FED: supply of raw material for soft drinks not proved chargeable

LAHORE: Tax department has failed to prove that supply of syrup as raw material for preparation of soft drinks is chargeable to Federal Excise Duty (FED) at the rate of 50 percent as per the law.

According to details, pursuant to information received by the tax department related to the sale of soft drinks through post-mix machine installed at various points in the city, a team of two officials was deputed to submit a report.

The said team accordingly visited the outlet and manufacturing plant of the beverage company. They observed in their report that the company was supplying cylinders of various flavours of soft drinks along with carbon dioxide gas to fast food chains, which are then connected to a specifically designed dispenses to process and mix up the syrup in cylinders with water in a certain ratio to get 360 glasses of 250ml each of soft drinks.

The report concluded that the said supply of syrup is raw material for preparation of soft drinks, therefore, the said activity amounts to the supply of concentrates or syrup chargeable to Federal Excise Duty (FED) at the rate of 50 percent as per the law.

Consequently, a case of short levy of FED was made out against the beverage company, followed by issuance of a show cause notice.

The taxpayer maintained that it was not selling the concentrate to the post-mix machine but sell the syrup in cylinders for the preparation of soft drinks which does not require a manufacturing process.

Secondly, through a central excise general order, two options provided to a beverage company to pay the excise duty as provided to sale concentrate in Schedule 1 or in alternate that bottling factory shall pay the amount of sales tax at the rate of the factory manufacture a bottle of 250ml from the said unit of syrup.

The taxpayer company had availed the second option according to which the bottling company on supply of the said syrup paid the excise duty on the aerated water at reduced ratio of duty.

The appellate forum held that there was inconsistency in the scheme procedure and mechanism of levying duties as per the rates applicable to concentrate vis-a-vis aerated water. Therefore, it favoured the beverage company stance and decided the issue.

Copyright Business Recorder, 2025