Brand franchise fees treated as service consideration, so sales tax could not be imposed on captive manufacturing receipts.

Brand franchise fees received from contract bottling units were not treated as consideration for a transfer of the right to use the brand name or trade mark, because the units manufactured beer only to the assessee's specifications, lacked effective control over the brand, and operated as captive manufacturers without independent commercial exploitation. The receipt was instead characterised as payment for a service arrangement, particularly since service tax was paid on the same amount. Applying the settled principle against double taxation of the same transaction under sales tax and service tax, the Court held that sales tax was not leviable and the tax, penalty, and interest could not be sustained.

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Issues: Whether sales tax was leviable on the amount received as brand franchise fees from Contract Bottling Units for manufacture of beer.

Analysis: The amount was held not to represent a transfer of the right to use the brand name or trade mark for the CBUs' independent commercial exploitation. The CBUs manufactured beer only on the assessee's specifications, had no effective control over the brand, could not sell to customers of their own choice, and operated as captive manufacturers on behalf of the assessee. The receipt was treated as consideration for a service arrangement, especially since service tax was being paid on the same receipt under the Finance Act, 1994. The Court also applied the settled principle that the same transaction cannot be subjected to both sales tax and service tax.

Conclusion: Sales tax was not leviable on the brand franchise fees received from the CBUs, and the levy of tax, penalty, and interest could not be sustained.

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