TaxTMI 
TaxTMI 
2011 (5) TMI 128
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.... section 76 of the Act. (f) Penalty of Rs. 8,000 under section 77 of the Act. The order also disallowed Cenvat credit of Rs. 10,17,92,834 under rule 14 of CCR read with section 73(2) of the Act found to be irregularly availed by the assessee on inputs and input services. The period of dispute is from 10-9-2004 to 30-9-2007. 2. The facts of the case are that M/s. Herbertsons Ltd., Mumbai were engaged in the manufacture of Indian Made Foreign Liquor (IMFL for short) and packaged drinking water bearing various brand names/trade marks owned by them. It transpired during the investigation by the DGCEI, Bangalore that the assessee had entered into licence agreements, usership agreements and agreement for tie-up manufacture with Contract Bottling Units (CBUs) for manufacturing of IMFL/packaged drinking water. The assessee provided technical know-how/assistance and permitted use of their brand name/logo for the manufacture of the said products. Similar arrangements were found to have been made with tie-up units for manufacture of IMFL/packaged drinking water by M/s. McDowell & Co. and M/s. United Spirits Ltd., Bangalore. M/s. Herbertsons Ltd. was merged with M/s. McDo....
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....ment and sales promotion relating to the brand names of the assessee, credit taken on inputs used in the manufacture of IMFL by the assessee and input services received such as security service, audit and manpower recruitment was not admissible. These inputs and input services had no nexus with the output services of the assessee viz., intellectual property service. Moreover in terms of rule 6(3)(c) of CCR, the assessee could not have utilized Cenvat credit to discharge the service tax liability in excess of its 20 per cent. Rule 6(3)(c) was attracted in the instant case as the assessee had manufactured exempted goods viz., IMFL, as well as taxable IPS. Hence, the demands and penalties. 4. In the appeal filed by the assessee and during hearing, it is argued that transfer of Intellectual Property Right (IPR for short) attracted sales tax charged by the State Government and therefore, did not attract liability to service tax confirmed. The appellant had engaged CBUs/tie up manufacturers since these units only had licences to manufacture IMFL and the State Government did not issue fresh licences to manufacture IMFL. The production of these CBUs/tie-up manufactures was sold by the C....
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....e operated by the appellant's personnel and the CBUs are entitled to retain only the retention money, which comprises of the cost of production and the labour charges payable to them. (d) The trade marks are the appellant's property and the CBUs cannot claim any right, title or interest therein. Except for the sale of IMFL to the appellant and as directed by the appellant, the trade marks cannot be used by the CBUs for any other purpose, in any corporate title or trading name. The appellant have the absolute right to use our brand name, without any restrictions. (e) The grant of licence to affix the labels on the IMFL manufactured by the CBUs/tie up units, is only to facilitate the execution of the manufacturing agreement. In as much as the CBUs are not entitled to sell the IMFL thus manufactured by them on their own, they are not at all benefited by the grant of licence to use the trade marks. 5. As regards the denial of Cenvat credit, it was argued that the assessee manufactured IMFL which are not exempted goods and also rendered taxable service. Therefore, provisions of rule 6(3)(c) of CCR were not attracted. Moreover, the lion's share of the cre....
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.... Service' to the licencee/manufacturer. The tax is chargeable on the gross amount charged by the BO from the licencee/manufacturer." 7. We have carefully considered the records of the case and rival submissions. In the instant case, the assessee provided technical know-how and got IMFL/packaged drinking water manufactured by CBUs/tie up manufacturers. Assessee charged consideration for allowing the CBUs/tie up manufacturers using its brand name on the IMFL/packaged drinking water at the rate of 2 per cent of the net sales realization and paid service tax on the same. The assessee intimated the DGCEI of this position. The Commissioner also found after perusing the various statements given by the responsible persons of the assessee and the CBUs that appropriate service tax due on IPS was discharged when the assessee had paid service tax on 2 per cent of the net sales realization. However, in respect of certain brands of IMFL got manufactured by M/s. McDowell & Co. Ltd. and M/s. Herbertsons Ltd., the taxable value was decided to be a fixed sum paid to the assessee as royalty. 8. The demand therefore arises for the Commissioner disallowing the Cenvat credit availed by the assesse....