Custom, Excise & Service Tax Tribunal
M/S. United Spirits Ltd vs Cst, Bangalore on 5 February, 2013
CUSTOMS, EXCISE AND SERVICE TAX APPELLATE TRIBUNAL
SOUTH ZONAL BENCH AT BANGALORE
Bench Division Bench
Court I
Date of Hearing:05/02/2013
Date of decision:05/02/2013
Application No.ST/Stay/654/2012
Appeal No.ST/974/2012
(Arising out of Order-in-original No.08/2011 dt. 27/01/2012
passed by CCE, Bangalore)
For approval and signature:
Honble Mr. P.G. Chacko, Member(Judicial)
Honble Mr. B.S.V. Murthy, Member(Technical)
1.
Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it should be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether their Lordship wish to see the fair copy of the Order?
Seen
4.
Whether Order is to be circulated to the Departmental authorities?
Yes
M/s. United Spirits Ltd.
..Appellant(s)
Vs.
CST, Bangalore
..Respondent(s)
Appearance Mr. Joseph Vellapally, Sr. Advocate and Mr. G. Natarajan, Advocate for the appellant.
Mr. R.K. Singla, Commissioner(AR) for the respondent.
Coram:
Honble Mr. P.G. Chacko, Member(Judicial) Honble Mr. B.S.V. Murthy, Member(Technical) FINAL ORDER No._______________________ [Order per: P.G. Chacko] This application filed by the appellant seeks waiver and stay in respect of the adjudged dues. After perusing the records and hearing both sides, we have found this case fit for summary disposal. Accordingly, after dispensing with predeposit, we proceed to deal with the appeal.
2. This appeal filed by the assessee is mainly directed against a demand of service tax under the head intellectual property service for the period from October 2007 to March 2010. The appellant, owner of various brand names well-known to the world of alcoholic beverages, had entered into agreements with various distilleries, hereinafter referred to as Contract Bottling Units(CBUs). A specimen of these agreements is available on record, which is agreement dt. 05/08/2004 between McDowell & Co. Ltd. (presently United Spirits Ltd.) and M/s. Chandigarh Distillers & Bottlers Ltd. This agreement provided for manufacture of Indian Made Foreign Liquor(IMFL) by the CBU viz. Chandigarh Distillers & Bottlers Ltd. as job workers for the appellant. The CBU shall manufacture IMFL in conformity with the specifications of the appellant and market the same under the latters brand names, in respect of which there is a parallel agreement between the brand name owner and the CBU, whereunder the latter would use the brand names licensed by the former for a consideration. Out of the sale proceeds received by the CBU, they could make deductions towards cost of rectified spirit, costs of blending/packaging/manufacturing materials, freight & other expenses, taxes & fees and agreed retention and the balance amount would be paid to the brand name owner(appellant). Agreed retention was the amount payable per unit of quantity as determined from time to time under the said agreement. For instance, during a part of the period of dispute, the agreed retention payable in respect of the afore-named CBU was Rs.35/- per case upto 60,000 cases dispatched per month, Rs.30/- per case between 60,000 and 1.2 lakhs cases per month and Rs.25/- per case above 1.2 lakhs cases per month. Under the agreement, the CBU should adhere to the standards and specifications set forth by the appellant in procuring raw materials and other materials for the manufacture of IMFL. The product could be sold to State agencies only as per the local laws. The provisions of these and similar agreements were, apparently, perused by the adjudicating authority and a view was taken to the effect that whatever amount was received by the appellant from the CBU represented consideration for intellectual property service which was held to have been rendered to the CBUs by way of grant of the right to use the brand names. The impugned demand is on the said amount. This demand is also accompanied by penalties.
3. The case of the appellant as made out today by the learned counsel is that their case is squarely covered by para-3 of CBECs Circular No.249/1/2006-CX4 dt. 27/10/2008. In this connection, it is submitted that, under the aforesaid agreements, the alcoholic beverages were sold by the CBUs as per the directions of the appellant(brand owner), that the property, risk and reward of the said products were also held by the brand owner, that the CBUs only received the job charges for the manufacturing activity and, therefore, CBUs would be the service providers who provided services to the brand owner as per para-3 of the Circular. It is submitted that, in the factual situation discussed in para-3 ibid, the CBUs should be held to be providers of Business Auxiliary Service(BAS) to brand owners. As a matter of fact, from 01/09/2009, the CBUs have been paying service tax on the service. Prior to this date, as any service involving manufacture was not taxable under BAS, the CBUs did not have any liability. The learned counsel submits that the facts of this case were not properly examined by the adjudicating authority with the result that the case was placed under para-2 of the Boards Circular. It is submitted that, in the factual situation covered by para-2, the property, risk and reward of the products manufactured by the distillery would rest with them and not with the brand owner and that an agreed sum is paid to the brand owner for grant of permission to use the brand names and technical know-how. The learned counsel has also submitted that, in any case, the impugned demand under intellectual property service cannot arise from the aforesaid agreements. For the purpose of grant of permission to use brand names on IMFL, separate agreements were entered into between the appellant and CBUs. Under such agreements, the appellant treated 2% of the sale proceeds of the CBUs as consideration for grant of licence to use the brand names. It is submitted that the adjudicating authority approved this stand of the assessee and passed an order which is said to be under challenge by the Department. In these circumstances, it is submitted, the present demand of service tax under intellectual property service based on the aforesaid job work agreements cannot be sustained on facts or in law. The learned counsel has also made an endeavour to distinguish between the present case and the case of SKOL Breweries Ltd. Vs. CCE, Aurangabad [2010(19) STR 839 (Tri. Mumbai)]. He has relied on the Stay Order passed by the coordinate Bench in SKOL Breweries case for the purpose of highlighting the significance of the fixed amount which was liable to be paid in the instant case in the name of agreed retention and, in the case of SKOL Breweries, in the name of net proceeds. The endeavour is to show that a similar set of facts of SKOL Breweries case was correctly elucidated by the coordinate Bench and that, in the instant case, the adjudicating authority has erred in correctly interpreting the provisions of the subject agreements. According to the learned counsel, total non-application of mind is writ large on the impugned order. It is suggested that the case be remanded to the adjudicating authority with appropriate directions.
4. The learned Commissioner(AR) has harped on the definition of intellectual property service given under Section 65(55b) of the Finance Act, 1999 as also the definition of taxable service given under Section 65(105)(zzr) of the Act. It is submitted that, as per the definition which was in force during the period of dispute, permitting the use or enjoyment of any intellectual property right is intellectual property service. The appellant permitted the use/enjoyment of their brand names by the CBUs and collected consideration for the same and, therefore, they were providing intellectual property service to the CBUs as held by the adjudicating authority. The learned Commissioner has also referred to the provisions of the Boards Circular dt. 27/10/2008. According to him, if the provisions of para-2 of the Circular are read with the statutory definitions, the appellant will be found to have rendered intellectual property service to the CBUs in terms of para-2 ibid.
5. After giving careful consideration to the submissions, we are of the view that the case has to be re-adjudicated. Apparently, the provisions of the various job work agreements between the appellant and CBUs were not properly examined or appreciated by the adjudicating authority. It appears from the records that the appellant endeavoured to make out a specific case before the adjudicating authority to the effect that they had permitted the CBUs to use their brand names on the job-worked products(IMFL) for their own ultimate benefit and profit. In this view, the brand names were not alienated for good, nor permitted to be used for the CBUs exclusive enjoyment/profit. The adjudicating authority did not apparently consider this definite case of the assessee. It proceeded to consider the net amount received by the appellant from the CBUs as consideration for intellectual property service and quantify the amount of service tax. The assessees case was claimed to be covered by para-3 of the Boards Circular. Per contra, their case was put under para-2 of the Circular by the adjudicating authority. Before that authority, the assessee also pointed out that they had paid service tax under intellectual property service at 2% of the sale proceeds of IMFL manufactured and sold by the CBUs. This case of the assessee was accepted by the Commissioner also. This case of the assessee was based on separate agreements between them and CBUs for permitting use of brand names. Such agreements dealt with an altogether different subject vis-`-vis the job work agreements entered into between the appellant and the CBUs even though the former was co-terminus to the latter. The adjudicating authority, however, rejected such submissions, observing that they had no legal sanctity. We have found substance in these submissions of the assessee. The learned Commissioner ought to have given careful consideration to these submissions also.
6. The assessee had also pleaded before the Commissioner that they were only recipients of BAS and not providers of intellectual property service. This submission was dismissed as erroneous and extraneous. We find that this conduct of the adjudicating authority cannot be appreciated inasmuch as it was, apparently, turning its back on certain relevant submissions of the assessee. Had the Boards Circular been carefully perused by the adjudicating authority, the distinction between BAS and intellectual property service in the factual contexts discussed in the Circular would have been clearly discernible to it. To say that such distinction was extraneous or irrelevant only indicates that the adjudication of this case was undertaken without proper application of mind. We have thus found great force in the submissions of the learned counsel.
7. For all the reasons stated hereinbefore, we are inclined to grant an opportunity to the adjudicating authority to apply its mind to the facts on record as also to the submissions of the assessee and to take a view on proper appreciation thereof in accordance with law. Needless to say that a reasonable opportunity of being heard should be given to the party. The impugned order is set aside and this appeal is allowed by way of remand with a request to the Commissioner to pass a speaking order in accordance with law and the principles of natural justice untrammeled by any observations on merits made hereinabove.
8. The stay application also stands disposed of.
(Pronounced and dictated in open court) (B.S.V. MURTHY) MEMBER (TECHNICAL) ( P.G. CHACKO ) MEMBER (JUDICIAL) Nr 9