TaxTMI 
TaxTMI 
2015 (6) TMI 586
X X X X Extracts X X X X
X X X X Extracts X X X X
....r referred to as M/s.Pilkhani). The Revenue is of the view that M/s. Pilkhani is using the brand name and technical knowhow of the appellant and paying consideration in terms of royalty for use of brand name and technical knowhow of the brand owner i.e. the appellant, but the appellant is not paying service tax thereon on the belief that the permission to use the brand name by the appellant is not a taxable service under the category of Intellectual Property Service under Section 65(65A) of the Finance Act, 1994. Therefore, the show cause notice dated 12.2.2008 was issued by invoking extended period of limitation for the period 10.9.04 to 31.3.06 to demand Service Tax under the category of Intellectual Property service. The said show cause notice was adjudicated. The demand of service tax was confirmed against the appellant along with interest and penalties under section 77 and 78 of the Finance Act, were imposed. Aggrieved from the said order, the appellant is before us. 3. Shri L P Asthana, learned advocate along with Shri Vishal Agarwal, Advocate appeared before us and submits that appellant was the brand owner of IMFL and marketing also. They got manufactured IMFL through M/s.....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Tax. Shri Jain also drew our attention to the CBEC circular dated 27.10.08 and submits that the appellant has given their license for use / have taken their brand name to M/s. Pilkhani, therefore the learned Commissioner has correctly confirmed the demand of Service Tax under the category of Intellectual Property services as per clause 2 of CBEC Circular dated 27.10.08. 6. Heard the parties. Considered the submissions. 7. In this case, we find that the appellant has entered into two agreements dated 19.8.2000, one for manufacture and sale and another for usership with M/s. Pilkhani. For proper appropriation of facts of the case. The terms of agreement are reproduced as under:- Agreement for Manufacture and Sale. "2. The sale of IMFL under this agreement shall be by Pilkhani through BDA and shall come into force with effect from 19th August,2000 and shall subject to the provisions for earlier determination /termination herein contained continue initially for a period of four years. After expiration of the initial terms of four year this agreement may be renewed for such further period upon such terms and conditions as may be mutually agreed upon. Provided, however that notice o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he satisfaction of BDA for the Representatives of BDA to be posted at the said distillery. 10. Pilkhani shall obtain at its cost such licences as may be necessary from time to time for the manufacture, blending bottling, storage, sale and delivery of IMFL products. However, in case of sale in Utter Pradesh bonded warehouse FL-2 license is required, the License Fee etc. will be borne by BDA Ltd. 11. The risk, property of interest in possession of land title or ownership to the IMFL shall pass from Pilkhani to the buyers only upon delivery of IMFL by Pilkhani to the common carrier from Pilkhani or from its Godown /Depot under operation, Pilkhani will not be responsible for any transit losses due to accident or any other reason the amount paid along with incidental expenses shall be the liability of the buyer itself. However, the risk, property or interest in possession of and title or ownership to the IMFL manufactured by Pilkhani shall remain with Pilkhani when such IMFL is delivered to the common carrier for dispatches to its own depots located in and outside the State of Uttar Pradesh by way of stock transfer in compliance with state excise formalities. 12. All excise formalit....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... as per annexure. The prices are however, exclusive of sales tax, excise duty, bottling fees, export fees, octroi, transit insurance, excise escort charges and any other taxes, duties or fees as may be leviable at the relevant time including any additional levies of any nature whatsoever. 19. The price per case of ENA based and RS based brands of IMFL have been agreed to and are confirmed as provided in clause 18 hereof by a separate writing as on the date of this Agreement. These prices are subject to change from time to time as may be mutually agreed upon and will be evidenced from time to time by separate similar writings only relating to the change of prices between the parties. Such separate writing or writings relating to change of prices will without anything more to be done by and between the parties be and shall always be deemed to be a part of this agreement or a modification of this agreement from the date of such writing and this agreement shall stand modified from time to time to the extent of such writing or writings relating to change of prices only. The cost element referable to the packaging material will be reviewed and revised from time to time on actual basis ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... Agreement A. The Proprietors have been carrying on business as manufacturers of and dealers in all kinds of wines, spirits and liquor as also the goods set out in the Schedule A (hereinafter called the said trade mark ). B. The users have entered into a Manufacturing Agreement with the Proprietors dated 19th August, 2000 (hereinafter called the Manufacturing Agreement) whereunder the users will be undertaking the manufacture of contract products at the distillery as per the specification to be provided by the proprietors will be undertaking the sale of the contract product so manufactured to the proprietors or as per the directions of the proprietors. C. In terms of the Manufacturing Agreement including for the consideration mentioned herein, the Proprietors have agreed to grant to the users and users are desirous of having a License to the said trade marks for the contract products upon the terms hereinafter contained and not otherwise. 5. Royalty is payable by the Users to the Proprietors for the permitted use of the said trade marks in the mode and manner as specified in the Manufacturing Agreement." From the tenor of the agreements, we find that the appellant is a brand o....
X X X X Extracts X X X X
X X X X Extracts X X X X
....." Further, the Larger Bench of this Tribunal in the case of Pagariya Auto Center vs. CCE, Aurangabad [2014 (33) STR 506 (LB)] has also observed as under :- 20. On a consideration of the apparent conflict of opinion in the decisions mentioned in the order of reference and the other decisions which were cited at bar, it is clear that no uniform principle emerges as would guide determination of whether a particular transaction involving an interface between an automobile, dealer and bank or financial institution would per se amount to BAS. The identification of the transaction and its appropriate classification as the taxable BAS or otherwise must clearly depend upon a careful analysis of the relevant transactional documents. Only such scrutiny and analysis would ensure rational classification of the transaction. Further, we find that the appellant has relied on CBEC Circular dated 27.10.2008 wherein the issue has been examined. For better appreciation of the issue, the said circular is reproduced herein as under:- 1. Brief Background Issues relating to taxable services provided during the course of production of alcoholic beverages (such as Indian Made Foreign Liquors, Branded ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cees/ manufacturers are called the Contract Bottling Units or CBUs. The cost of raw materials (and in some cases, even capital goods) and other expenses are either paid by the BO or reimbursed by the BO. Statutory levies (i.e. State Excise Duty) are also reimbursed to the CBU by the BO. The alcoholic beverages are sold by or as per the directions of the BO and profit or loss on account of manufacturing and sale of alcoholic beverages is entirely on account of BO, who thus holds the property, risk and reward of the products. The CBU receives consideration (i.e. job charges) for undertaking the manufacturing activity on job work basis. There is no doubt that under such an arrangement, CBU is a service provider providing services to BO. A doubt has arisen, whether or not the CBU provides a taxable service namely the Business Auxiliary Service (BAS) to BO. This taxable service includes any service provided or to be provided in relation to production or processing of goods for, or on behalf of, the client . This taxable service however, by definition excludes any activity that amounts to manufacture within the meaning of clause (f) of Section 2 of the Central Excise Act, 1944 from its a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ovision under the definition of Business Auxiliary Service (under the Finance Act, 1994) makes a reference to a definition of the word manufacture ) figuring under another Act (i.e. The Central Excise Act, 1944). It is a settled law that when a definition from an Act is transposed into another Act, it is as if the said definition is physically written into the borrowing Act without any reference to the context of such definition in the Act from which it is being borrowed. It is the words of that definition, which is imported into the borrowing Act and not the scope of the first Act and the context in which such definition is used in the first Act. Admittedly the scope of the two Acts would be distinct and if the definition is borrowed from the first Act into the second Act having different scope, the same would get disturbed/distorted if the context and scope of the earlier Act is also imported. Thus just because Central Excise Act does not extend to the manufacture or production of alcoholic beverages meant for human consumption, it cannot be said that the term manufacture used in Business Auxiliary Service would also not cover the process of making the said product, namely alcoho....
X X X X Extracts X X X X
X X X X Extracts X X X X
....the amount representing the charges for service alone. Accepting their plea, Notification No. 39/2009-ST dated 23.9.2009 was issued wherein exemption from service tax has been provided on the value which represents the value of inputs i.e. raw materials and packaging materials used in the manufacture of such alcoholic beverages. 3. The CIABC has now sought clarifications on the tax base on which the service tax would be chargeable after allowing the deduction provided in the notification. In short, they want to know as to how many of the above 7 elements would be includible in the value for the purpose of charging service tax. 4. For removal of doubts and with a view to avoid disputes on valuation, it is clarified that - (a) Service tax would be payable on the bottling/job charges, distribution costs and other reimbursible. (b) So far as inputs i.e. raw materials and packing materials are concerned, one of the conditions of exemption Notification No. 39/2009-S.T. is that there should be documentary proof specifically indicating the value of these inputs. Therefore, service tax on the value of raw materials and packaging materials would be exempt only when such charges are speci....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ce tax. 12. This issue further came up before this tribunal in the case of Skol Breweries Ltd. (supra) wherein this tribunal has observed as under: "6. After taking through the agreements, the appellant argues that FIPL is only a Contract Bottling Unit (CBU), manufacturing and supplying beer as per specifications and formulation including freight and escort to the appellant. Further, the sale is also being made to the appellant or to its Indenters as per the direction of the appellant. Thus, the appellant has neither provided any Franchise Service nor any Intellectual Property Right Service to FIPL and thus, the impugned demand of tax and penalty are fit to be set aside. 6.1 The appellant also draws our attention to Circular F. No. 249/1/2006-CX.4, dated 27-10-2008 which was issued in respect of production of alcoholic beverages on job-work basis and classification of Service Tax liability. Clause 2.1 of the Circular provided that the Brand Owners (BO) of the Alcoholic Beverages which includes Indian subsidiaries of International brand owners, hold the intellectual property rights over such brand names. The Licencee (who holds the licence by the State government to manufacture s....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aled that if the CBU undertakes complete process of manufacture of alcoholic beverage under the contract bottling arrangement as described above then such activity would not fall under the taxable service, namely the BAS. However, in case the activity undertaken by the CBU falls short of the definition of manufacture (such as activity of packing or labelling alone) then such activity would fall within its ambit and would be charged to service tax. 6.4 Further, the appellant drew our attention to notification/clarification issued by CBE&C vide F. No. 332/17/2009-TRU, dated 30-10-2009 on value of taxable services under the category of Business Auxiliary Services for manufacture of liquor on job-work basis. It is mentioned in the Circular that Service Tax has been imposed by Finance (No. 2) Act, 2009 under Business Auxiliary Services to include the manufacture of alcoholic beverages on job-work basis. In this connection, in the earlier Notification No. 39/2009-S.T., dated 23-9-2009, it was clarified that the Government exempts the taxable service specified in sub-clause (zzb) of Section 65(105), provided by a person (service provider) to any other person (service receiver) during the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....in a similar arrangement between the parties, it was held that Brand Owner is not required to pay any Service Tax under the category of Franchise Service taking the notice of clarification vide Board s Circular dated 30-10-2009. 6.7 The appellant also drew our attention to the distinction between the user agreement, licensed user agreement, registered user agreement and a manufacturing agreement. As per the book of P. Narayanan, Sixth Edition - Ordinarily in a user agreement, licensed user agreement or a registered user agreement, the licensee gets the right to sell the goods manufactured under the agreement on its own. In a manufacturing agreement the owner of a trade mark gets the goods manufactured by a manufacturer on the basis of something like a job work and for the specific purpose authorizes the manufacturer to apply the mark on the goods, on condition that the whole of the goods so manufactured bearing the trade mark should be sold to the owner of the mark. The manufacturer is not given the right to sell the goods on his own. In such an agreement the owner of the trade mark is the actual user of the mark in a trade mark sense and obviously the benefit of such user goes to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....is entitled to collect an amount of Rs. 27/- per case of beer bottle out of the sale proceeds collected by FIPL. Thus, the risk of profit/losses is borne by FIPL. It is not a pure bottling arrangement between parties and thus, Service Tax is attracted as Franchise Service and/or Intellectual Property Right Service. 8. Having considered the rival submissions, we find that as per the agreement between the parties, the risk of manufacture and sale lies with the appellant in respect of the Foster Brand beer got manufactured by it from FIPL. It is evident from the contract that FIPL is only responsible for bottling, packing and dispatch as per the specification, terms, formula etc. as laid down by the appellant. Further, FIPL is bound to charge the price from the notified Indenter of the appellant as fixed by the appellant. Only for the risks associated with the manufacturing process fastened on FIPL (CBU), it cannot be said that as FIPL is responsible for proper quality, quantity and timely production, they are providing Franchise Service and/or IPR Service. Further, taking notice of the definitions which are reproduced below :- "47. franchise means an agreement by which the franchis....