TaxTMI 
TaxTMI 
2019 (7) TMI 956
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....e 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 name 'knockout', Heywards' 'Royal challenge' a....
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....e 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 SKOL, in no manner would change the veracity of lega....
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....ted 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 raw material, which can be called a contract of service of ....
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....s 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 Section 21 of the Companies Act, 1994 from its old name SKOL Brewer....
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....r. 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 bottling/job charges, distribution cost and other reimbursable expens....
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....r 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 on behalf of SKOL. Therefore the services provided by appellant to SKOL is c....
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.... 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, subject to certain conditions. 5.7 Further, rebutting the argument that the date....
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....lant 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; (ii) The merger/amalgamation of Appellant Company with M/s SKOL Breweries Ltd. be taken as t....
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....o, - (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 services as a commission agent, [but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of Section 2 of the Central ....
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....s 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 Section 2 of the Central Excise Act,1944." 13. The amendment to the said clause reads as: "but does not include any activity that amounts to manufacture of excisable goods. 14. And the meaning of "manufacture" and "excisable goods" mentioned under the said clause reads as: "(b) "excisable goods" has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 o....
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....) 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 Central Excise Act, the same is excluded from its purview. This exclusion has been modified to state that it would apply only if the activity results in manufacture of 'excisable goods'. Both the words/phrases i.e. 'manufacture' and 'excisable goods' would have the same meaning as defined under the Central Excise Act. The impact of this change would be that even if a process of manufacture is undertaken for the client, but the resultant product does not fall under the category of....
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....L 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. AND FOSTERS INDIA PRIVATE LIMITED, a company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Plot No.99, MIDC, Waluj, Aurangabad 431 136 (hereinafter referred to as FIPL which expression shall unless repugnant to the context or meaning thereof, be deemed to mean and include its successor or successors and buyer / buyers and permitted assigns) of the OTHER PART. RECITALS A. FIPL is a company engaged in the business of manufacturing beer and possesses necessary and adequate facil....
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....wing 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 Sates they should be transported, supplied and sold in and the manner and pricing thereof. 2.2 Further, the customers to which, and the price at which the Skol Beer manufactured and bottled by FIPL are to be supplied and sold shall be determined at the sole discretion of Skol, and the same shall be final and binding on FIPL. 2.3 FIPL shall not advertise, market or promote Skol Beer. 2.4 FIPL agrees to manufacture the quality of Skol Beer as per the Specifications laid down by Skol. In the event that the quality of the Skol Beer manufactured by FIPL does not conform to the Specifications, the same shall be deemed to be a material breach of this Agree....
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....pply/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 legal requirements as required by the Maharashtra Pollution Control Board. 2.11 FIPL shall ensure that the plant is in proper running condition for continuous operations at all times. FIPL shall ensure payments to the state electricity board and other local authorities as per due dates to avoid any disruption in the smooth operation of the Brewery and production of Skol Beer. FIPL has assured Skol that it has the necessary infrastructure and manpower to implement the provisions of this Agreement. 2.12 FIPL and Skol shall respectively comply with all the laws and statutory rules and regulations relating to manufacture and sale of Skol Beer. 2.13 FIPL hereby agrees that it will not enter into any contracts with any companies....
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.... 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) days before the beginning of such succeeding month, which plan shall not be modified without the prior approval of Skol. 2.22 Any deduction in Indenters on supply of Skol Beer will be to the account of Skol. 2.23 FIPL hereby confirms represents and warrants that there are no legal or contractual impediments to enter into contracts for the manufacture of Skol Beer by FIPL and generally give effect to the terms and conditions of the Agreement by Skol and FIPL. 2.24 FIPL, on a request from Skol, shall produce and make available any additional quantities as may be agreed upon. 2.25 FIPL is further obligated to ensure that packaging, including body labels, back labels, foils, etc, shall be in accordance with directions given by Skol, from time to time and that the Skol Beer shall be bottled in univers....
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....; 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 the specifications as specified by Skol; clause 2.6 requires the appellant to maintain adequate records and provide complete and accurate information on stocks of raw materials, consumables etc. on weekly basis; close 2.7 prescribes that the technical representatives of M/s Skol be allowed to supervise the manufacture of beer at the Brewery and the appellant shall provide suitable office accommodation and laboratory chemicals equipment etc. free of charge; clause 2.9 stipulates that the appellants shall supply/invoice by said to Skol or to the indenters or other persons as may be determined by Skol; clause 2.11 stipulates that the plant is in proper running condition for continuous operations at all times and appellant shall ensure payment of all dues to the local Electricity Board and other authorities to avoid disruption of production; clause 2.14 stipulates that a....
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.... 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 agreed upon between the sellers and the buyers from time to time. The buyer was entitled to test a sample of each batch of these goods and it was only after approval by the buyers the goods were released for sale to the buyers. The buyer, who obtained trademarks from its foreign company, authorised the seller to affix the trade mark and the seller was to do so "as an agent" for and on behalf of the buyer and not on his own account. The Respondents M/s Cibatul Limited filed price list declaring the wholesale prices of the manufactured goods. The Assistant Collector revised the wholesale prices upward on the basis of wholesale prices at which the buyer sold the products in the market. The question before Hon'ble Supreme Court was whether the wholesale price of the goods at which it was sold by the seller to the buyer for assessment or the price at which the buyer sold the goods in w....
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....he 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 judgments cannot be made applicable to the present case. 27. It is the contention of the Appellant that in any service, consideration flows from the service receiver to the service provider, whereas in the present case, the appellants paid Rs. 27/- per case of twelve bottles to M/s Skol, hence, it is not a service. At the first blush the argument sounds quite attractive but on deeper analysis will not be sustainable. The arrangement/agreement for manufacture and sale of branded alcoholic beverages between the appellant and M/s Skol is a complex one; even though the appellant is authorised to sale the manufactured branded beer in the local market, but the customers/indenters are as per the instruction of M/s Skol; the sale price is fixed by M/s Skol after mutual consultation. Thus it is not a simple provision of service agreement, where under, the service is flown from appellant to M/....
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....t 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 the Finance Act and the Valuation Rules, 2006. The Adjudicating authority has erred in adopting the sale price of the Appellant. 28. The next issue for determination is the date of amalgamation/ transfer of the Appellant's brewery unit with M/s Skol Breweries Ltd. In the scheme of arrangement as per Section 391 to 394 of the Companies Act, 1956 for amalgamation of the Appellant's brewery division with M/s Skol Breweries Ltd., the appointed date and the effective date have been defined under Clause 1.1 (b) & (f) of the said scheme, respectively, as follows:- (b) "Appointed Date" means the close of business hour on 31st March 2009 or such other date as may be fixed by the High Court of Judicature at Bombay, or by such other authority having jurisdiction under law. ...... (f) "Effective Date" means the last of the dates on which all the conditions and matters referred to in Clause 16 hereof have been fulfilled. References in this Scheme to t....
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....sidered 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. Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. 1.1.1982. it is true that while sanctioning the scheme, it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanction sanctions the scheme prescribed to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the Court under Section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court ....
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....ed 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 amalgamation of M/s ITC Hotels Ltd and M/s Ansal Hotels Ltd with the parent company M/s ITC Ltd. was as on 01.04.2004,i.e. the appointed date as per the Amalgamation schemeduly approved by the Hon'ble High Courts or the effective date of amalgamation, when the application filed with Registrar of companies that is 23.03.2005. Following the judgment of Hon'ble Supreme Court in Marshall Sons & Co. Ltd.'s case, it is held that the date of amalgamation would be the 'appointed date' presented in the scheme. Further, the Tribunal has observed that even though the said judgment was delivered in the context of Income Tax law, but binding relating to the issues arising under Central Excise Act or under Chapter 5 of Finance Act, 1994.It is observed as: "10. The law declared by the Apex Court is binding and is required to be followed. The submission of the learned DR that the ratio of the above judgment given in the context of income tax would not be applicable to the facts of the present case as there is no specific....
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....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 company viz. ITC. Ltd., in which case, no service tax liability would arise against the service provider." 35. Subsequently, this Tribunal, in Usha International Ltd.'s case, has considered all the aforesaid three judgments. The facts leading to the issue before the Tribunal was that a refund claim of Rs. 84,76,586/- of service tax paid on royalty paid by the transferee company Usha International Ltd to M/s Joy Engineering Ltd, the transferor Company was filed on the basis of High Court's order dt.26.05.2008 approving the merger w.e.f. 01.04.2007 being the appointed date. This Tribunal, applying the principle laid down in Marshall Sons & Co. and that of Jindal Strips Ltd, held as follows:- "7. In the light of the foregoing binding precedents there remains no scope for any debate that the date of amalgamation in the present case is to be held to be 1-4-2007 and not 20-6-2008. Obvious consequence of this is that the service rendered during the impugned period (1-4-2007 to 313-2008) became service to self and consequently service....
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....g the judgment of Hon'ble Supreme Court in Marshall Sons & Co. Ltd case, observed as follows:- "21. The decision of the Hon'ble Supreme Court in the case of Marshall Sons & Company Limited V. ITO (supra) is concerned, their cannot be any dispute with respect to the proposition of law laid down by the Apex Court, however, the same shall not be applicable to the facts of the case on hand; more particularly, considering Section 52 of the GVAT Act. As observed hereinabove, neither Section 52 of the GVAT Act cannot be said to be an encroachment upon the powers of the Union Legislation, as envisaged under Section 246 of the Constitution nor the same can be said to be in conflict with the provisions of the Companies Act, 1956. Therefore, the decision of Hon'ble Supreme Court in the case of State of West Bengal &Ors Vs Committee for Protection of Democratic Rights, West Bengal & Ors. (supra) as well as UCO Bank & Ors. Vs Dipak Debbarma & Ors. (supra) relied upon by the learned Counsel for the petitioners shall not be of any assistance to the petitioners. As observed hereinabove, both the Acts operate in different fields and with respect to different eventualities. Therefore, considering ....