United Spirits Ltd (USL), a liquor giant owned by Diageo, has received a significant reprieve from a substantial service tax demand. According to a regulatory filing with the exchanges, the Commissioner has granted USL complete relief on a service tax demand of ₹194.5 crore, which was initially part of a larger demand of ₹527.7 crore.
The order addressed key issues related to service tax levied on income derived from Contract Bottling Units (CBUs) under the classification of Intellectual Property Rights (IPR) Services, as well as matters related to CENVAT credit availment and associated de novo considerations. As a result, the total demand faced by USL has been drastically reduced to ₹0.88 crore, plus applicable interest and penalty.
Despite the significant reduction, USL intends to pursue further legal recourse. The company plans to file an appeal with the appropriate higher authority to contest the residual demand, indicating its commitment to minimizing its tax liabilities.
The development is a significant victory for USL, which has been embroiled in a long-standing dispute with the authorities over the service tax demand. The company had been contesting the demand, arguing that it was not liable to pay service tax on the income derived from CBU operations.
The reduction in the demand could have a positive impact on USL’s financial performance, which has been under pressure in recent years due to various factors, including increased competition and high taxation. The company’s efforts to contest the demand and minimize its tax liabilities are likely to be a significant relief to its shareholders and stakeholders.