Custom, Excise & Service Tax Tribunal
Superior Drinks Pvt Ltd vs Cce Nagpur- I on 4 June, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL, MUMBAI
WEST ZONAL BENCH
COURT No.
Appeal No. ST/87258/2015
(Arising out of Order-in-Original No. 03/ST/2015/C/NGP-I dated
22.07.2015 passed by Commissioner of Central Excise & Customs,
Nagpur)
Superior Drinks Pvt. Ltd. Appellant
MIDC, Hingna Road,
Nagpur 440 016.
Vs.
Commissioner of C.E., Nagpur-I Respondent
Central Excise Bldg.,
Telangkheri Road,
Post Box 81,
Civil Lines, Nagpur
Appearance:
Shri J.K. Mittal, Advocate for the Appellant
Shri Bidhan Chandra, Authorised Representative for the
Respondent
CORAM:
Hon'ble Mr. Sanjiv Srivastava, Member (Technical)
Hon'ble Dr. Suvendu Kumar Pati, Member (Judicial)
FINAL ORDER NO. A/86068/2019
Date of Hearing: 19.03.2019
Date of Decision: 04.06.2019
PER: SANJIV SRIVASTAVA
This appeal is directed against order in original No
03/ST/2015/C/NGP-I dated 30.06.2015/ 22.07.2015 of the
Commissioner Central Excise Nagpur-I. By the said order
Commissioner held as follows:
"1. I confirm the demand of Service Tax of Rs
90,71,731/- (ST Rs 88,07,506/- + Ed Cess Rs 1,76,150/-
+ SH Ed Cess Rs 88,075/-) (Rupees Ninety Lakhs Seventy
One Thousand Seven Hundred and Thirty One Only) under
proviso to Section 73(1) of Finance act, 1994.
2 ST/87258/2015
2. I order to recover interest under Section 75 of the
Finance Act, 1994 at appropriate rate on the aforesaid
amount of Service Tax recoverable from the Noticee.
3. Under Section 76 of the Finance Act, 1994, I impose
a penalty on the Noticee of Rs 200/- per day during which
failure continues OR at the rate of two percent of such tax
per month, whichever is higher. This penalty is applicable
in respect of nonpayment of service tax for the period upto
10/05/2008 starting from the first day of the due date till
the date of actual payment of outstanding amount of
service tax under Section 76 of the Finance Act, 1994read
with Rule 6 of the Service Tax Rules, 1994 as the Noticee
failed to pay Service Tax in accordance with the provisions
of Section 68 of the Finance Act, 1994, provided that the
total amount of penalty payable in terms of this section
shall not exceed the service Tax payable.
4. I impose a penalty of Rs 90,71,731/- on the Noticee
under Section 78 of the Finance Act, 1994 for suppressing
the value of taxable services with malafide and
premeditated intent to evade payment of service tax which
has resulted in short payment of service tax. In this
regard, the attention is invited to relevant provisos of
Section 78 of The Finance Act, 1994 as per which if the
service tax determined under section 73 and interest
payable thereon under Section 75 is paid within thirty days
from the date of communication of this order, the amount
of penalty liable to be paid under Section 78 shall be
twenty five percent of the service tax determined, provided
this reduced penalty is also paid within the said period of
thirty days.
5 I impose a penalty of Rs 10,000/- (Rupees Ten
Thousand only) on the Noticee under Section 77 of the
Finance Act, 1994 for the reasons mentioned above.
6. I impose a penalty of Rs 2000/- (Rupees Two
Thousand only) (up to 08/04/2011) and Rs 20,000/-
(Rupees Twenty Thousand only) (w.e.f 08/04/2011
3 ST/87258/2015
onwards) under Section 70 of the Finance Act, 1994 read
with Rule 7C of the Service Tax Rules, 1994 for delayed
filing of each return."
2.1 Appellants are engaged in bottling and marketing of
beverages under trade name Coca Cola, Kinley, Sprite etc.
They also have service tax registration in respect of
taxable services under the category of GTA, manpower
supply, BAS and works contract.
2.2 Acting on intelligence that appellants were not
discharging service tax on the amounts received by them
under head "market support received" from Coca Cola for
advertizing, promoting & marketing of goods a preventive
check was undertaken in the business premises of the
appellants.
2.3 Scrutiny of various documents recovered and
supplied by the appellants such as copy of balance sheet
(2007-08 to 2011-12) and copies of credit note (2007-08
to 2010-11), Bottlers Agreement, Sample copy of business
protocol of 2012 revealed that
o Business Protocol deals with commitment of both
sides including marketing investment.
o Share of marketing spends between Coca Cola India
and Appellants.
o Coca Cola is compensating appellant for marketing &
promotional activities expenditure inform of
reimbursements.
2.4 Since the sale, promotion & the marketing activities
for beverages undertaken by the appellants directly
promotes the sale of concentrate manufactured by or on
behalf of Coca Cola, Coca Cola India (CCI) on behalf of
Coca Cola USA reimburses the cost proportionately. Thus
the appellants are liable to pay service tax under the
category of Business Auxiliary Services in respect of such
reimbursement/ compensation received from Coca Cola.
2.5 A show Cause Notice dated 20.02.2014 has been
issued to the Appellant asking them to show cause as to
4 ST/87258/2015
why service tax short paid/ not paid amounting to Rs
90,70,731/- be not demanded and recovered from them
under the proviso to section 73(1) of Finance Act, 1994.
Also why interest at appropriate rate on the amount
determined as short/ not paid be demanded under Section
75 and penalties under Section 76, 77 & 78 be not
imposed on them. Penal amount should not be recovered
under Rule 7C of the Service Tax Rules, 1994.
2.6 Show Cause Notice has been adjudicated by the
Commissioner as per his order referred in para 1, supra.
Aggrieved by the order of Commissioner Appellants have
filed this appeal.
3.1 In their appeal Appellants have assailed the
impugned order stating-
i. The finding of the adjudicating authority to effect
that they were rendering Business Auxiliary Service
as defined under Section 65(105)(zzb) read with
Section 65(19) of Finance Act, 1994 is erroneous.
ii. The finding of Commissioner to effect that they were
providing service to Coca Cola India and the alleged
promotion of sale of concentrates of CCI for which
CCI was reimbursing the Appellants was not sharing
of expenses and cannot be termed as taxable service
for either period prior to 01.07.2012 or after that.
iii. The finding of the Commissioner that they are
promoting the sale of concentrate of CCI is
erroneous and is based on conjectures and surmises.
iv. Even if the activities undertaken by the appellant
were to be held as taxable service then even without
admitting these should be classified under category
of "Brand Promotion Services" introduced in 2010.
v. Show Cause Notice did not stated the specific clause
of the of Section 65(19) ibid under which the
demand was being made. Non specification of the
said clause in show cause notice is fatal and bad in
law as held by various authorities.
5 ST/87258/2015
vi. The demand made is barred by limitation. The
reliance placed by the adjudicating authority on the
decision of Nizam Sugar is totally erroneous as the
said decision of Tribunal Larger Bench has been set
aside by the Hon'ble Apex Court in [2006 (197) ELT
465 (SC)].
vii. It is also settled law now that in case where the
extended period cannot be invoked, the demand for
normal period too cannot be upheld.
viii. Even if the tax was demandable then also the cum
tax benefit should have been extended to them.
ix. Penalty proceedings could not have been initiated for
the show cause notice issued under Section 73.
x. Penalty could not have been imposed if there was no
deliberate defiance of law.
xi. Penalty under Section 76 and 78 could not have
been imposed simultaneously as has been held in the
impugned order.
xii. Penalty should have been waived off under Section
80.
4.1 We have heard Shri J K Mittal, Advocate for the
Appellant and Shri Bidhan Chandra Additional
Commissioner, Authorized Representative for the revenue.
4.2 Arguing for the Appellants leaned Counsel
submitted:
i. Revenue officers had been conducting regular audit
and verification of the records of the appellant during
the period for which dispute has been unearthed.
Thought there records were regularly audited verified
no such dispute was ever raised. The details of audit
conducted are as follows:
S No Period of Audit Month of Audit
a April 2006 to June 2010 September 2010
b July 2010 to September 2012 November 2012
c October 2012 to November 2013 January 2014
6 ST/87258/2015
ii. Though the unit was being regularly audited no such
dispute a raised in Show Cause Notice dated
20.02.2014 for the period October 2008 to March
2013 was ever pointed out.
iii. Wrong and contrary facts have been recorded in
impugned order:
a. Though they were filing the returns it has been
recorded that they were not filing the returns.
The order at some place records the fact of
filing the return and at other place records that
returns were not being filed, Inherent
contradictions in the order.
b. Records were admittedly provided by them but
order states that they were recovered under
the Panchnama proceedings.
c. Tribunal Larger Bench decision in case of
Nizam Sugar Factory has been overruled by
the Apex Court but the order still relies upon
the same to hold the demand for extended
period.
iv. In case of the group companies, to whom similar
notice was issued, the matter has been decided by
the tribunal in their favour. Reliance placed on orders
in case of Narmada Drinks (P) Ltd [2017 (5) GSTL
369 (T-Del)] and Final Order No ST/A/52245/2010-
CU(DB) dated 18.06.2018 read with miscellaneous
order 07.04.2014.
v. Brand Promotion is separate and distinct service and
is not covered under the category of Business
Auxiliary Service, as has been held by the Tribunal in
case of Sourav Ganguly [2016 (43) STR 482 (CAL)]
and Shriya Saran [2014 (36) STR 641 (T-Del)]. In
case of Indian National Shipowner [2009 (14) STR
289 (BOM)], Bombay High Court held that
introduction of new entry presupposes that earlier
entries did not covered the said activity.
7 ST/87258/2015
vi. Since no demand was made under category of Brand
Promotion Services, the same cannot be made now
at any later stage of proceedings as has been held in
various decisions. {Precision Rubber Industries Pvt
Ltd [2016 (334) ELT 577 (SC)], Toyo Engineering
India Limited [2006 (201) ELT 513 (SC)], Saci Allied
Products Limited [2005 (183) ELT 225 (SC)],
Champdany Industries Ltd [2009 (241) ELT 481
(SC)].
vii. Reimbursable expenses which are subject matter of
dispute cannot be taxed as held by the various
authorities {Philips India Ltd {1997 (91) ELT 540
(SC)], Mahindra & Mahindra Ltd [1989 (43) ELT 611
(SC)], Intercontinental Consultants & Technocrats
Pvt Ltd [2013 (29) STR 9 (DEL)] and {2018 (10
GSTL 401 (SC)].
viii. The services rendered by them are not covered
under BAS or even after 01.07.2012 as held in case
of Narmada Drinks {2017 (%) GSTL 369 (T-Del)],
Naresh Kumar & Company Pvt Ltd [2014 (36) STR
271 (CAL)]
ix. Extended period not invokable as per facts and
settled law. Audits were conducted regularly and all
the records were verified by the officers. Hence
extended period is not available.
x. It has also been held that if the demand cannot be
confirmed for extended period, then the same cannot
be made for regular normal period as has been held
in case of Infinity Infotech Parks Ltd. [2014 (36) STR
37 (CAL)]
xi. Penalty is not leviable.
4.3 Learned Authorized Representative appearing for
revenue submitted-
i. Appellants are providing Business Auxiliary Service in
form of promotion or marketing or sale of goods
produce or provided by or belonging to client
8 ST/87258/2015
ii. In case of Coca Cola India Pvt Ltd [2009 (15) STR
657 (Bom)] Bombay High Court has allowed the
CENVAT Credit to concentrate manufacture on
advertising service used for marketing of soft drinks
manufactured by bottlers. The advertisement of
aerated water is integrally connected with
manufacture and sale of concentrate. Beverages are
made by diluting concentrate with water and addition
of sugar and carbon dioxide.
iii. The advertisement of soft drink enhances the
marketability of concentrate has already been settled
in case of Pepsi Food Ltd [1996 (82) ELT 33 (T)],
[1997 (1) ELT 544 (SC)] and [2003 (158) ELT 552
(SC)].
iv. Once it is established that advertisement of aerated
water promoted marketability of concentrate the
natural corollary that follows is that such activities
are rightly covered in the section 65 (19)(i) prior to
01.07.2012, and post 01.07.2012 they do not fall
under the negative list and hence taxable.
v. Neither show cause notice nor adjudicating authority
holds that the demand is made under the category of
brand promotion.
vi. Even if it is assumed without admitting that it
tantamount to brand promoting, automatically this
will not imply exclusion from service category of sale
promotion of concentrate.
vii. Contention of appellant that they were only
promoting sale of their own goods i.e. beverages is
completely misleading & not acceptable. The Bottlers
Agreement makes it very clear that there is nothing
under control of Appellant for beverages made by
them out of concentrates supplied to them by Coca
Cola since the Coca Cola retains the sole and
exclusive rights at all or at any time to determine the
formula, composition or ingredient for the
concentrate syrup and the beverage.
9 ST/87258/2015
viii. Cost of advertisement and other Promotional
activities shared by Coca Cola and reimbursed to M/s
Superior Drinks is chargeable to service tax
ix. Group Company order referred to by the counsel
shall not be applicable to facts of present case.
x. The decision in case of Intercontinental Consultants
and Technocrats Pvt Ltd [2018 (10) GSTL 401 (SC)]
is distinguishable, as the shared cost of promotional
activities is not equitable with the reimbursed
expenses referred in the decision referred.
xi. Demand is not time barred for which reliance is
placed on the following case laws:
a. SAS Developers & Engineers [2018 (19) GSTL
J 24 (T-Mum)]
b. Royal Electricals [2018 (9) GSTL 205 (T-Mum)]
c. Shopper Stop Ltd [2018 (8) GSTL 405 (T-
Mum)]
d. Central Power Research Institute [2017 (6)
GSTL 42 (T-Del)]
e. P K Ghosh & Sons [2017 (3) GSTL 429 (T-Kol)]
f. Gupta Energy Pvt Ltd [2017 (47) STR J158
(Bom)]
g. Hotel Amarjit Pvt Ltd [2015 (38) STR J 117
(Bom)]
h. UPS Jet air Express Pvt Ltd [2018-TIOL-3689-
CESTAT-MUM]
i. Neminath Fabrics [2011-TIOL-10-HC-AHM-CX]
j. Kalvert Foods India Pvt Ltd [2011 (270) ELT
643 (SC)]
5.1 We have considered the impugned order,
submissions made in appeal and during the course of
arguments along with written submissions filed.
5.2 During the course of investigation and scrutiny of
records, revenue found that Appellant's had received
certain amounts from Coca Cola India under the head
"Marketing Support Received". Revenue has sought to
subject this amount tax under the category of "Business
10 ST/87258/2015
Auxiliary Services" for the period upto 01.07.2012. Section
65(19) of the Finance Act, 1994 defines Business Auxiliary
Service as follows:
"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 good for, or on behalf
of client; or
(vi) Provision of services on behalf of the client;
(vii) A service incidental or auxiliary to any activity
specified in sub-clauses (i) to (vi) such as billing,
collection or recovery of cheques, 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."
5.3 The demand has been made treating that this
amount has been received by the appellant for undertaking
marketing promotion of the goods belonging to the client
i.e. concentrate supplied by Coca Cola India. Para 7 of the
11 ST/87258/2015
Part II of the Bottler's Agreement entered between the
Coca Cola Company, a corporation organized and existing
under the laws of the State of Delaware, United States of
America, under the heading "OBLIGATIONS OF THE
BOTTLER RELATIVE TO THE MARKETING, PLANNING AND
REPORTING" reads as follows:
"The Bottler must, for its own account, budget and expend
such funds for advertising, marketing and promoting the
beverage as may be reasonably required by the Company
to create, stimulate and sustain the demand for the
Beverage in the Territory, provided that the Bottler shall
submit all advertising, marketing and promotional projects
relating to the Trade Marks or the Beverage to the
Company, for its prior approval and shall use, publish,
maintain or distribute only such advertising, marketing or
promotional material relating to the Trade Marks or the
Beverage as the Company shall approve and authorize.
The Company may agree from time to time and subject to
such terms and conditions as it shall stipulate in each case
to contribute financially to the Bottler's marketing
programme. The Company may also undertake, at its own
expense and independently from the Bottler, any
additional advertizing or sale promotion activities in the
Territory it deems useful or appropriate"
5.4 On the basis of above Show Cause have in para 4
alleged as follows:
"4. Whereas, from the above terms of agreement, it is
evident that CCI has bound the Noticee to undertake
advertising, marketing and promotional projects relating to
the Trade Marks or the beverage with the Approval of
CCI."
The above statement of fact made in the show cause
notice do not appear to reflect the correct position as the
agreement under consideration is between Coca Cola
Company, USA and appellant and not between Coca Cola
India and Appellant. Further show cause notice refers to
12 ST/87258/2015
Business Protocol for 2012 between Superior Group
(comprising of Superior Drinks Pvt Ltd, Nagpur, Udaipur
Beverages Ltd., Jabalpur & Narmada Drinks Pvt Ltd.
Bilaspur) and Coca Cola India BU and states "From the
Business Protocol for 2012 it appears that the Business
Protocol gives details of commitments from both side on
various aspects like volume of growth of business,
consumer prices, execution plant etc.. A portion of
Business Protocol is dedicated to marketing investments.
Clause 5 of the said Business Protocol relates to marketing
investments which indicate the total budget for marketing
spend and how much marketing spend will be shared
between CCI and Noticee (i.e. sharing ratio)." The said
clause 5 is reproduced below:
"5. Marketing Investments
Value in Rs
DME BUDGET 2012
ACTIVITY TOTAL SHARING COKE BOTTLER
BUDGETED RATIO SHARING SHARING
Signage 1200000 1:03 300000 900000
Key Accounts 2000000 1:03
500000 1500000
Tie Ups
Gift Packs 1350000 1:1 675000 675000
National UTC 7750000 1:03 1937500 5812500
Maaza Swarna 2000000 1:03
500000 1500000
Utsava QPDS
Maaza Price 3024000 1:03
756000 2268000
Off Promotion
Coke IMC 1000000 1:03 250000 750000
Rural 1000000 1:03
250000 750000
Activation
Maaza Tetra 4000000 1:00
4000000 0
Qpds
E & D Bar 1000000 1:02
333333 666667
Activation
2LIT PROMO 4000000 1:03 1000000 3000000
(On-Label/
13 ST/87258/2015
Sticker)
600 MI Search 3000000 1:03
750000 2250000
Card Promo
Fridge Pack 1000000 1:02
333333 666667
Promo
Coke 1000000 1:03
Activation in 250000 750000
Trade
OYA 13860000 6006000 7854000
Modern Trade 1000000 1:01
500000 500000
Promotions
Local Festive 1400000 1:03
350000 1050000
Activation
IMC's Sprite & 1000000 1:02
333334 666666
Limca
Red Elements 3150000 1:02 1050000 2100000
TOTAL 53734000 20074500 33659500"
5.5 On the basis of this and various debit notes raised by
the appellant for recovery of these Marketting spent from
CCI, and the statement of Shri Deepak Tibrewal, Finance
Controller of M/s Superior Drinks P Ltd and decision of
Bombay High Court in case of Coca Cola India Pvt Ltd
[TIOL-449-HC-MUM-ST], it was concluded that appellants
were receiving the amounts as indicated to promote the
sale of Concentrate of Coca Cola India Ltd. Accordingly it
was alleged that they are providing Business Auxiliary
Services to CCI. Thus "activities relating to promoting/
marketting CCI brands and beverages containing
concentrates of Coke, Fanta, Sprite, Limca etc are
chargeable to service tax as these are amounts paid as
consideration for "Business Auxiliary Service" provide by
Noticee to CCI".
5.6 In our view sufficiently it has been indicated in the
show cause notice as to under which clause of "Business
Auxiliary Service" definition the service is sought to be
classified and hence we do not find any merits in the
objection raised by the appellant relying on various case
14 ST/87258/2015
laws, to effect that show cause notice do not indicate the
specific clause.
5.7 Now examining the issue on merit of classification
under the category of "Business Auxiliary Service". The
clause of the definition which is relevant for such
invocation is "i. Promotion or marketing or sale of goods
produced or provided by or belonging to the client;". A
plain reading of the said clause will make it evident that
the activities undertaken by the service provider should be
towards promotion or marketing or sale of goods produced
or provided by the service recipient. In the present case
how the Bottler Agreement or the clause 5 of the Business
Protocol 2012, support such an conclusion is beyond
comprehension of a rational mind. The clause 5 of
Business Protocol clearly is not establishing the
relationship of service provider and service recipient
between the appellants and Coca Cola India. It only states
what shall be the investment/ expenditure undertaken by
both in respect of various activities specified therein. The
said expenditure could have been incurred independently
or jointly by the both in terms of the said clause. This
expenditure if incurred in joint manner gets shared in the
ratio indicated. The conclusion drawn by the revenue on
the basis of said clause 5 and Bottlers Agreement do not
flow from these and is a conclusion drawn to establish
service provider and service recipient relationship. The
conclusion drawn that these promote the sale of
concentrate is also without any legal basis. Appellants use
the concentrate supplied/ procured from Coca Cola India,
for the production/ manufacture of finished products. They
sell their finished products in the market as pr the plan
and marketing strategy finalized by them in association
with the brand owners. The objective of the sale promotion
activities undertaken by them is to promote the sale of
Beverages of various brands owned by Coca Cola USA and
bottled by them. Any further extrapolation made by
15 ST/87258/2015
revenue for drawing the conclusion is beyond the express
intent of the Bottler Agreement.
5.8 Commissioner has in para 23.2 & 23.3 of his order
quoted heavily from the order of Bombay High Court in
case of Coca Cola India [2009-TIOL-449-HC-MUM-ST] and
concluded that Appellants were in fact providing the
services to the Coca Cola India. The said para of order of
Commissioner are reproduced below:
"23.2 It was further observed that the major
ingredient of these beverages is "concentrate" which is
exclusively supplied to the Noticee by CCI. Therefore,
while promoting or marketing beverages, the concentrate
manufactured and supplied by CCI was also being
marketed or promoted. As per the Bottlers Agreement, the
Noticee was also required to promote/ market and sell the
brand name. The brand name is proprietary in nature.
Concentrate made by CCI was only and only sold as part of
beverage sold under the brand names of CCI. The only
goods sold under these brand names were beverages
produced from concentrate manufactured/ supplied by
CCI. If the sale of concentrate was not getting
promoted through these activities, CCI would not be
bearing part of the expenditure for these activities.
The fact that 'sale of beverages and sale of concentrate
were closely and exclusively linked' also find support in the
judgment of Hon'ble High Court of Bombay reported as
2009-TIOL-HC-MUM-ST in the case of Coca Cola India Pvt
Ltd. Vs CCE Pune III wherein it was held that there is close
nexus between sales promotion and advertisement
activities in respect of aerated water manufactured by the
Noticee and sale of concentrate manufactured by CCI.
While allowing the CENVAT credit, the Hon'ble High Court
held that advertisement of beverages also enhance the
"marketability of the concentrate". The relevant para of
judgment is reproduced below:
"42. Explanatory note by HSN to Heading 21.06 proves
the integral link between concentrate manufactured by the
16 ST/87258/2015
assessee and the beverage (aerated water) manufactured
by the bottler from it. The concentrate manufactured by
the assessee in question has been classified and assessed
to Cenvat (excise duty) under heading 21.06 by the
Schedule to Central Excise Tariff Act, 1985. That heading is
identical to heading 21.06 of organised system of
nomenclature issued by WCO. In fact our Excise Tariff is
based on HSN. Therefore, Supreme Court has repeatedly
emphasized that the Explanatory Notes of HSN are
valuable material for understanding the scope of various
headings in the Central Excise Tariff. The relevant extract
of the Explanatory Note of HSN of Heading 21.06 is as
under :-
21.06 Food preparations not elsewhere specified or
included.
The heading includes, inter alia :
(1) &...
(2) .,&
(3) &&
(4) &&
(5) &&
(6) &&
(7) Non-alcoholic or alcoholic preparations (not based on
odoriferous substances) of a kind used in the manufacture
of various non-alcoholic or alcoholic beverages. These
preparations can be obtained by compounding vegetable
extracts of heading 13.02 with lactic acid, tartaric acid,
citric acid, phosphoric acid, preserving agents, foaming
agents, fruit juices, etc. The preparations contain (in whole
or in part) the flavouring ingredients which characterize a
particular beverage. As a result, the beverage in question
can usually be obtained simply by diluting the preparation
with water, wine or alcohol, with or without the addition,
for example, of sugar or carbon dioxide gas. Some of these
products are specially prepared for domestic use; they are
17 ST/87258/2015
also widely used in industry in. order to avoid the
unnecessary transport of large quantities of water, alcohol,
etc. As presented, these preparations are not intended for
consumption as beverages and thus can be distinguished
from the beverages of Chapter 22.
The heading excludes preparations of a kind used for the
manufacture of beverages, based on one or more
odoriferous substances (heading 33.02)
The above extract demonstrates that the concentrates
contain the flavouring ingredient are characteristics of a
particular beverage. The beverage in question is obtained
simply by diluting the preparation with water, sugar and
carbon-dioxide gas.
The Explanatory Note is therefore clear that there is a link
between the concentrate and the beverage made from
that. The above Explanatory Note also explains the rational
for business being arranged in this industry in a particular
manner. This method of doing business avoids
unnecessary transport of large quantity of water. In
addition, the bottles and crates have to be collected back
from the shop keepers or dealers and taken back to the
factory for filling the fresh batch on a constant basis. At all
times, quality of beverage, marketing support of the
beverages is done by the brand name holder-cum-
concentrate manufacturer."
23.3 Further CCI had themselves admitted that while
promoting sale of beverages, the sale of their concentrate
also gets promoted. The relevant portion of the
submissions made by CCI before Hon'ble High Court are
reproduced below:
"6. .....................
The advertisement of the brand name and/or a
combination of brand name with the soft drink has a direct
relationship with the manufacture of concentrate inasmuch
as the demand, and consequently the production, of
concentrate depends on the consumption of the soft drink.
18 ST/87258/2015
There is a direct proportionate relationship between the
increase in the demand for soft drink and the demand for
concentrate. The concentrate manufactured by the
Appellants is proprietary in nature, and is exclusively used
to manufacture soft drinks of the specified brand. The
advertisement of soft drink enhances the
marketability of the concentrate manufactured by
the Appellants."
15. In support of their contention that Advertisement is a
service used in relation to the manufacture of the final
product, viz., Concentrate. Counsel for assessee has
advanced the following reasons in support :
(i) The advertisement relates to the brand of the
Appellants since the brands Coca-Cola, Thumps Up, Fanta,
etc., are licensed to the Appellants ;
(ii) The invoices of sale show that what is sold is Coca-
Cola concentrate Fanta concentrate etc.
(iii) The concentrate and the soft-drink manufactured
therefrom are proprietary in nature and there is a direct
co-relation between the demand for soft drink and the
demand/manufacture of concentrate.
(iv) The advertisement expenditure incurred in respect of
soft drink forms part of the cost of manufacture of
Concentrate ;
(v) The advertisement of soft drink enhances the
marketability of Concentrate.
(vi) The concentrate is manufactured by the Appellants
for sale exclusively to the bottling companies who, in turn
manufacture the soft drinks. The bottling companies, in
their turn, buy the concentrate exclusively from the
Appellants. The consumption of concentrate vis-a-vis the
soft drinks is in a theoretically defined proportion. As there
is no sale of the concentrate by the Appellants to any
consumer other than the bottling companies, the singular
manner of enhancing the marketability and demand for the
19 ST/87258/2015
Appellants products, therefore, is by enhancing the market
for the soft drinks, for which purpose alone, the Appellant
undertakes the activities such as market research and
advertising.
16. According to the Applicant, advertisement of aerated
water is integrally connected with manufacture and sale of
concentrate. The concentrate/base is an essential
intermediate product for the manufacture of relevant
aerated water. The final product aerated water is simply
obtained by diluting the concentrate with water, sugar and
carbon dioxide. Essentially the flavour, taste etc. are
derived from the concentrate. There is a direct correlation
between the concentrate/base vis-a-vis aerated water. For
example, the concentrate from Fanta Orange would be
used for manufacturing Fanta Orange brand aerated water
only and cannot be used for making Coca Cola or Thumps
Up. In addition, concentrate of one brand name holder like
Coca Cola is used solely and exclusively for the
manufacture of the aerated water of the brand name
holder. The dilution ratio between concentrate and aerated
water is also pre-determined and fixed.
17. Further there is also a compelling commercial reason
as to why concentrate is made in one place and the
aerated water is manufactured by the bottler. The aerated
water is removed by the bottler to the market in crates
and bottles which are durable and reusable. They have to
be constantly collected from the market, refilled and
dispatched to the market. This involves constant handling
and transporting of the crates and bottles. In addition,
aerated water contains ordinary drinking water in large
volume. Therefore, to avoid unnecessary transportation
cost, world over, a business model is developed whereby
the concentrate is made in one or more centralized
location and the manufacture of the aerated water from
the concentrate is made in bottling plants close to the
respective markets. The bottler enters into the franchisee
agreement with the concentrate supplier and brand holder.
20 ST/87258/2015
Usual commercial conditions are imposed in the franchisee
agreements requiring the use of the concentrate, sticking
to the specifications specified by the concentrate
supplier/brand holder etc. A license to use the brand name
would also be given to the bottler. Thus, the business
arrangement is not confined to mere manufacture and sale
of the concentrate to the bottler but is an
integrated/integral arrangement related to the purchase of
the concentrate, use of the brand name of the bottler,
adhering to the terms and conditions of the franchisee
agreement. Thus, the business of manufacture of
concentrate does not end with the manufacture and
sale of concentrate, but continues and extends much
beyond that."
23.4 In view of above, it is clear that CCI is contributing
financially to the Noticee for promotional and marketing
activities of their concentrates. It is also clear that the
relationship of service provider and service receiver is well
established and there is an explicit element of service in
the instant case viz the Noticee had undertaken the sales
promotion activities of concentrates of CCI for which CCI
were compensating the noticee in the form of "Market
Support Received" as consideration. Therefore, I find
that the above sales promotion activities undertaken by
the Noticee fall under category of "Business Auxiliary
Service" as defined under Section 65(19)(i) of the Finance
Act, 1994 and are chargeable to Service Tax under Section
66 of Finance Act, 1994 for the period prior to
01.07.2012."
5.9 There cannot be more convoluted application of the
decision of the High Court and stretching the provisions in
an agreement for purpose of levy of tax. If the arguments
of the Commissioner were to be accepted then in that case
every manufacturer/ producer/ supplier of the goods who
purchases and material/ inputs is promoting the sale of his
input supplier. Since as the sale of his finished goods goes
up automatically consumption of inputs will go up and
21 ST/87258/2015
accordingly he promotes the sale of input manufacturer/
supplier. In our view such an interpretation is neither
logical or rational. Both input suppliers and the finished
product manufacturer are independent business entity
acting in the interest of their business. The issue before
the High Court was vis a vis the admissibility of CENVAT
Credit in respect of Advertisement services availed by the
Coca Cola India as is evident from para 2 & 3 of order
reproduced below:
"2. The main question which is therefore, required to be
considered, in the present Appeal, is whether the
Appellants, who are manufacturers of non-alcoholic
beverage bases (concentrates) are eligible to avail credit of
the service-tax paid on advertising services, sales
promotion, market research and the like availed by them
and utilize such credit towards payment of excise duty on
the concentrate. As now judicially recognized, Service tax
is VAT which in turn is destination based consumption tax
in a sense that it is on commercial activities and is not a
charge on the business but on the consumer. Just as
excise duty is a tax on value addition on goods. Service
tax is on the value addition by rendition of service. See All
India Federation of Tax Practitioners v. Union of India -
2007 (7) S.T.R. 625 (S.C.) = (2007) 7 SCC 527.
2. Credit has been denied on the ground that the
advertisements do not relate to concentrates
manufactured by the Appellants. It is not disputed that the
advertisement expenses incurred by the Appellant form
part of the sale price of the concentrates on which duty
has been paid."
5.10 While considering the questions as above High Court
has recorded what has been state by the Commissioner. In
the case before High Court, the advertisement expenses
were incurred by Coca Cola India and High Court had held
that expenses towards advertisement services are part of
the cost incurred for production of the finished product,
and hence these services are to be treated as input
22 ST/87258/2015
services for determining eligibility to CENVAT Credit. In our
view the decision of High Court does not state what
Commissioner has intended to conclude from the same.
5.11 Hence we do not find any merits in the order of
Commissioner for the period to 01.07.2012. Similar view
has been taken by the tribunal in case of similarly worded
show cause notices issued to the group companies.
Narmada Drinks Pvt Ltd [2017 (5) GSTL 205 (T-Del)]
"9.BAS is an omnibus service covering within its fold
various types of services. It has not been indicated either
in the Show Cause Notice or Order-in-Original under which
sub-clause the appellant's service is being charged to
service tax. By process of elimination, we conclude that it
is likely to be under "Promotion or marketing or sale of
goods produced or service provided by the client"; we note
that no investigation has been undertaken by Revenue into
the reasons for which appellants have received the
payments. Hence, it is not very clear why the appellant
has received the said amounts from M/s. Coca Cola.
However, the Show Cause Notice, in Para 6.2, has stated
that the amounts have been received from the brand
owners to promote and market the brands of the brand
owners.
10.When we look at the clause (i) the definition of the
BAS, which covers promotion or marketing or sale of goods
produced or service provided, we fail to see how the
promotion of the brand name can be brought under the
above clause. The appellant has received concentrate from
M/s. Coca Cola. Obviously, the appellant is not marketing
or selling the concentrate as a brand name. The appellant's
contention is that they are manufacturing the goods
bearing the brand name and not the brand owners and
therefore they cannot be charged service tax for marketing
and promotion of sales of their own goods.
11.A new service stands introduced with effect from 1-7-
2010, which covered specifically "Brand Promotion
23 ST/87258/2015
Service". The contention of the appellant is that only the
new service will cover the activity undertaken by them and
the same activity cannot be charged to service tax under
BAS for the earlier period.
12.It is useful to refer to Para 4.2 of the TRU letter dated
26-2-2010 issued at the time of introduction of the new
services w.e.f. 1-7-2010. As per the above clarification,
while promotion or marketing or sale of goods produced,
provided or belonging to a client and promotion or
marketing of services provided by the client are already
covered under Business Auxiliary Service and such
activities would continue to remain classified under
"Business Auxiliary Service", the difference between the
services classifiable under "Business Auxiliary Service" and
newly proposed services of promotion or marketing of
brand or goods of services, is that the latter has a wider
coverage in the sense that mere promotion of a brand
would attract tax under this service, even if such
promotions cannot be directly linked to a particular product
or service. It is settled law that when a new service is
introduced, the activities which are covered under the new
services cannot be covered under any earlier services for
the prior period.
13.The new service has been introduced under Section
(65)(105)(zzzzq), which covers the service of promotion of
brand names. Even if a view is taken that the service
rendered by the appellant is covered under the new service
w.e.f. 1-7-2010, the same cannot be charged to service
tax under BAS for the earlier period. This view has been
settled through various decisions of the High Courts and
the Tribunal in the case of Sourav Ganguly v. Union of
India [2016 (43) S.T.R. 482 (Cal.)]. The Hon'ble High
Court at Calcutta has dealt with an identical fact, the
Hon'ble High Court held as follows :
I am inclined to agree with the submission "67. of ld.
Counsel for the petitioner that since by amendment of the
Finance Act, 1994, a new taxable service category of
24 ST/87258/2015
'Brand Promotion' was introduced with effect from 1 July,
2010, the logical corollary and inevitable inference is that
such category of service was not taxable prior to 1 July,
2010. In this connection, I am in agreement with the
decision of the CESTAT, Principal Bench, New Delhi in the
case of Commissioner of Service Tax, Delhi v. Shriya Saran
(supra), and the decision of the Division Bench of the
Bombay High Court in the case of Indian National
Shipowners' Association v. UOI (supra). Business auxiliary
service and brand promotion are distinct service heads as
admitted in the order of the Respondent No. 3 that the
amount of Rs. 2,62,61,782/- was received by the
petitioner on account of brand endorsement. Since brand
endorsement was not a taxable service during the period
of time for which the tax demand has been raised, such
demand cannot be sustained. Such service rendered by the
petitioner could not taxed under the head of Business
Auxiliary Service as has been sought to be done."
We find that the above decision of the High Court settles
the present issue in favour of the appellant.
14.In view of the above discussions, we find no
justification for the demand of service tax raised under
BAS for the period 2006-07 to 2009-2010. Consequently,
the impugned order is set aside and the appeal allowed."
Narmada Drinks Pvt Ltd [Final Order No
ST/A/52245/2010-CU(DB) dated 18.06.2018]
"5. After hearing both sides and perusal of record, we note
that the lower Authority has held the appellant as liable to
payment of Service Tax under BAS, for the amounts
received from brand owners such as M/s Coca Cola India
Ltd. for marketing of their product. It is well known that
the bottlers receive concentrate from the brand owners
such as M/s Coca Cola, manufacture aerated products
there from and sell the same. Para 6.2 of the relevant
show cause notice alleges that the amounts have been
received from the brand owners to promote and market
25 ST/87258/2015
the brand name of such brand owners. One of the
activities for which BAS is leviable is for Promotion or
Marketing or Sale of Goods Produced or Service provided.
The appellant has received concentrate from the brand
owners but is not marketing or selling the concentrate
itself. The appellant's contention is that they are
manufacturing and selling the aerated water bearing the
brand name and are not engaged in marketing or
promotion of the said goods.
6. From the activities undertaken by the appellant, it is
evident that they have not acted towards marketing and
promotion or sale of goods produced by their client. At
best it can be said that they have participated in promotion
of the brand name of 'Coca Cola', 'Pepsi' etc. Such
activities cannot be brought under 'Promotion or Marketing
or Sale of Goods Produced or Service Provided by the
Client', appearing under 'Business Auxiliary Service'."
5.12 For the period from 01.07.2012, a entirely different
regime for taxing the services was introduced. As per
Section 65B(44) of the Finance Act, 1994,-
"service" means any activity carried out by a person for
another for consideration, and includes a declared service,
but does not include -
............
5.13 From the definition of "service" as per section 65B(44), the essential ingredient of same are "any activity carried out by a person for another" and "consideration for undertaking such and activity". Admittedly the dispute is not in respect of declared services or negative list of services or those falling in the exclusion clause. Hence these are left out from our consideration in subsequent paragraphs.
5.14 The phrase "any activity carried out by a person for another", is very clear that the activity sought to be taxed, should be the activity carried out by one person for the another person. Thus any activity which has been 26 ST/87258/2015 undertaken by a person on his own account for himself cannot be said to be covered by the said phrase even if this activity is undertaken by the person with the financial assistance/ support of other person either partially or completely. The simplest exposition which comes to my mind for explaining the above is as follows:
"A person goes for a haircut and the charges for the haircut are paid by his wife, then whether the act of payment made by wife implies that husband has rendered certain services to wife, in terms of definition of service under section 65B(44) of the Finance Act,1994?".
If the answer to this question is yes that act of making the payment was to determine, whether the husband has carried out an activity for his wife, then Commissioner would be right in his approach. In our view the consideration cannot be determinant of performance of an activity by one person for another. The service provider and service receiver relationship gets established only on identification of the activity that one person performs for the another.
5.15 In the present case the appellants were undertaking the marketing and sales promotion activity on their own account, Coca Cola India was only providing certain financial assistance in undertaking such activity. The activity undertaken were not performed by the appellant for Coca Cola India, but was performed for themselves. Since no activity has been performed by the appellant for Coca Cola India, we are of view that mere receipt of amounts under the head "Market Support Received" will qualify them as "service" under Section 65B(44).
5.16 We do not find any merits in the order of the Commissioner for the period after 01.07.2012 also.
5.17 Since we are deciding the issue on the merits itself and dropping the demand as not maintainable we do not take other issues of limitation and penalty argued before us in this appeal.
27 ST/87258/2015 6.1 In view of the above discussions, we find no justification for the demand of service tax raised. Consequently, the impugned order is set aside and the appeal allowed.
(Order pronounced in the open court 04.06.2019) (Sanjiv Srivastava) Member (Technical) (Dr. Suvendu Kumar Pati) Member (Judicial) tvu