Custom, Excise & Service Tax Tribunal
M/S. Carlsberg India Pvt. Ltd vs C.S.T., Delhi on 2 September, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
WEST BLOCK NO.2, R.K. PURAM, NEW DELHI 110 066.
Date of Hearing: 02.09.2015
For Approval & Signature :
Honble Honble Justice G. Raghuram, President
Honble Mr. R.K. Singh, Member (Technical)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether Lordships wish to see the fair copy of the order?
Seen
4.
Whether order is to be circulated to the Department Authorities?
Yes
Application No.ST/STAY/52508/2014-CU[DB]
Appeal No.ST/52013/2014-CU[DB]
[Arising out of Order-in-Original No.205-210/GB/2013, dated 23.11.2013 passed by the C.S.T., Delhi]
M/s. Carlsberg India Pvt. Ltd. Appellant
Vs.
C.S.T., Delhi Respondent
Appearance Mr. BL Narasimhan, Advocate Mr. Narendra Singhvi, Advocate - for the Appellant Mr. Amresh Jain, DR - for the respondent CORAM: Honble Justice G. Raghuram, President Honble Mr. R.K. Singh, Member (Technical) Final Order No.53742/2015, dated 02.09.2015 Per Mr. R.K. Singh :
Appeal has been filed against Order-in-Original No.205-210/GB/2013, dated 23.11.2013 in terms of which following service tax demands along with interest and penalties were confirmed. The demand was confirmed in respect of six Show Cause Notices summarised as under:-
Sl.
No. Show Cause Notice No. & Date Period covered in SCN Impugned demand of Service Tax (Rs.)
1.
C.No.D-III/ST/R-II/SCN/ Carlsberg/187/2010/2290 dated 30.05.20111 2007 08 to 2009 10 67,74,997.00
2. C.No.D-III/ST/R-II/SCN/ Carlsberg/187/2010/5924 dated 18.10.2011 2010 11 45,16,665.00
3. C.No.D-III/ST/R-II/SCN/ Carlsberg/187/2010/4649 dated 18.10.2012 2011 12 4,51,66,650.00
4. C.No.D-III/ST/R-II/SCN/ Carlsberg/187/2010/2564 dated 15.06.2011 2007 08 to 2009 10 46,11,774.00
5. C.No.D-III/ST/R-II/SCN/ Carlsberg/187/2010/5929 dated 18.10.2011 2010 11 30,74,516.00
6. C.No.D-III/ST/R-II/SCN/ Carlsberg/187/2010/3076 dated 23.08.2012 2011 12 35,76,049.00
2. The facts of the case are as under:-
The appellant was centrally registered for service tax at Gurgaon under the categories of :Transport of Goods by Road Service, Intellectual Property Service other than Copyright, Management Consultants Service, Test, Inspection, Certification Service, Market Research Agency Service and Scientific and Technical Consultancy Service. The appellant was manufacturing beer under the Trademarks owned by M/s. Carlsberg Breweries A/S, Denmark. The appellant entered into the India Licence Agreement (ILA) dated 07.12.2006 with Carlsberg Denmark and has been manufacturing beer under trademarks Carlsberg, Tuborg and Palone owned by Carlsberg Denmark under the ILA and addendum to the ILA dated 25.09.2008. At the time of entering into the ILA, the trademarks, Carlsberg and Tuborg were already registered in India vide Registration No.139539 and 127793 respectively. The trademark Palone was registered in India w.e.f. 18.04.2007 vide the trademark registration certificate dated 27.02.2012.
The aforesaid demands were confirmed on the amount of royalty paid to M/s. Carlsberg Denmark on which the appellant did not discharge service tax liability. When the case was taken up for stay application during the hearing, both sides agreed that the appeal itself could be disposed of. Accordingly, we waive the requirement of pre-deposit and proceed to dispose of the appeal.
3. Ld. advocate for the appellant essentially contended that
(i) The appellant had made the following statements before the adjudicating authority:-
(a) Carlsberg Denmark was not providing franchise service to the appellant under the ILA. Hence, the demand under franchise service is not sustainable.
(b) The transaction relating to the trademark Palone is in the nature of permitting the use of intellectual property which is not recognised in India and hence not liable to service tax.
(c) Transfer of know-how to the appellant was a transaction in property and not that of a service. Therefore, payments made cannot be liable to service tax.
(d) More than one Show Cause Notice for the transactions regarding granting of the right to use the trademarks under the ILA were issued during the same relevant period and that too demanding service tax under two different taxable services, namely Franchise Service and IPR Service.
(e) No consideration has been paid by the appellant to Carlsberg, Denmark. Hence, no service tax is payable on the alleged service.
(f) Even assuming without accepting that there was a consideration for the grant of the right to use the unregistered trademark Palone, since the transaction involves no taxable service, there arises no taxable value and hence no service tax can be demanded on such transaction.
(g) As per Rule 7(1) of the Import of Service (IOS) Rules, actual consideration charged for the service provided is the taxable value but during 02.06.2007 to 01.06.2010 no amount was charged by Carlsberg Denmark from the appellant for the right to use the registered trade mark.
(h) The Show Cause Notice proceeds on the wrong understanding that there was consideration not wholly consisting of money.
(i) The arrangement between the appellant and Carlsberg Denmark did not satisfy the ingredients of a franchise agreement.
(j) Even if it is assumed without accepting that non-monetary consideration is involved in the impugned transaction, the value of similar services by Carlsberg, Denmark to any other person is the taxable value to be adopted.
(k) Without prejudice to the other submissions, it was submitted that the amount alleged to have been paid by the appellant must be treated as cum-tax amount and service tax has to be calculated accordingly.
(l) There was no wilful mis-statement or suppression of facts and so extended period of limitation cannot be invoked in the present case which will make substantial part of demand time barred.
(ii) The appellant made elaborate submissions on each of the aforesaid points which are not being repeated here. It also demonstrated that similar submissions were made before the adjudicating officer too. It also claimed to have provided the actual figures to the Commissioner but the Commissioner resorted to best judgement assessment in respect of demand confirmed under franchise service for the periods 2010-11 and 2011-12. Under the best judgement assessment, the figure for 2010-11 was taken to be double of the preceding year and the figures for 2011-12 was taken as 10 times that for 2010-11 without giving any basis.
(iii) The adjudicating authority did not give any finding in respect of any of the submissions made by the appellant and the demand was confirmed by making baseless observations in para-36, 38 and 40 of the impugned order. Thus the order is non-speaking and hence unsustainable.
4. Ld. Departmental Representative essentially reiterated the contents of the impugned order.
5. We have considered the contentions of both sides and perused the records. In view of the submissions/ contentions of the appellant, particularly the one asserting that its contentions have not been dealt with by the adjudicating authority, we deem it proper to quote paras 36 to 41 of the impugned order, which contain the entire analysis in the impugned order and are reproduced below:-
36. In view of the above mentioned submissions I am of the view that:
The Indian subsidiary and the foreign principal entered into an agreement dated December, 2006, whereunder the Indian subsidiary was required to pay royalty to the foreign principal and the foreign principal was reimbursing the same amount as marketing support. There was neither book entry nor actual flow of funds vide addendum dated September 2008 both the payments were waived off retrospectively, so licence to use the trade mark was always free for the first 36 months (production started from June 2007 to 1st June 2010). Carlsberg and Tuborg Trademarks are registered with Indian Registrar (w.e.f.09.07.49 & 07.02.47), Palone the third Trademark was registered in India (18.04.2007) given (2012) retrospectively. The departments allegation is waiving off right is a service non monetary consideration = Royalty (tax was charged on IPR & Franchisee Service). The last two SCNs are based on Best Judgement. Further the benefit of Notification No.17/2004-ST towards R&B cess was not given. Further SCNs are based on details submitted during investigation and there is quantification error by the tax payer after submitting the reply in March 2012. Further, issues are made clear in the following paragraph.
M/s. Carlsberg India Pvt. Ltd. (Indian subsidiary) entered into an INDIA LICENCE AGREEMENT in the nature of Intellectual Property Service prescribed under Section 65(55a) ibid, effective from 10.09.2004, with M/s. Carlsberg Breweries A/S Denmark (foreign Principal) to manufacture and sell the licenced products using Trademarks Carlsberg and Tuborg in the territory, on a temporary basis. Further, In view of the aforementioned discussions, it is clear that, the said agreements between M/s. CIPL & M/s. Carlsberg Breweries A/S, Denmark are clearly in the nature of temporary transfer of the use of Trademark, which is owned by M/s. Carlsberg Breweries A/s, Denmark. Therefore it is clear that the Ms. Carlsberg Breweries A/S, Denmark has provided the service to M/s. CIPL, which falls under the category of Franchisee Service, defined under Section 65 (105) (zze) ibid, effective from 01.07.2003 as amended and the contentions of the noticee that M/s. Carlsberg Denmark was not providing Franchisee service to the Noticee under ILA hence demand is not sustainable, is not correct and does not hold ground. Further, it is observed that M/s. Carlsberg Breweries A/S, Denmark and M/s. CIPL has mutually agreed to waive-off their respective legal rtights of Royalty and Above-the-Line activity marketing contribution claim, which is equal to the Royalty and the consideration is an act of forbearance, or a promise thereof, which is offered by one party to an agreement and accepted by other, as inducement to the others act or promise, and therefore it is clear, that M/s. CIPL is liable for payment of Service Tax under Section 67(ii) of Finance Act, 1994 on the amount of Royalty paid in the form of consideration.
37. I therefore hold that M/s. CIPL is liable to pay service tax on amount of royalty paid to M/s. Carlsberg breweries A/s, Denmark in terms of notification no.11/2006-ST dt.19.04.2006, and it is also observed that M/s. CIPL failed to determine the gross value of service tax in respect of Franchise services as shown in reply to SCN.
38. The next point for discussion is:
Whether extended period of limitation is applicable for demanding the service tax in terms of proviso to Section 73 (1) of Act, as the party has deliberately tried to suppress the facts from the department and contravened the provisions of the said act & rules made there-under.
In the present case I find that since M/s. Carlsberg India Pvt. Ltd. have wilfully suppressed all the material facts regarding the nature of services provided by them in respect of Intellectual Property Service Other than Copyright and the gross amount received by them during the aforesaid period as Royalty/franchisee services and at no stage did they enquire about taxability of their services. It is due to the investigation by the department, that the said facts of providing the services & non-payment of service tax by them came to notice. I find that the extended period of five years under proviso to section 73(1) of the Finance Act 1994 has been correctly invoked in the present case.
39. The next two points for discussion are:
(i) Whether interest is liable to be demanded and recovered under Section 75 of the Act ibid.
(ii) Whether M/s CIPL is liable for penalty under Section76, 77 & 78 of the Act ibid.
40. I find that since the demand of service tax in the instant case is being confirmed, therefore:
(ii) Penalty is to be imposed upon them under Section 78 of Chapter V of the Finance Act, 1994, for not paying the appropriate Service Tax with an-intent to evade payment of Service Tax and/or by suppressing the facts & value of taxable service from the Service Tax Department.
(iii) Penalty needs to be imposed upon them under Section 76 of Chapter V of the Finance Act, 1994 for not paying the appropriate Service Tax by the prescribed due dates;
(iv) Interest on the amount determined to be payable by the said noticee should be charged from them under Section 75 of Chapter V of the Finance Act, 1994.
41. Further the Demand raised in the five other Show Cause Notices issued vide C.No.
1. D-III/ST/R-II/SCN/ Carlsberg/187/2010/2564 dated 15.06.2011 Amount Rs.46,11,774/-
2. D-III/ST/R-II/SCN/ Carlsberg/187/2010/5929 dated 18.10.2011 Amount Rs.30,74,516/-
3. D-III/ST/R-II/SCN/ Carlsberg/187/2010/5929 dated 18.10.2011 Amount Rs.30,74,516/-
4. D-III/ST/R-II/SCN/ Carlsberg/187/2010/3076 dated 23.08.2012 Rs.35,76,049/-
5. D-III/ST/R-II/SCN/ Carlsberg/187/2010/4649 dated 18.10.2012 Amount Rs.4,51,66,650/-. On similar issue is being confirmed on same lines as per CBEC Circular No.752/68/2003-CX dated 1.10.2003, and M/s. CIPL is liable to pay interest and penalty in the similar ratio as per order in the instant case, along with service tax demanded respectively in each case. From the perusal of the aforesaid paragraphs, it becomes loud and clear that none of the contentions of the appellant have been analysed in the impugned order. Even the contentions regarding non-invocability of the extended period were brushed aside rather summarily as is evident from para-38 of the impugned order quoted above. We note that the adjudicating authority has observed that the appellant deliberately tried to suppress the facts from the Department and then adds that M/s. Carlsberg India Pvt. Ltd. wilfully suppressed all the material facts regarding nature of service provided by them in respect of Intellectual Property Services other than Copyright and the gross amount received by them during the aforesaid period as royalty / franchisee service and at no stage did they enquire about taxability of their services. It is obvious that the paragraph has been written without application of mind because in the present case no amount was received by the appellant as royalty/franchise service; indeed the appellant paid the amount to foreign based company. The appellant did not provide the alleged services, but was the recipient of the alleged services. Similarly, we find that the appellant had contended that it had provided the figures for the period 2010-11 and 2011-12, but still the best judgement assessment under Section 72 ibid has been resorted to. As stated earlier, in the Show Cause Notice dated 18.10.2012, the figures for 2011-12 have been taken to be 10 times those for 2010-11 under the best judgment assessment without any basis / reason which almost smacks of outright mala fide and the adjudicating authority blindly adopted those figures under best judgment assessment without even a whisper as to how such a quantum jump (ten fold) in the assessable value was justifiable as best judgement assessment under Section 72 ibid. The appellant made elaborate arguments in its written submissions that the service received by it did not satisfy the definition of franchise service under Section 65 (105) (zze) ibid, but the adjudicating authority summarily states (without any analysis) that its contentions do not hold ground. Indeed, as brought out hereinabove, perusal of paragraphs 36 to 41 of the impugned order quoted above makes it so amply clear that the order fatally suffers from lack of analysis/discussion regarding the contentions and arguments of the appellant and makes a mockery of the quasi-judicial process in-as-much-as it is not merely non-speaking, but also absurd in parts. The Supreme Court in the case of Raj Kishore Jha Vs. State of Bihar [2003 (11) SCC 519)] has held that reasons are heart beat of every conclusion, without the same it is lifeless. In the present case, in the absence of analysis/reasoning with reference to the contentions of the appellant, the conclusions drawn in the impugned order are rendered lifeless.
6. In the light of foregoing analysis, we set aside the impugned order and remand the case to the adjudicating authority for de novo adjudication after giving the appellant an opportunity of being heard. (Justice G. Raghuram) President (R.K. Singh) Member (Technical) SSK -2-