Contract bottling and Business Auxiliary Services: brand owner's retained margin treated as business profit, not taxable service consideration.

Contract bottling arrangements were examined to determine whether a brand owner provided taxable Business Auxiliary Services to bottling units. The agreement showed that the bottlers manufactured IMFL for fixed consideration per case, while the brand owner controlled sales, distribution, quality support, procurement assistance and receipt of sale proceeds. Reading the Board's clarification dated 27.10.2008, the arrangement was treated as complete manufacture by contract bottlers, outside Business Auxiliary Services; liability would arise only where the activity did not amount to manufacture. The retained amount was treated as business profit, not consideration for a taxable service, so the demand and penalties were held unsustainable.

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Issues: Whether the appellant, as brand owner under contract bottling arrangements, provided taxable services to contract bottling units under Business Auxiliary Services.

Analysis: The agreement showed that the bottlers manufactured IMFL for a fixed consideration per case while the appellant controlled sales, distribution, quality support, procurement assistance, and receipt of sale proceeds. The Board's clarification dated 27.10.2008 was read to mean that complete manufacture by the contract bottler would not fall within Business Auxiliary Services, and liability, where applicable, would lie on the bottler only where the activity did not amount to manufacture. The arrangement was therefore treated as one where the bottling units acted as job workers for the appellant, and the consideration retained by the appellant represented business profit rather than payment for a taxable service rendered by the appellant.

Conclusion: The appellant did not render taxable Business Auxiliary Services to the bottling units; the demand and penalties were unsustainable.

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