers designed to mix the syrup with water in a specific ratio, yielding approximately 360 glasses of 250ml soft drink per unit.
The team’s report concluded that this supply of syrup constituted raw material for soft drink preparation, thus deeming the activity a supply of concentrates or syrup liable for Federal Excise Duty (FED) at the rate of 50 percent as stipulated by law.
Taxpayer’s Contention and Appellate Decision
Consequently, a case for short levy of FED was initiated against the beverage company, followed by the issuance of a show cause notice.
The taxpayer, however, argued that it was not selling concentrate to the post-mix machines but rather syrup in cylinders for soft drink preparation, a process that does not involve manufacturing. Furthermore, the company highlighted a central excise general order that provided beverage companies with two options for excise duty payment: either paying duty on the sale of concentrate as per Schedule 1, or, alternatively, the bottling factory paying sales tax at the rate applicable to a 250ml bottle manufactured from the said syrup unit.
The taxpayer company stated that it had opted for the second option, under which the bottling company paid the excise duty on the aerated water at a reduced duty ratio upon the supply of the syrup.
The appellate forum, reviewing the case, determined that there was an inconsistency in the procedural scheme and mechanism for levying duties based on the rates applicable to concentrate versus aerated water. In light of this inconsistency, the forum sided with the beverage company’s stance and decided the issue in their favor.
