TaxTMI 
TaxTMI 
TaxTMI 
2010 (6) TMI 181
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.... impugned demand of Service tax is, alternatively, under sub-clause (zze) or sub-clause (zzr) of Clause 105 of Sec. 65 of the Finance Act, 1994, viz. "franchise"- related service or "intellectual property service". The Ld. Commissioner has taken the a view after considering the provisions of an agreement which was entered into between the appellant (hereinafter referred to as SKOL) and M/s. Foster India Pvt. Ltd. (FIPL for short) on 11-4-2007 with retrospective effect from 12-9-2006. This agreement called "Bottling/Brewing Agreement", in its recitals, described the intended transaction as "contract-manufacturing and sale-agreement" for the production and sale of 'SKOL beer' of such quality and quantity as prescribed by S which FIPL agreed to produce, bottle and dispatch to SKOL and/or its indenters to the complete satisfaction of SKOL in accordance with the provisions thereof. According to this agreement, FIPL was required to manufacture 'SKOL beer' in accordance with the provisions thereof. Accordingly, the formulae and specifications supplied by SKOL were to be used by FIPL for the manufacture. FIPL would obtain at its own cost all raw materials, packing materials, labels and che....
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....cording to that agreement, the said brand name stood assigned to SKOL with unfettered rights. It was this brand name which was supplied by SKOL alongwith specifications, formulae and other technical know-how to FIPL for manufacture of beer at the latter's brewery at Aurangabad. SKOL also had breweries including one at Aurangabad. They also manufactured the same commodity on their own and marketed the same all over India. The branded beer manufactured by FIPL was either marketed by them as directed by SKOL or supplied to SKOL or their indenters for marketing. In either situation, the goods had to be sold at the agreed price and FIPL had to pay Rs. 27 per case (12 bottles of 650 ml each and 24 bottles of 350m1 each) as "net proceeds". These transactions were examined by the ld. Commissioner who took the view that the arrangement was either in the nature of a "franchise" or in the nature of transfer of "intellectual property" by SKOL to FIPL. The impugned demands of service tax were raised on this basis. 4. The Ld. counsel for the appellant submits that the agreement dated 11-4-07 did not contain anything to suggest that any "representational right" was assigned by SKOL to FTPL so as....
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....oard's Circular No. 51/13/2002 dated 7-1-2003, wherein it was clarified that service tax could be levied on any taxable service only once i.e. only under one heading. In this connection, the ld. counsel has also referred to Section 65A of the Act. This provision, which was inserted in the statute with effect from 14-5-2003, lays down that when, for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected as follows:- (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description; (b) composite services (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration. 5. It is argued that the dual classification done by the Commissioner is against the mandate of Sec. 65A of the Finance Act, 1994. According to the ld. counsel, enough ground exists for holding that the appellant has a prima facie case against the demand of service tax raised by the Commissioner. 6. We ....
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...." was acquired by SKOL from M/s. Foster's Australia Ltd. under an agreement dated 12-9-2006 and, according to that agreement, the said brand name stood assigned to SKOL with unfettered rights. It was this brand name which was supplied by SKOL alongwith specifications, formulae and other technical know-how to FIPL for manufacture of beer at the latter's brewery at Aurangabad. SKOL also had breweries including one at Aurangabad. They also manufactured the same commodity on their own and marketed the same all over India. The branded beer manufactured by FIPL was either marketed by them as directed by SKOL or supplied to SKOL or their indenters for marketing. In either situation, the goods had to be sold at the agreed price and FIPL had to pay Rs. 27 per case (12 bottles of 650 ml each and 24 bottles of 350m1 each) as "net proceeds". These transactions were examined by the ld. Commissioner who took the view that the arrangement was either in the nature of a "franchise" or in the nature of transfer of "intellectual property" by SKOL to FIPL. The impugned demands of service tax were raised on this basis. 4. The Ld. counsel for the appellant submits that the agreement dated 11-4-07 did n....
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....n favour of classifying the service under two different headings, by itself, is contrary to the Board's Circular No. 51/13/2002 dated 7-1-2003, wherein it was clarified that service tax could be levied on any taxable service only once i.e. only under one heading. In this connection, the ld. counsel has also referred to Section 65A of the Act. This provision, which was inserted in the statute with effect from 14-5-2003, lays down that when, for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected as follows (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description; (b) composite services…….. (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration. 5. It is argued that the dual classification done by the Commissioner is against the mandate of Sec. 65A of the Finance Act, 1994. According to the Ld. counsel, enough ground exists for holding that the ....
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.... be used by FIPL on the product manufactured by the latter in terms of the agreement; (b) The agreement specifically obligated FIPL to provide infra structural facilities to technical experts deputed by SKOL so as to enable the experts to supervise the manufacturing operations. This provision of the agreement satisfies one of the requirements of 'Brand Licensing Arrangement' as clarified by the Board; (c) FIPL manufactured the product by using their own capital goods, work force as well as raw materials and, therefore, the prop erty in the product rested with them and not the brand name owner (SKOL), who was only paid an agreed sum as a consideration for grant of permission to use the brand name and technical know how. These features of the "brand licensing arrangement" as found by the Board are also covered in the agreement dated 11-4-2007. 7. Therefore, according to the Ld. JCDR, the true nature of the transactions covered by the agreement dated 11-4-2007 is clear enough to fall within the scope and ambit of 'Intellectual Property Service'. With reference to the payment made by FIPL to SKOL at the rate of Rs. 27/- per case in the agreement, the Ld. JCDR submits that the exact ....
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....annels. Alternatively, at the option of SKOL, the goods could be marketed by FIPL to such customers as may be named by SKOL. The most significant feature of this arrangement is that FIPL should pay Rs. 27/- per case to SKOL as what is termed "net proceeds." FIPL was also required to pass on the benefits of exemption/concession (if any) on State taxes or other levies to SKOL. The real nature of the transactions would, by and large, revolve around the nature of payment of Rs. 27/- per case by FIPL to SKOL. The agreement contained no express provision disclosing the nature of the payment except terming it "net proceeds". Even according to the appellant, the price of the goods would vary depending on the price of raw materials and manufacturing expenses. The provision in the agreement for determination of price by SKOL from time to time also takes care of this aspect. Nevertheless, the payment of Rs. 27/- per case by FIPL to SKOL would remain constant. The Ld. counsel has submitted that the payment was in the nature of sharing of profit. We are unable to understand as to how the profit could be predetermined by the parties to the agreement. The argument of the counsel is therefore unac....