Custom, Excise & Service Tax Tribunal
Universal Medicare Pvt Ltd vs Daman on 3 June, 2019
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
WEST ZONAL BENCH AT AHMEDABAD
REGIONAL BENCH - COURT NO. 03
Service Tax Appeal No. 11161 of 2017-DB
[Arising out of OIO-EXCUS-000-COM-041-16-17 passed by Joint Commissioner, Central Excise & Service
Tax-Daman]
M/s Universal Medicare Pvt. Ltd. .....Appellant
Plot No. 810,811,920,3/7
G.i.d.c. Sarigam Tal. Umagram VALSAD
Gujarat
VERSUS
C.C.E. & S.T., Daman .....Respondent
3rd Floor, Adarsh Dham Building, Vapi Daman Road, Vapi, Opp. Vapi Town Police Station, Vapi-Gujarat-396191 APPEARANCE:
Shri. Rohan Shah (Sr. Advocate) with P.M. Buch (Advocate) for Appellant Shri. A. Mishra (A.R.) for Respondent CORAM: HON'BLE MR. RAMESH NAIR, MEMBER (JUDICIAL) HON'BLE MR. RAJU, MEMBER (TECHNICAL) FINAL ORDER NO. A/ 10949 /2019 DATE OF HEARING:28.03.2019 DATE OF DECISION: 03.06.2019 RAMESH NAIR The present appeal has been filed against impugned Order No. DMN-EXCUS-000-COM-041-16-17 passed by Commissioner of Central Excise & Service Tax, Daman. The brief facts of the case are that the Appellants are engaged in manufacture of PP medicaments falling under chapter heading No. 30 of the first schedule to CETA, 1985 and are registered with the Central Excise as well as service tax departments. The Appellants entered into a "Business Purchase Agreement"(BPA) dt. 24.08.2011 with M/s Aventis Pharma (Later known as Sanofi India Ltd) for sale of marketing divisions for consideration of Rs. 567 Cr. Pursuant to EA-2000 Audit, the department issued show cause notice to the appellant demanding
2|Page S T / 1 1 1 6 1 / 2 0 1 7 - D B service tax alongwith interest and penalty on the ground that the purchaser has placed several restrictions on Appellants under the agreement and therefore the transaction was in nature of providing "Franchise services" as defined under Section 65 (105) (zze) of Finance Act, 1994. That the Appellants has merely provided representational rights to the franchisee to sell or manufacture goods or provide service. It also placed reliance on Board Circular No. B1/6/2005 - TRU DT. 27.07.2005. The show cause notice mainly relied upon Para 15, 2.2.10, Para 6.1 of schedule 21 Part 1A, Clause 12.1 and Para 14 of the agreement which stated as under :
"15 Right of First Offer for the sale of the Business by the Purchaser 15.1.1 If, during the term of the Supply Agreements wherein the Purchaser continues to source a majority of the Products from the Seller and/or Geltec on an exclusive basis, the Purchaser or an Affiliate of the Purchaser (the Business Seller") intends to sell the whole or a majority of the Business, the Business Seller shall, before making any approach or entering into discussions with any other person, send a written notice to the Seller Intimating the Seller of its intention to do so (the "Business Sale Notice"). Subject to the confidentiality undertaking (in a form acceptable to the Business Seller to be substantially similar to the Confidentiality Agreement) provided by the Seller to the Business Seller, the Business Sale Agreement) provided by the Seller to the Business Seller, the Business Sale Notice shall include information relating to the identity and details of the products forming part of the Business, financial details of the preceding three financial years in respect of the Business and the details of the key supply, distribution and other relevant agreements in relation to the Business.
15.1.2 If the Seller is interested in acquiring the Business in accordance with the terms set out in the Business Sale Notice, it shall deliver a written notice to
3|Page S T / 1 1 1 6 1 / 2 0 1 7 - D B the Business Seller (the "Business Interst Notice") within thirty (30) Business Days of the receipt of the Business Sale Notice confirming its interest in making an offer to acquire the Business, subject to the completion of a satisfactory business, technical, quality and commercial due diligence of the Business (the "Business Due Diligence")."
"2.2.10 All rights of ownership and title in the Know-how related to the manufacture of the products contained in the Manufacturing Dossiers, shall at all times remain the sole property of the Seller and/ or Geltec, and nothing herein shall be construed to grant or establish any other rights to the contrary, except pursuant to Clause3.3 and the relevant Manufacturing Dossier IP License Agreement. The Purchaser shall not claim any right of ownership and title in the Know-how related to manufacture of the Products contained in the Manufacturing Dossiers and the Purchaser hereby acknowledges that delivery of the Manufacturing Dossiers as set out in this Agreement, shall not inure any right of ownership and title in such Know-how to the Purchaser and the rights of the Purchaser to use the information and Know-how related to the manufacture of the Products contained in the Manufacturing Dossiers shall be as set out in the Manufacturing Dossier IP License Agreement."
"14.2.1 If during the term of the Supply Agreements wherein the Purchaser continues to suource a majority of the Products from the Seller and/or Geltec on an exclusive basis, the Seller or an Affiliate of the Seller (the "Overseas Nutraceutical Business Seller) intends to sell the Overseas Nutraceutical Business in part or in who, the Overseas Nutraceutical Business Seller shall, and the Promoters shall procure that the Overseas Nutraceutical Business Seller shall, before making any approach or entering into discussions with any other person, send a
4|Page S T / 1 1 1 6 1 / 2 0 1 7 - D B writer notice to the Purchaser intimating the Purchaser of its intention to do so (the "Overseas Nutraceutical Business Sale Notice"). Subject to the confidentiality undertaking (in a form acceptable to the Seller) provided by the Purchaser to the Seller, the Overseas Nutraceutical Business Sale Notice shall set out the territory covered under the Overseas Nutraceutical Business, identification and details of the products forming part of the Overseas Nutraceutical Business, financial details of the preceding three financial years in respect of the Overseas Nutraceutical Business Sale Notice and the details of the key supply, distribution and other relevant agreements in relation to the Overseas Nutraceutical Business Sale Notice.
14.2.2 If the purchaser is interested in acquiring the Overseas Nutraceutical Business in accordance with the terms set out in the Overseas Nutraceutical Business Sale Notice, it shall deliver a written notice to the Overseas Nutraceutical Business Seller (the "Overseas Nutraceutical Business Interest Notice") within thirty (30) Business days] of the receipt of the Overseas Nutraceutical Business Sale Notice confirming its interest in making an offer to acquire the Overseas Nutraceutical Business, subject to the completion of a satisfactory business, technical, quality and commercial due diligence of the Overseas Nutraceutical Business (the "Overseas Nutraceutical Business Due Diligence")."
"Clause 12.1 Non Compete Restrictions Each of the Seller and the Promoters undertakes with the Purchaser that no Affiliate of the Seller, nor any Affiliate of the Promoters (including Geltec), will in any Relevant Capacity during the Restricted Period, directly of indirectly
(i) carry on, be engaged in or be economically interested in any business which is of the same or similar type to the Business as now carried on and which is in competition with the Business as now carried on or (ii) use the trademarks Folwise, Foliwiser or Folwizer in connection
5|Page S T / 1 1 1 6 1 / 2 0 1 7 - D B with any business that is in competition with the Business as now carried on or (iii) assign, transfer or otherwise dispose of the trademarks Folwise, Folwiser or Folwizer without the prior written consent of the Purchaser."
"6.1 The Seller's Obligation in Relation to the Conduct of Business 6.1.1 Between the date of this Agreement and Closing, the Seller undertakes to carry on the Business as a going concern in the ordinary and usual course as carried on prior to the date of this Agreement, save in so far as agreed in writing in advance by the Purchaser or otherwise expressly required by the terms of this Agreement.
6.1.2 Without prejudice to the generality of Clause 6.1.1, the Seller undertakes that, between the date of this Agreement and Closing, it shall not (and the Promoters shall procure that the Seller shall not) in connection with the Business, without the prior written consent of the Purchaser, which shall not be unreasonably withheld:
(i) enter into any transactions for the sale of or create any Encumbrance over the Business or any part of the Business, except for the sale of the inventory in the ordinary course of Business consistent with past practices;
(ii) enter into any transactions with any entity controlled by the promoters or any current or former employee, current or former director or any current or former consultant of any entity controlled by the promoters, or any person connected with any of such persons or in which any such person is interested (whether directly or indirectly), which in each case are not on an arm‟s length basis;
(iii) sell to C&F Agents, deliver to consignment agents and instruct consignment agents to sell in any month to the market quantities of products in excess of the total sales of the products for the previous month plus 7.5% of such sales;
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(iv) enter into, or exercise an option in relation to, any agreement or incur any commitment involved in any capital expenditure relating to the business in excess of Rs. 1,500,000 (Rupees One Million Five Hundred Thousand) in the agreement;
(v) enter into any transactions or agreements which amends or terminates or has the effect of amending or terminating any of the contracts, except in the ordinary course of business consistent with past practice;
(vi) enter into or exercise an option in relation to, or amend or terminate, any material contract and/or acquire or dispose of any material asset in relation to the business or incur any commitment except in the ordinary course of business consistent with past practices in relation to the business, which is not capable of being terminated without compensation at any time with three months notice or less or which involves or may involve total annual expenditure in excess of Rs. 4,500,000 (Rupees four million five hundred thousand);
(vii) not renew any material contract i.e., by its terms, due to be renewed between the date of this agreement and the closing;
(viii) increase the number of days of sales outstanding such that the number of days of sales outstanding is more than 48 days;
(ix) incur any additional borrowings or incur any other indebtedness in relation to the business;
(x) take steps to procure payment by any debtor generally in advance of the date on which book and other debts are usually payable in accordance with the standard terms of the business;
(xi) delay beyond fifteen days making payment to any trade creditors generally beyond the date on which payment of the relevant trade debt should be paid in accordance with the standard terms of business of the relevant creditors or( if different) the period extended by creditors in which to make payment provided however that it is clarified that
7|Page S T / 1 1 1 6 1 / 2 0 1 7 - D B at closing there shall be no debts which are outstanding beyond their due date in respect of the business;
(xii) amend, to any material extend, any of the terms on which goods, facilities or services are supplied for the conduct of the business;
(xiii) make any change to its accounting practices or policies;
(xiv) make any amendment to the terms and conditions of employment (including remuneration, pension entitlements and other benefits) of any relevant employees;
(xv) dismiss any key employee;
(xvi) or appoint any new employees in relation to the business whereby the total number of employees will exceed the number of relevant employees;
(xvii) make any changed in the scope, nature and / or activities of the business, including any change in the strategic direction and/ or entry into any new lines of business;
(xviii) commence or settle any litigation, arbitration or other proceedings, in relation to the business other than collecting debt in the ordinary course of business consistent with past practices and for the purposes set out in clause 6.3.1 (ii);
(xix) commence or take any steps in relation to the discontinuance in any form of the business or any part thereof unless required by laws, or any merger, amalgamation or acquisition, demerger, reorganization or disposal of substantial assets (including both acquisition and disposal) involving the business or any part thereof; (xx) make any changes in the commercial policies related to the sale of the products in the territory except in the ordinary course (other than increase or decrease in the selling price except as required by law);
(xxi) appoint any new distributors and/ or agent for distribution or the products: or;
(xxii) cease to continue or fund the development of pipeline products in compliance with their respective forecasted development plans."
8|Page S T / 1 1 1 6 1 / 2 0 1 7 - D B 1.2 The demands was confirmed by the adjudicating authority holding that the know-how of the manufacturing of the product and the overseas business rests with the Appellant and therefore the sale of brand cannot be regarded as having taken place. It is only marketing rights transferred to the purchaser of the said products by the Appellants. Had it been sales of brand, the manufacturing and overseas business of the said product too would have been sold to purchaser but the same is not the case. Though, the BPA Agreement disguised the transfer of marketing rights in India to M/s Aventis in the form of sale of brand yet the terms and conditions specified clearly depicts that the same was not sale per se as there are various restrictions. Infact, it remains representational rights for Aventis for marketing the said products in India. That making such kind of overseas agreement is with sole motive to camouflage the transfer of the marketing rights in India in the guise of sale of brand on permanent basis. Once the sale of brand for overseas market is not involved in the BPA and rest with the Appellant, the re-assignment of the rights for overseas market to the Appellant is beyond comprehension and has to be adjudged as misleading to create an impression that sale of brand has taken place. That since the manufacturing know how of the products remain the property of Appellants, Aventis merely has representational right for marketing the said product.
1.3 Aggrieved with the aforesaid impugned order, the Appellant has filed present appeal.
2. Shri Rohan Shah, Ld. Sr. Counsel with Shri P.M. Buch (Advocate) appearing for the Appellant submits that the transaction amounts to slump sale of going concern and not a transaction of grant of franchise to Aventis where all assets and liabilities has been transferred to Aventis. The consideration was arrived after independent valuation and the ownership of the trademark has been permanently assigned. Therefore it cannot be said that merely right to sell has been given to Aventis. M/s Aventis sells the goods as owner and not as franchisee. He relies upon the relevant clauses of agreement and also takes us through the definition of Franchiser, franchisee and franchise
9|Page S T / 1 1 1 6 1 / 2 0 1 7 - D B agreement to support his contention that there is no representation rights granted to M/s Aventis by the Appellant. M/s Aventis after such sale has not shown any of the product as connected with the Appellant as seen from the labels of the product. The brand name stands transferred to M/s Aventis absolutely with no scope of revocation. They are not charging any amount over and above the one time amount against slump sale and hence there is no franchisee services involved.
3. On the other side Shri Amit Mishra, Ld.Deputy Commissioner (AR) appearing for the revenue supports the findings of the impugned order to state that the transaction is of representational rights and hence liable for service tax.
4. Heard both the sides and perused the records. We find that the Appellant decided to exit the business of marketing the nutraceuticial products and they sold the marketing business of nutraceutical as a slump sale on going concern basis. The relevant clause of such Business Purchase agreement are as under :
"Business" means the business of distributing and selling pharmaceutical and/ or nutraceutical products in the Territory, more particularly described in Clause 2.1.2, carried on by the Seller as the Closing Date and being sold to the Purchaser under this Agreement as a going concern, on a slump sale basis;
"Business IPR" means the Intellectual Property Rights, which are used by the Seller exclusively in relation to the Business and shall consist of the interest, if any, of the seller and/or Geltec in the Third Party Products Manufacturing Dossier, the Domain Names, the trademarks and the Business know-how, but for the avoidance of doubt, shall exclude the intellectual Property Rights contained in the Manufacturing Dossiers, the trademark "Soflets" and "Soflets" and the Intellectual Property Rights relating to the manufacture of the products;
"Business Know-how" means all rights and interest held by the Seller in the Know-how which at, or at any time in the two (2) years immediately before, Closing is or has been used 10 | P a g e S T / 1 1 1 6 1 / 2 0 1 7 - D B exclusively in relation to the Business‟ provided, that the Business Know-how does not include the portion of the Know- how that relates to the manufacture of the Products; "Overseas Business" means the business of marketing, distributing and selling products outside the Territory under the same trademarks as the Trademarks, including the products sold under the Trademarks listed in Schedule 15 (whether or not registered or applied for registration in the relevant country), which business shall be retained by the Seller post closing;
"Agreement to Sell the Business"
2.1 Sale of the Business 2.1.1 On and subject to the terms of this Agreement, the Seller agrees to sell, and the purchaser agrees to purchase, the Business, as on the Closing Date, as a going concern, on a slump basis.
2.1.2 (i) the Products;
(ii) the Business IPR;
(iii) the Contracts (which are in force on the Closing Date), subject to the provisions of Part 4 of Schedule 2;
(iv) the Permissions, to the extent they can be transferred under Law;
(v) the Inventory, subject to the provisions of Clause 6.2;
(vi) the complete customer files and receivables thereon;
(vii) the Relevant Employees of the Seller, together with any advances given to such Relevant Employees, subject to Clauses 5.1.3 and 5.3.2;
(viii) the Books and Records, subject to Clause 9.4.5;
(ix) the goodwill relating to the Business, together with the exclusive right for the Purchaser to represent itself as carrying on the Business in succession to the Seller;
(x) the Assumed Liabilities; and
(xi) all tangible assets related to o held for use exclusively
in connection with the Business, as set out in Schedule 19. 2.1.3 The seller agrees and acknowledges that the assets and liabilities being transferred as a part of the Business pursuant to Clause 2.1.2 (above) are sufficient to ensure the continuity 11 | P a g e S T / 1 1 1 6 1 / 2 0 1 7 - D B of the Business by the Purchaser, as from the Closing Date, as a going concern.
2.3.1 On the Closing Date, the Seller and the Purchaser shall execute the Deed of Assignment (as defined in Clause 3.8) of the Indian Trademarks whereby the Seller shall assign to the purchaser all rights, title and interest in and to the Indian Trademarks together with the goodwill of the business in respect of which the said Indian Trademarks are registered / pending registrations TO HOLD unto the Purchaser absolutely. The Deed of Assignment shall set out the value of the Indian trademarks for the purpose of calculation of stamp duty only, pursuant to Explanation 2 to Section 2(42C) of the Income Tax Act, 1961.
2.3.2 (i)On the Closing Date the Seller and Purchaser shall enter into the Overseas IP Assignment Agreement, which is referred to in Clause 3.6 pursuant to which the Trademarks, other than the Indian Trademarks, and the Domain Names, shall be transferred to the Purchaser by means of the Overseas IP Assignment Agreement.
"12 Restrictions on the Seller 12.1 Non-complete restrictions Each of the Seller and the Promoter undertakes with the purchaser that no affiliate of the Seller, nor any Affiliate of the Promoters (including Geltec), will any Relevant Capacity during the restricted period, directly of indirectly (i) carry on, be engaged in or be economically interested in, any business which is of the same or similar type to the Business as now carried on and which is in competition with the Business as now carried on or (ii) use the trademarks Folwise, Folwiser of Folwizer in connection with any business that in competition with the Business as now carried on or (iii) assign, transfer or otherwise dispose of the trademarks Folwise, Folwiser or Folwizer Without the prior written consent of the Purchaser."
"14.Overseas Business 14.1Right of First Refusal for the sale of the Overseas Business 14.1.1 If, at any time, the Seller (or any of its Affiliates (receives a bona fide offer from a third part (the „Bona Fide 12 | P a g e S T / 1 1 1 6 1 / 2 0 1 7 - D B Selling Overseas Offer"), which the Seller (or any of its Affiliates) wishes to accept, for the sale of the Overseas Business, in part of whole, (the "Selling Overseas Business", the Seller (or any of its Affiliates) shall, and the Promoters shall procure that the Seller shall, send a written notice to the Purchaser (the "Selling Overseas Business Offer Notice") offering to sell the Selling Overseas Business to the Purchaser on the same terms as set out in the Bona Fide Selling Overseas Business Offer. The Selling Overseas Business Offer Notice shall set out the details of the Bona Fide Selling Overseas Business Offer including the price at which the Third Party has offered to purchase the Selling Overseas Business, the material terms and conditions of the Binding Selling Overseas Offer. The Selling Overseas Business Offer Notice shall be Overseas Business to the Purchaser at the price and on the terms set out in the Selling Overseas Offer Notice.
15. Rights of First Offer of the sale of the Business by the Purchaser 15.1.1 If, during the term of the Supply. Agreements wherein the Purchaser continues to source a majority of the Products from the Seller and / or Geltec on an exclusive basis, the Purchaser or an Affiliate of the Purchaser (the "Business Seller") intends to sell the whole or a majority of the Business, the Business Seller shall, before making any approach or entering into discussions with any other person, send a written notice to the seller intimating the Seller or its intention to do so (the "Business Sale Notice). Subject to the confidentiality undertaking (in form acceptable to the Business Seller to be substantially undertaking (in a form acceptable to the Business Seller to be substantially similar to the Confidentiality Agreement) provided by the Seller to the Business Seller, the Business Sale Notice shall include information relating to the identity and details of the products forming part of the Business, financial details of the preceding three financial years in respect of the Business and the details of the key supply, distribution and other relevant agreements in relation to the Business."
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5. From the extract of the terms of above sales agreement we find that the consideration of sale of marketing business was valued on the basis of value of assets and liabilities. In pursuance of such agreement the trademarks related to all products developed by Appellant were transferred legally and absolutely to M/s Aventis permanently. In terms of Section 65 (105) (zze) the taxable service in relation to „Franchisee service‟ has been defined as "Taxable service means any service provided or to be provided to a franchisee, by the franchisor in relation to franchisee". The term „Franchisor‟ has been defined in terms of Section 65 (105) (48) to mean "any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designated by the franchisor to enter franchisee on his behalf and the term "franchisee" shall be construed accordingly". The term "franchise" u/s 65 (105) (47) of Finance Act, 1994 means "an agreement by which the franchisee is granted representational rights to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not trademark, service mark, trade name or logo or any such symbol, as the case may be, is involved." The Budget Circular No. 131/6/2005 - TRU dt. 27.07.2005 states that "license production agreements where principal allows production of goods bearing his brand name by another person would be covered under the purview of service tax under this category. Similarly if rights are granted or rendering services identified with the principal on his behalf, such services by the principal to the service recipient would be taxable. In the light of above definitions under the Act and subject circular dt. 27.07.2005 we find that none of the ingredients of franchisee service or the Board Circular are present in the BPA between the Appellant and M/s Aventis. The transaction is of sale of business marketing division. The Appellants do not qualify as Franchisor as the trademarks have been permanently assigned to M/s Aventis and they have become absolute owner with no control of the Appellant. We even find from the labels of all the product that the such labels now bear the Aventis House Mark on them and the name of Universal does not appear as was the case prior to sale. The business is being run in the name of Aventis/ Sanofi and there is no representation of Appellant over such product. The goods are not identified with the Appellants in the form of sign or symbol. M/s Aventis is not using goods, services or trademark of Appellant. The 14 | P a g e S T / 1 1 1 6 1 / 2 0 1 7 - D B Appellant were given royalty free licence to use trademark overseas. We find that in terms of Business purchase agreement M/s Aventis has become absolute and permanent owner of Trade name in India. The trademarks and the IPR sold by the Appellant stands transferred to M/s Aventis. The consideration received by the Appellant is not towards any service. In Franchisee agreement, the Franchisee charges are computed with reference to quantum of sale and the charges are not collected before hand. The franchisee pays the amount for a pre-determined period or on the basis of quantum of service as per the terms and it is never a one time payment. M/s Avantis are not representing themselves as part of Appellant whereas in the franchisee agreement, the franchise represents himself associated with the Franchisor which is not the case here. Assuming it to be franchisee agreement it would be illogical to conclude that the huge amount has been paid by M/s Avantis to the Appellant as one time alleged franchise fee. Thus the whole notion of terming such sale of brand name as franchisee fee is illogical and perverse. No such agreement for ranting a mere franchisee has been ever entered into Commerce or Industry. It is wholly natural and logical in commercial terms that amount of Rs. 567 Crores is given by M/s Avantis only for sale/ transfer of brand name in Indian Market. There has been plethora of judgments of the Tribunal and the Hon‟ble Court wherein the brand name purchased by an Indian company from a foreign concern only for use in India has been held to be transfer of ownership of brand name to Indian company. There is no representational right with M/s Aventis but they are absolute owner of the trademark. The Adjudicating authority has contended that no VAT has been paid. We find that it is not a sale of goods but a business slump and hence in absence of any such goods the same is not liable for VAT. Our views are also based upon the judgment in case of Sri Ram Sahay Vs. CST 1963 (14) STC 275 (ALL), K. Behnan Thomas (1977) 39 STC 325 (Mad), Kwality Biscuits (P) Ltd 2012 (53) VST 66 (KAR.) and Nokia India Pvt. Ltd. which all holds that the sale of business is not liable for sales tax.
6. Under section 66 for levy of service tax it has to be shown that there was a service provided by the provider to the recipient and consideration must be paid by the service recipient to the provider. Whereas in the assessment proceedings under section 143 (3) of the 15 | P a g e S T / 1 1 1 6 1 / 2 0 1 7 - D B Income Tax Act for the year 2012 - 13, the transaction has been considered as profits or gains arising from a "slump sale" under section 50B. The adjudicating authority has held that the Appellant is having technical know how of the impugned products is the sole owner and as long as technical know how of the manufacturing is not sold out/ transferred to the purchaser, the transfer of marketing division is nothing but granting of marketing rights in India. We find that the adjudicating authority did not appreciate the fact that the transaction of the marketing division is a stand alone business of the Appellant and was sold as going concern individually which is permissible in law. When the Income tax act admits such slum sale as sale of business in that case the same cannot be interpreted in other way as held by the Tribunal in case of Rent Works India Pvt. Ltd 2016 (43) STR 634 (TRI). The relevant portion of the same is as under :
"7.On perusal of the agreement with Mr. Alan Van Niekerk, we find that the said agreement is between appellant and one Mr. Alan Van Niekerk for rendering the services to appellant on the management of market and exclusive services. The said agreement provides for payment of an amount as monthly remuneration of Mr. Alan Van Niekerk and as also additional amount at the discretion of the board as percentage to Alan Van Niekerk. It is seen from the records and more specifically the balance sheet at 31-7-2007, Mr. Alan Van Niekerk has signed the balance sheet of the appellant as director on behalf of the board of directors. In our considered view, Shri Alan Van Niekerk was a director in the appellant‟s company and the amount which is paid to him during the period 18-4-2006 to 31- 10-2006 was a remuneration as per agreement between the appellant and the said individual. We also fortified in our view, by the demand issued by Income Tax department for this amount paid to Mr. Alan Van Niekerk to be considered as salary paid. The Income Tax Department has considered this amount paid to the appellant to Mr. Alan Van Niekerk as a salary in adjudication proceedings. The adjudicating authority in the case in hand has summarily dismissed the submissions. If an amount paid by the appellant to Shri Alan Van Niekerk is considered as a salary by the Income Tax Department, a branch of Ministry of Finance, Department of Revenue, it cannot be held by the Service Tax Department, another branch of Ministry of Finance, Department of Revenue, as amount paid for consultancy charges and taxable under Finance Act. The same department of Government of India cannot take different stand on the amount paid to the very same person and treat it differently. In our considered view, the amount which is paid to Mr. Alan Van Niekerk, in the circumstances of this case as brought out herein above, has to be treated as salary to the director and the salary is not to be considered as to fall under the category of „Management Consultancy Services‟ and liable for Service Tax."
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7. Further it is an undisputed fact that the goods are being sold under the brand name purchased on outright basis. In such circumstances even if the know how is retained by the Appellants which forms part of another business i.e the manufacturing business it would not effect on slump sale of marketing business. The impugned order has not shown as to how the transaction of BPA would fit into the terms of service provider or service recipient. Further it is a settled law that an agreement has to be interpreted as per the language and intention of the parties to such agreement whereas the show cause notice and the impugned order has interpreted the same in their own way. The BPA does not even recognises the Appellant as service provider and M/s Aventis as service recipient. No nature of any service is appearing in BPA and in such case reliance placed upon some of the clauses in isolation cannot be interpreted as the agreement to be of franchise agreement. It is pertinent that the brandname/ tradename of the product in question stands transferred to M/s Aventis under the deed of assignment and once the highest Authority i.e the Trademark Registry has transferred the brand name/ trade name to the ownership of M/s Aventis, the Appellant has no right over such brand name and trade name and there is no question of any representational rights of Appellant to be given to M/s Aventis. The clause 14 and 15 of the BPA has been relied upon by the Adjudicating authority which relate to right to purchase the business in case the Appellant wishes to sell the overseas business or the buyer wishes to sell back the domestic business. We find that in view of such clause it cannot be interpreted that there is a representational rights or franchise agreement. It is normal commercial covenant and in the interest of business of the contracting parties which does not have any bearing on the nature of transaction. The said clause nowhere interfere with the ownership of M/s Aventis‟ ownership of the marketing business. Further as far as reliance upon clause 12.1 on non - compete clause and restriction on transfer of trademarks are concerned, the same are to safeguard the interest of M/s Aventis which is a standard clause in every business transfer. When M/s Aventis is buying marketing division of Appellant alongwith assets and liabilities by paying huge amount, it is just obvious that if such non compete clause in not present, the seller i.e the Appellant would immediately be free to start the same business which would jeopardize 17 | P a g e S T / 1 1 1 6 1 / 2 0 1 7 - D B the profitability of business purchased. Such non - compete clause is almost present in each and every business purchase transaction. Similarly the retention of know-how of the product for 5 years as per Para 2.2.10 of agreement cannot be interpreted to term the same as franchise agreement. The Appellants have contended that M/s Aventis could not start production immediately of the products itself or through other job worker in view of various regulatory approvals required. Therefore the Appellant and Aventis agreed that the Appellant will exclusively manufacture and supply the products to M/s Aventis for a period of 5 years. Further clause 2.2.9 of the agreement also states that if Appellant do not manufacture the products satisfactorily and supply the know how would be given to M/s Aventis. We find that such clause is normal to the commercial business and obvious as no concern after immediate acquisition of marketing business can itself start the manufacturing. The same cannot be construed to have any ingredient of franchise and not a business sale. We have also gone through the letters sent by both the parties to the agreement to the concerned regulatory authorities informing that the products manufactured under the trademarks transferred to M/s Aventis were property of Aventis. The adjudicating authority has also relied upon the statement of some employees of the Appellant concern. We however find that none of the employee has stated that there is a franchise agreement. Even if the statements are to be interpreted in the way the adjudicating authority has interpreted, the same has to be corroborated with the nature and intention of the BPA which is not the case here. Even the statements only state the fact that marketing business have been transferred. Thus the interpretation advanced by the adjudicating authority is not sustainable. It is also a fact that except interpreting the clause of the agreement, the revenue has not brought any evidence to show that the BPA was not followed or the transaction were executed otherwise. We thus, in view of above findings and observation hold that the impugned order is not sustainable on merits. Coming to the issue of raising of demands by invoking extended period of limitation, we find that there is no instance which can show that there has been suppression or mis- statement of facts by the Appellant with intention to evade service tax, if otherwise would have been payable. Such transaction first of all is not liable for service tax and was publicized in media. The 18 | P a g e S T / 1 1 1 6 1 / 2 0 1 7 - D B transactions were reported to various regulatory authorities viz. FDA, Ministry of Corporate Affairs, SEBI etc. and also disclosed in books of accounts and balance sheet. In such case when there is no evidence of suppression or intention to evade service tax, the demand cannot be made by invoking extended period of limitation. We thus hold that apart from merits the demand is not sustainable as being hit by limitation of time. Our views are also supported by judgments in case of Simplex Infrastructures 2016 (42) STR 634 (Cal.) and Padmini Products 1989 (43) ELT 195 (SC). Further, since we hold that the demand is not sustainable, penalty being consequential to demand would also not exist.
8. In view of our observations and findings, we thus set aside the impugned order and allow the appeal with consequential reliefs, if any.
(Order pronounced in the open court on 03.06.2019) (Ramesh Nair) Member (Judicial) (Raju) Member (Technical) Neha