Supreme Court to examine whether TASMAC bars run by TN government is a 'service' or discharge of State's sovereign functions

The Supreme Court on Tuesday said it will examine whether the bars run by the Tamil Nadu State Marketing Corporation Limited (TASMAC) are in the exercise of the State government's sovereign function of regulating the sale of alcohol [TASMAC vs Principal GST Commissioner]..A bench of Justices Ajay Rastogi and CT Ravikumar granted leave in the appeal filed by TASMAC against a Madras High Court order that had ruled that such bars, attached to TASMAC outlets selling alcohol, are taxable under service tax laws. The High Court in an appeal against a tribunal's order in the matter, had directed that ₹40 crore be paid as service tax for the period from July 2012 to March 2013. .The TASMAC moved the Supreme Court in appeal stating it is an instrumentality of the State government and runs TASMAC bars for carrying out one of its sovereign functions, especially in light of the policy decision of running these outlets to avoid the sale and consumption of spurious liquor. Running these bars are thus a devolution of TASMAC's statutory powers, it stated. The operational handling of the same was given to third-party contractors by tender as it involves selling other things like water, eatables etc, apart from hygiene maintenance, it was contended. Since the Tamil Nadu Liquor Retail Vending Rules provide for such bars, merely conducting the affairs of the same through a private party would not change the nature of the activity, it was contended. Therefore, it would remain an activity ancillary to the State's sovereign function. It was also pointed out that the Customs Excise And Service Tax Appellate Tribunal (CESTAT) had said that in view of a then recent memorandum, only 1 per cent service tax would liable on the commission paid to contractors. The High Court had ignored this conclusion and directed payment of ₹40 crore as service tax which would cripple TASMAC's as well as the State's finances, it was submitted. .Senior Advocate Aryama Sundaram, appearing for TASMAC, argued that such bars had become necessary so that people had a place to drink instead of flooding parks and community spaces. Besides Sundaram, advocates Rohini Musa and Zafar Inayati also appeared for TASMAC. Advocates SA Haseeb, Mohd Akhil, Anjali Chauhan, Zoheb Hossain, Sharath Narayan Nambiar, Nakul Chengappa KK, and Mukesh Kumar Maroria appeared for the respondents. [Read order]