TaxTMI 
TaxTMI 
2019 (7) TMI 956
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....mers on payment of appropriate VAT/CST. On the basis of investigation by DGCEI, it is alleged that the appellant provided services under the category of "Business Auxiliary Services" as defined under section 65 (19) read with section 65 (105)(zzb) of the Finance Act, 1994, in view of the amendment brought to the said provision by the Finance Act, 2009, but were neither registered under the said category of taxable service nor paid service tax of Rs. 23,62,70,548/- for the period from 23.9.2009 to 21.06.2012; consequently demand notice was issued to them on 24.12.2012 for recovery of the service tax not paid along with interest and penalty. On adjudication, the demand was confirmed with interest and penalty. Hence, the present appeal. 3. Learned advocate for the appellant providing a brief back ground of the present Appellant has submitted that South African Breweries (SAB) was established in the year 1895 in South Africa and Miller Brewing was a company operating in UK. In May 2002 SAB acquired Miller Brewing and thereby forming SAB Miller Plc U.K.. SABMiller later acquired "Fosters" brand. SKOL Breweries Ltd. was incorporated in India and were manufacturing beer under the brand....
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....009 to 24.12.2012. 4.2. It is the contention of the learned Advocate that the activities undertaken by the appellant pursuant to agreement dated 11.4.2007 amounts to manufacture and outright sale of beer to SKOL or buyers nominated by SKOL and it cannot be considered to come within the scope of the expression "in relation to production and processing of goods for or on behalf of the client" and attract Service Tax on the same. He has submitted that the appellant purchases raw materials and packing materials, labels, chemical etc. at their own cost and undertake various processes in their factory to manufacture beer. All the activities relating to manufacture of beer like, maintenance of records, supervision, bottling, transportation etc. are performed by the appellant and the ownership of the raw materials/finished goods at all stages vest with the appellant. They possessed all the requisite licenses required for manufacture of beer, necessary infrastructure, man power, workforce, manufacturing skills, long term and short term capital etc. for manufacturing beer on their own since 1998. The supervision by SKOL to ensure quality of their product and the specification belonging to....
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.....4. Referring to para 3 of the Circular 2491/2006-CX-4 dated 27.10.2008, the learned Advocate has submitted that the amendment made by the Finance Act, 2009 in the definition of Business Auxiliary Service defined under Section 65(19) of the Finance Act, 1994, it is the manufacture of excisable goods alone was excluded from the levy of Service Tax on that activity and manufacture of non-excisable goods was not excluded from the scope of Section 65(19) of Finance Act, 1994. He has vehemently argued that para 3 of the aforesaid Circular, and the amendment brought by Finance Act, 2009 applies only to manufacture on behalf of brand owner, however, if the manufacturer undertakes the complete processes of manufacture, even of non-excisable goods, then such activity is outside the ambit of Section 65(19) of FA,1994. The amendment to Finance Act, 1994 was to cover the case falling under para 3 of the said Circular to manufacturer on job-work basis, for and on behalf of the client, using the client's raw materials, which was escaping Service Tax as manufacturer of non-excisable goods. But, in the present case, it is the outright sale to buyers and not a case of manufacture with customer's ra....
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....2/2003-ST dated 20.6.2003. Further, the learned Advocate submits that the appellants are entitled to benefit of Notification No. 39/2009-ST dated 23.9.2009 read with Circular No. 332/17/09-TRU dated 30.10.2009. It is also submitted that the C.A. certificate produced by the appellant to fortify the fact that the value of material component and profit share of SKOL included in Net Sale price of beer sold under contract manufacturing arrangement. 4.8 The Ld. Advocate has also submitted that the appellant had since merged with SKOL during the relevant period, therefore services rendered by the appellant to self cannot be chargeable to service tax. Elaborating his argument, learned advocate has submitted that they had filed a Scheme of Arrangement before the Hon'ble Bombay High Court in accordance with Section 391 to 394 of erstwhile Indian Companies Act, 1956 under which the brewery business of appellant shall be transferred on an going concern basis to SKOL and the appointed date was mentioned as 31.3.2009 in the Arrangement scheme. The said scheme was sanctioned by the Hon'ble High Court on 29.03.2012. Consequently, the resulting company applied for change of name under Se....
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....sed on the appellant. 5. Per Contra, the learned Special Counsel Mr. K. M. Mondal for the Revenue has submitted that by the Finance Act 2009, the definition of Business Auxiliary Service has been amended and thereafter the Board had issued instruction on 06.7.2009 clarifying the scope and effect of amendment brought into force. In para 3.1 of the said clarification, it has been clearly mentioned that the activity undertaken, if resulted in the manufacture of excisable goods, then it falls outside the scope of the levy of Service Tax under Business Auxiliary Service, but in the event the resultant product in non-excisable goods, then Service Tax would be attracted. He has submitted that Chapter Note 4 of Chapter 22 of Central Excise Tariff Act, 1985, does not cover alcohol/liquors for home consumption. After the aforesaid amendment, the Central Govt. has issued a Notification No. 39/2009-Service Tax dated 23.9.2009 laying down that exemption from Service Tax that would be available subject to the conditions mentioned there under. Further, he has submitted that further clarification was issued on 30.10.2009 stating that Service Tax would be payable by the service providers on the ....
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....xistence when the activities are performed for and on behalf of client for consideration and thus, from the wording of Section 65(19), it is clear that intention of the legislature is not to levy tax on the manufacture of beverages', but the services rendered in relation to production and processing of said goods for and on behalf of client. 5.3 He has further submitted that in the present case the appellant has been providing various services/facilities to SKOL like, providing storage space for material, packaging materials and finished products; maintaining accounts with regard to the raw materials, packaging materials, and finished goods; providing transportation, in war and out for handling of the raw materials, packaging materials and finished products; providing laboratory facilities, equipment and office space; providing manpower for carrying out the work of SKOL. It is his contention that all these above activities combine with the actual brewing and bottling activity are the entire scope of the work carried out by the appellant for and on behalf of SKOL. Thus, it is clear that the appellant had provided services in relation to production or processing of goods for and o....
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....e appellant at the prices communicated by SKOL from time to time. As per clause 3.1, out of the sale proceeds collected from the buyers the appellant will pay SKOL the net proceeds of Rs. 27/- per case of 12 bottles of 650 ML and 24 bottles of the 330 ML. The balance would be retained by appellant as service charges which would cover manufacturing cost and manufacturing profit. 5.6. Responding to the argument of the appellants that there is no valuation mechanism for ascertaining the value of beer manufactured on job work basis, learned special counsel has submitted that section 67 of the Finance Act, 1994 read with Service Tax (Determination of value) Rules, 2006 provides for determination of value of taxable service for charging service tax. Notification No. 39/2009-ST dated 23/9/2009 and the clarification issued by the board dated 30/10/2009 provide for the method of determination of taxable value for the services rendered by any person in relation to production or processing of alcoholic beverages for or on behalf of the client. He has contended that the notification cannot create a liability, on the contrary it reduces the burden of incidence of tax on the value of inputs, ....
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....al validity. Therefore it cannot be acceptable that under a bonafide belief the appellant carried out manufacture and sale of beer for and on behalf of SKOL. Further he has contended that the argument that the department was aware of the details of the contract of manufacturing agreement dt.11.4.2007 hence extended period limitation cannot be made applicable, does not obliterate the act of suppression of fact as held by Hon'ble Gujarat High Court in the case of CCE, Surat-I Vs. Neminath Fabrics Ltd. - 2010 (256) ELT 369 (Guj). Hence, demand with interest have rightly conformed and appropriate penalties imposed by the adjudicating authority. 6. Heard both sides at length and perused the records. 7. The issues involved in the present appeal for determination are whether: (i) the Appellants(formerly known as M/s Fosters India Pvt. Ltd.), who manufactured beer, affixed with the Brand name "Fosters" of M/s SKOL Breweries Ltd. and sold under their instruction as per Bottling/Brewing agreement dt.11.4.2007, rendered services under the taxable category of "Business Auxiliary Services"(BAS) and the Computation of the demand is correct....
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....prior to and after 01.09.2009. Before 01.9.2009 [(19) "business auxiliary service" means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or [ * * * * ] (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or [Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, "inputs" means all goods or services intended for use by the client;] [(v) production or processing of goods for, or on behalf of, the client;] (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes se....
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....clause, - (a) "commission agent" means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person - (i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services; [(b) "excisable goods" has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944); (c) "manufacture" has the meaning assigned to it in clause (f) of section 2 of the Central 12. The change that has been brought into the definition of the BAS w.e.f. 01.9.2009 is the nerve chord of dispute. In the previous definition the exclusion clause was expressed as: "[but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of Sect....
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....sued by the board after amendment, the relevant portion reads as under: Government of India Ministry of Finance Department of Revenue Tax Research Unit *** D.O.F. No.334/13/2009-TRU New Delhi, 6th July, 2009 Dear Chief Commissioner/Director General/Commissioner, The Finance Minister has introduced the Finance (No. 2) Bill, 2009 in the Lok Sabha on the 6th of July, 2009. Clause 112 of the Finance (No. 2) Bill, 2009 covers all the changes relating to Chapter V of Finance Act, 1994. Changes are also being proposed in the provisions of the, - xxxxxx 3. Alteration in the scope of existing taxable services : The following alteration/modifications have been done in the existing taxable services. These changes would come into effect from a date to be notified after the enactment of the Finance (No. 2) Bill, 2009. 3.1 Modification in Business Auxiliary Service (BAS) [section 65(19)] It may be recalled that production or processing of goods for or on behalf of a client falls within the purview of this service. However, if any such activity amounts to manufacture within the meaning of section 2(f) of the....
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....behalf of M/s SKOL, merely because of the fact that they affix the brand name belonging to M/SKOL. In support of their argument, they heavily relied upon the judgment of the Hon'ble Supreme Court in Cibatul Ltd.'s case, Delhi High Court judgment in Poona Bottling Co. Ltd.'s case, later upheld by the Hon'ble Supreme Court and other case laws on similar line. 20. In order to examine the said contention, it is quite essential to analyze the arrangement/agreement between the Appellant and M/s SKOL through the agreement dt.11.04.2007; the relevant conditions/stipulations reads as under:- BOTTLING /BREWING AGREEMENT This Agreement ("this Agreement") is entered into on this eleventh day of April 2007 with retrospective effect from the twelfth day of September 2006 BY AND BETWEEN SKOL BREWERIES LIMITED, a company incorporated under the provision of Companies Act, 1956, having its corporate office at Jalahalli Camp Road, Yeshwanthpur, Bangalore 560 022 (hereinafter referred to as "Skol" which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and assigns) of the ONE PART. AN....
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.... 1.5 Indenters Has the meaning assigned to it in Clause 2.9 1.6 Person Includes bodies corporate, individuals, firms, partnerships and any other body of persons whether incorporated or not. 1.7 Specifications Means the specifications for the composition, process procedures, standards of quality, packaging, storing and presentation of Skol Beer, including all information relating to raw materials, ingredients, chemicals and Formulae used in connection with the brewing of Skol Beer, methods, processes, procedures, recipes, secrets, operating manuals, knowledge and any general and technical information relating to brewing and dealing with the Skol Beer which Skol notifies to FIPL from time to time, including any changes Skol may make at its absolute discretion; 1.8 SKOL Beer Means goods manufactured under the Trade Marks belonging to Skol. 2. GENERAL OBLIGATION 2.1 Subject to the terms and conditions herein FIPL shall brew and bottle at the Brewery such brands of Skol Beer as specified by Skol from time to time, and transport, supply and sell them in accordance with the directions and instructions given by Skol including as regards which Sa....
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.... Representative. In any event, FIPL shall indemnify Skol against all claims, processing, losses damages, charges expenses etc., if any, which may be made against or suffered by Skol with respect to the Skol Beer manufactured by FIPL. Further, FIPL shall also be liable to bear all costs, claims or losses arising on account of any information delay or loss in production or deterioration in the quality of the Skol Beer manufactured by FIPL, due to machinery breakdown or any other reason. 2.8 FIPL agrees to manufacture and make available and supply, the Skol Beer as may be determined by Skol from time to time. The quantities are subject to a variation of plus or minus 10% (ten percent). 2.9 FIPL shall supply/invoice by sale, the Skol Beer to Skol or to the Indenters or other persons in any territory, as Skol may determine, holding necessary permits/ licences under the relevant excise laws or other applicable regulations to purchase/deal in Skol Beer (the said Persons hereinafter collectively called "Indenters") as Skol may from time to time direct. 2.10 FIPL agrees that it will comply with all the environmental laws, directives, rules and regulations and ....
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....L in writing the name of the Skol Representatives/technical personnel to be deputed by Skol from time to time as mentioned above prior to such deputation and FIPL undertakes and assures all cooperation, assistance and access to all such departments for this purpose of such supervision. 2.19 Skol shall be responsible for sending excise duty paid import/bond permits to FIPL to enable FIPL to dispatch Skol Beer to Skol or the indenters as the case may be. Wherever necessary, Skol shall be responsible for obtaining the verification certificates and/or other evidences from the excise authorities with regard to the dispatches of Skol Beer and furnish the same to FIPL. 2.20 Skol shall be free to resell or direct the sale to the indenters of Skol Beer on such terms and conditions as Skol may determine in its sole discretion. 2.21 Skol will provide detailed Specifications for each brand or product comprising Skol Beer to be manufactured by FIPL, Skol shall consult with FIPL the production schedule for different brands/products of Skol Beer, at periodic meetings and the production plan of FIPL shall be drawn in advance for the succeeding month, atleast15 (fifteen) ....
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....... 21. On a quick analysis of the aforesaid stipulations, reveals that the object and purpose of the agreement is clearly mentioned in clause (B) of the Recitals; the intention of the parties is to enter into a contract of manufacturing and sale arrangement for the production and sale of SKOL beer as per the quality and quantity prescribed by M/S SKOL and the appellant accepts to produce, bottle and dispatch the beer to Skol and/or to its indenters. Under the general obligations, it is clear from clause 2.1 that the appellant is required to brew and bottle at their Brewery the Skol brand beer and supply/sale the same in accordance with the directions and instructions of Skol; clause 2.2 stipulates that the price at which the beer are to be supplied and sold be determined by Skol; clause 2.3 states that the appellant shall not advertise, market or promote Skol beer; clause 2.4 mentioned that if the quality of the Skol beer manufactured by appellant does not conform to the specification then it shall be treated as breach of agreement; clause 2.5 stipulates that the appellant will obtain at its cost all the materials packing materials levels chemicals renewables in accordance with....
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.... customers/indenters as may be directed. 23. The Revenue's contention is that the condition of arrangement between the Appellant M/s Skol Brewery Ltd. is that of production of goods for, or on behalf of M/s Skol Brewery Ltd/. In rebuttal the contention of the learned Advocate for the Appellant referring to the judgment of Hon'ble Supreme Court in Cibatul Ltd's case (supra), is that the buyer in the said case could not be designated as a 'manufacturer' of the goods for and on behalf of the seller merely because the same were manufactured bearing brand name of the seller-supplier and out of raw materials and joint manufacturing programme drawn by the buyer and the seller. 24. In the said case the facts in brief are that M/s Cibatul Ltd (the seller) had entered into an agreement with M/s Ciba Geigy of India Ltd.(the buyer) on 24.07.1971 under which the products, namely, UF resins and MF resins were to be manufactured by the seller in accordance with the manufacturing programme drawn up jointly by seller and the buyer. The Resins were to be manufactured in accordance with the restrictions and specifications constituting buyer's standards and they were supplied at the prices agree....
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....ncing from July 4 1977 and ending till 31 March 1978.Analyzing the franchise agreement and the provisions of Contract Act, the Hon'ble High Court has held that the petitioner are the manufacturers of soft drinks and not M/s Parle who was not issued with notice for exceeding the prescribed limit for allowing the exemption from excise duty. 26. We do not find relevance of the principle laid down in the aforesaid judgments, inasmuch as the question involved in these cases for determination as to who was the manufacturer within the provisions of Central Excise Act for the propose of valuation in Cibatul Ltd.'s case and eligibility of exemption Notification in Poona Bottling Ltd.'s case. In the present case, the levy is on rendering of services, in contrast to the aforesaid cases, where the taxable event is on the manufacture of goods and liability to discharge the duty is on the manufacturer of goods. Further, the question in the instant case is neither the assessment of beer, nor who is the manufacturer, but it is the service rendered by the Appellant in the production of the beer to cater to the marketing needs of M/s SKOL. Therefore, the ratio laid down in the aforesaid judgm....
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....al goods, used for providing the same service, subject to the following conditions, namely :- (a) that no Cenvat credit has been taken under the provisions of the Cenvat Credit Rules, 2004; (b) that there is documentary proof specifically indicating the value of such inputs; and (c) where the service provider also manufactures or processes alcoholic beverages, on his or her own account or in a manner or under an arrangement other than as mentioned aforesaid, he or she shall maintain separate accounts of receipt, production, inventory, despatches of goods as well as financial transactions relating thereto. 2. This notification shall come into force on the date of publication in the Gazette of India. Explanation.- For the purposes of this notification, the words or phrase 'input', or as the case may be, 'capital goods' shall have the meaning as is assigned to them under rule 2 of the Cenvat Credit Rules, 2004. [Notification No. 39/2009-S.T., dated 23-9-2009] Therefore, the value of the services needs to be determined keeping in mind the aforesaid notification and the principles of valuation prescribed under Section 67 of ....
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....CIT Vs. Swastic Rubber Products Ltd, 1983 (140) ITR 304 (Bom.), State of Andhra Pradesh Vs Jindal Strips,(2007) 10 VST 777; Usha International Ltd. Vs CCE 2016 (43) STR 552 (Tri.-Del), CIT Kanpur Vs Reliance Media Works Ltd.(2017) 394 ITR 427;Gujrat High Court Order dt. 16.7.2012 in Cadilla Healthcare Ltd Vs Dy. Commissioner of Sales Tax, National Organic Chemical Industries Ltd Vs State of Maharashtra 2004 (135) STC (Bom.). 31. Revenue, on the other hand, placed the judgment of Hon'ble Patna High Court in the case of Tata Iron and Steel Co Ltd Vs. Presiding officer and others (2001) IIILLJ 66 Pat., Tribunal decisions in the case of Technocraft Industries India Ltd Vs CCE Mumbai 2000 (120) ELT 106 (T), CCE Chandigarh Vs Nahar Industries Pvt. Ltd. 2009(236) ELT 206 (T) Marigo Paints Ltd Vs CCE Vadodara 2014 (308) ELT 421 (T),and also the Hon'ble Gujarat High Court judgment in the case Indus Tower Ltd Vs State of Gujarat 2017-TIOL-1845-HC-AHM-VAT. 32. The principle in this regard has been considered in the context of Income Tax Act,1961 by Hon'ble Supreme Court in Marshal & Sons Co. India Ltd's case(supra). Their Lordships at Para 14, observed as follows:- "14. Eve....
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....any. This is the necessary and the logical consequence of the Court sanctioning the scheme of amalgamation as presented to it. The order of the Court sanctioning the scheme, the filing of the certified copies of the orders of the Court before the Registrar of Companies, the allotment of shares etc may have all taken place subsequent to the date of amalgamation/ transfer, yet the date of amalgamation in the circumstances of this case would be 1.1.1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal Vs Bank of Upper India Ltd." 33. The Hon'ble Andhra Pradesh High Court in Jindal Strips Ltd.'s case, while considering the issue whether the merger of two companies was w.e.f. 01.04.1995 or from the effective date i.e. 19.09.1996, for the purpose of demand of sales tax/VAT, following the ratio laid down by Hon'ble Supreme Court in Marshal Sons & Co.'s case, held that while approving the scheme if the Court has not fixed any specific date as the effective date, then the date agreed upon by the parties would be the effective date of amalgamation. 34. This Tribunal in the case of ITC Hotels Ltd.'s case (supra) was confronted with the question whether the ....
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....f the proceedings under clause 5 above and the effectiveness of contacts and deeds under clause 6 above, shall not effect any transaction or the proceeding already concluded by the transferor companies on or before the effective date and shall be deemed to have been done and executed on behalf of the Transferee Company." By referring to the above clause, the contention of the learned DR is that any transaction or proceeding conducted by the transferor company on or before the effective date will not be affected by the scheme of amalgamation. However, we find that such clause stands incorrectly interpreted by the learned DR. A reading of the above clause is reflective of the fact that the action of the transferor company on or before the effective date shall be deemed to have been done and executed on behalf of the transferee company. As such, it is clear that the said clause supports the respondent's stand that any business conducted by the respondents is to be held as having been conducted on behalf of the transferee company. As such, the service tax provided to the ITC Ltd. and Ansal Hotels Ltd. have to be considered as having been provided on behalf of the transferee co....
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....idered for transfer of employees from the transferee company to transferor company as 01.10.1985. We do not find any relevance of the said judgment to the facts of the present case. The other judgments referred to by the Revenue viz. Technocrafts Industries India Ltd, Nahar Industrial Enterprises Ltd, which are passed while examining the question of extending the benefit of SSI exemption on amalgamation from the effective date as per the Order of the Court. The revenue has further argued that since the service tax was payable on the services rendered by the appellant to M/s Skol from 1/4/2009 to 22/6/2012, the said liability cannot be extinguished because of merger deemed to have been applicable from the appointed date. In support, they referred to the recent judgment of Hon'ble Gujarat High Court in Indus Tower Ltd.'s case. In the said case a writ petition was filed under Article 226 of Constitution of India with prayer seeking declaration of Section 52 of GVAT Act 2003 as ultra vires to the Constitution of India. Their Lordships, distinguishing the judgment of Hon'ble Supreme Court in Marshall Sons & Co. Ltd case, observed as follows:- "21. The decision of the Hon'ble Su....