Custom, Excise & Service Tax Tribunal
M/S Skol Breweries Ltd vs Commissioner Of Central Excise & ... on 22 January, 2014
IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL WEST ZONAL BENCH AT MUMBAI COURT NO. I Appeal No. ST/35 & 82/09 and ST/85575/13 (Arising out of Order-in-Original No. 38/ST/Commr./2008 & 10-11/ST/Commr./2009 dated 26.3.2009 passed by the Commissioner of Central Excise & Service Tax, Aurangabad and Order-in-Appeal No. AV(246)179/2012 dated 16.11.2012 passed by the Commissioner of Central Excise & Service Tax (Appeals), Aurangabad). For approval and signature: Honble Shri P.R. Chandrasekharan, Member (Technical) Honble Shri Anil Choudhary, Member (Judicial) ======================================================
1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? 2. Whether it should be released under Rule 27 of the : Yes CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? 3. Whether their Lordships wish to see the fair copy : Seen of the order? 4. Whether order is to be circulated to the Departmental : Yes authorities? ====================================================== M/s SKOL Breweries Ltd. Appellant Vs. Commissioner of Central Excise & Service Tax, Aurangabad Respondent Appearance: Shri V. Sridharan, Sr. Advocate with Shri Badri Narayan, Advocate for Appellant Shri S.G. Dewalwar, Addl. Commissioner (AR) for Respondent CORAM: SHRI P.R. CHANDRASEKHARAN, MEMBER (TECHNICAL) SHRI ANIL CHOUDHARY, MEMBER (JUDICIAL) Date of Hearing: 22.01.2014 Date of Decision: 22.01.2014 ORDER NO. Per: Anil Choudhary
The appellant M/s SKOL Breweries Ltd. is owner of the brand name Foster which is beer. The appellant is engaged in the manufacture and sale of beer. As the appellant did not have the manufacturing facility to produce beer in the State of Maharashtra, it had entered into the agreement dated 11.4.2007 w.e.f. 12.9.2006 with another company namely Foster India Pvt. Ltd. The Revenue under the impression that Foster India Pvt. Ltd. are using the brand name and technical know-how of another person (appellant), and paying the consideration amount in lieu of use of brand name and technical know-how of the brand owners but not paying Service Tax, believing it to be taxable under the category of Intellectual Property Right under Section 65(65a) of the Finance Act, 1994 and also under the category of Franchise Service which is under Section 65(48) of the Finance Act, 1994. A show-cause notice dated 29.9.2010 was issued as to why Service Tax should not be recovered from the appellant along with interest and also proposing to impose penalties under Sections 76 and 77.
2. The appellant had appeared and contested the show-cause notice but the demands were confirmed with interest and penalties were also imposed under Section 76 @ 2% per month of outstanding tax or Rs.200/- for every day of default whichever is higher ,under Section 77 of the Act Rs.5000/-. Being aggrieved the appellant had filed appeal before the Commissioner (Appeals) on the ground sthat -
(i) the Revenue had failed to pass speaking order on the jurisdiction issue raised by the appellant in the light of CBE&C instructions F.No. 137/50/2007 dated 16.3.2007.
(ii) The payments were actually made by Foster India to SKOL Breweries (Bangalore) which falls under the jurisdiction of another Commissionerate. The appellant is neither service provider nor the service recipient in the agreements. Therefore, demanding Service Tax from them is completely erroneous and without jurisdiction.
(iii) The Order-in-Original passed by the respondent was in violation of principles of natural justice.
3. As regards the question of jurisdiction, the Commissioner (Appeals) after perusing the Central Excise Registration of the appellant granted by the Service Tax Commissionerate, Bangalore called for a report from the Assistant Commissioner at Aurangabad who informed that at the time of issue of show-cause notice, there was no separate Service Tax Registration existing in the name of appellant. Further, the record regarding the registration has been checked on departments website, which confirmed that there is no registration of the appellant at Aurangabad. Further it was noticed that the appellant have not claimed that they have been taxed twice for the same service, for the same period, in two different jurisdictions. Thus, the question of jurisdiction was decided against the appellant. The other grounds were also decided against the appellant and in favour of the Revenue. Thus, the appeal was dismissed by the Commissioner (Appeals). Being aggrieved the appellant has preferred the appeal before this Tribunal.
4. Heard the parties.
5. The appellant is required to follow the conditions of the Bottling/ Brewing agreement dated 11.4.2007. For appreciation of the facts and circumstances, relevant clauses are noticed as follows: -
5.1 As per the Recitals Clause (A), Foster India Pvt. Ltd. (FIPL in short) is a company engaged in the business of manufacturing beer and possesses necessary and adequate facilities for manufacturing and bottling of beer and for this owns and operates a brewery at Plot No. 99, MIDC, Waluj, Aurangabad in the State of Maharashtra under valid license.
5.2 As per Clause (B), the appellant and FIPL are desirous of entering into a contract for manufacturing and sale arrangement for the production and sale of Skol Beer of the quality and quantity as prescribed by Skol which FIPL agrees to produce, bottle and dispatch to Skol and/or to its Indenters to the complete satisfaction of Skol in accordance with the provisions of agreement.
5.3 Clause (1.8) defines Skol Beer as goods manufactured under the Trade Marks belonging to Skol (appellant). Clause (2.1) provides that FIPL shall brew and bottle at the Brewery such brands of Skol Beer as specified by Skol from time to time and transport, supply and sell them in accordance with the directions and instructions given by Skol including as regards which states they should be transported, supplied and sold in and the manner and pricing thereof.
5.4 Clause (2.2) provides that the customers to which, and the price at which the Skol Beer manufactured and bottled by FIPL are to be supplied and sold shall be determined at the sole discretion of Skol, and the same shall be final and finding on FIPL. Clause (2.3) provides that FIPL shall not advertise, market or promote Skol bear. Clause (2.4) provides that FIPL agrees to manufacture the quality of Skol Beer as per the specifications laid down by Skol. Under Clause (2.5) it is provided that FIPL will obtain at its cost all raw materials, packing materials, labels and chemicals and consumables required conforming to specifications, quality and terms as specified in writing by Skol. Clause (2.6) provides that FIPL agrees to manufacture and make available and supply, the Skol Beer as may be determined by Skol from time to time. The quantities are subject to a variation of plus or minus 10%. In clause (2.9) it is provided that FIPL shall supply/invoice by sale, the Skol Beer to Skol or to the indenters or other persons in any territory, as Skol may determine, holding necessary permits/licenses under the relevant excise law or other applicable regulations to purchase/deal in Skol Beer as Skol may from time to time direct.
5.5 Clause (2.13) provides that FIPL will not enter into any contracts with any companies manufacturing and marketing brands owned by United Breweries, Asia Pacific Breweries, Inbev, Carlsberg or Scottish and Newcastle or any other multinational or local brewer. Clause (2.14) provides that all expenses including diesel, furnace oil, water, bought out power, stores and spares for plant and machinery maintenance (including effluent and water treatment) utility, consumables, workers remuneration, fixed overheads, local licenses fees, taxes and other statutory levies to be incurred under this arrangement shall be borne by FIPL, provided that all statutory taxes and levies relating to the transport and sale of Skol Beer shall be borne by Skol as described in clause 3.2. For the avoidance of doubt, Skol shall not bear the cost of the annual brewery licence fees and other statutory taxes and levies are for the account of FIPL. Clause (2.15) provides that Skol shall be responsible to apply for label registration in respect of Skol Beer manufactured by it under this Agreement and obtain the same. The registration fee for labels shall be borne by Skol. Clause (2.16) provides that Skol shall provide FIPL the specifications to manufacture and sell Skol Beer solely for the limited purpose of manufacturing such products to be supplied as per the directions of Skol in terms of this Agreement. Clause (2.22) provides that any deduction by Indenters on supply of Skol Beer will be to the account of Skol.
5.6 Under Prices Clause (3.1) it is provided that Skol and FIPL shall, from time-to-time, agree on the sale price of a Beer case of 12 bottles of 650 ml. and 24 bhottles of 330 ml. each of Skol Beer (a Case) manufactured by FIPL in terms of and, in accordance with this Agreement. Out of the sale proceeds collected from the Indenters, FIPL will pay Skol the net proceeds of Rs.27/- per Case. Under clause (3.2) it is also provided that the net proceeds shall be exclusive of local excise duty, sales tax, export pass fee, octroi, freight, breakages, transit insurance and any other statutory taxes and levies. FIPL shall be responsible for the remittance of all taxes, duties and any other levies and indemnify Skol against any liabilities arising thereof. FIPL also agrees to pass on the concessions/exemption on taxes or duties and levies to Skol as long as such benefits are made available to them. Clause (3.3) provides that the sale of Skol Beer shall be made according to dispatch instructions issued by Skol or its nominated Indenters. The invoices shall be raised by FIPL at the prices communicated by Skol to them periodically in writing. Notwithstanding anything to the contrary, it is clarified that FIPL shall not be entitled to receive any amounts other than those expressly set out herein and any other realizations from sale of Skol Beer shall be remitted to Skols account.
6. After taking through the agreements, the appellant argues that FIPL is only a Contract Bottling Unit (CBU), manufacturing and supplying beer as per specifications and formulation including freight and escort to the appellant. Further, the sale is also being made to the appellant or to its Indenters as per the direction of the appellant. Thus, the appellant has neither provided any Franchise Service nor any Intellectual Property Right Service to FIPL and thus, the impugned demand of tax and penalty are fit to be set aside.
6.1 The appellant also draws our attention to Circular F. No. 249/1/2006-CX.4 dated 27.10.2008 which was issued in respect of production of alcoholic beverages on job-work basis and classification of Service Tax liability. Clause 2.1 of the Circular provided that the Brand Owners (BO) of the Alcoholic Beverages which includes Indian subsidiaries of International brand owners, hold the intellectual property rights over such brand names. The Licencee (who holds the licence by the State government to manufacture such alcoholic beverages) manufactures alcoholic beverages under authority to use such brand name granted by the BO. The BO may also provide technical staff/assistance to maintain required quality. The alcoholic beverages, so manufactured are directly sold (after paying State excise duty) by licencee / manufacturer. Property, risk and reward of the products so manufactured rest with the licencee / manufacturer and not with the BO, who is paid an agreed sum for grant of permission to use such brand name and the technical know how. In such cases the BO provides taxable service, namely 'Intellectual Property Service' to the licensee/manufacturer. The tax is chargeable on the gross amount charged by the BO from the licencee/manufacturer.
6.2 The Circular further in para 3.1 recognizes Contract Manufacturing Arrangement where the BO gets alcoholic beverages manufactured by the licensee / manufacturer, the latter holding the required State Licenses for manufacture of the alcoholic beverages. In trade, such licensees / manufacturers are called the Contract Bottling Units or CBUs. The cost of raw materials (and in some cases, even capital goods) and other expenses are either paid by the BO or reimbursed by the BO. Statutory levies (i.e. State excise Duty) are also reimbursed to the CBU by the BO. The alcoholic beverages are sold by or as per the directions of the BO and profit or loss on account of manufacturing and sale of alcoholic beverages is entirely on account of BO, who thus holds the property, risk and reward of the products. The CBU receives consideration (i.e. job charges) for undertaking the manufacturing activity on job work basis. There is no doubt that under such an arrangement, CBU is a service provider providing services to BO. A doubt has arisen, whether or not the CBU provides a taxable service namely the Business Auxiliary Service (BAS) to BO. This taxable service includes 'any service provided or to be provided in relation to production or processing of goods for, or on behalf of, the client'. This taxable service however, by definition excludes 'any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944' from its ambit. The issue in dispute is whether such activity would be hit by the exclusion clause mentioned above.
6.3 On examining the scope of manufacture in para 3.3 of the Circular, it is revealed that if the CBU undertakes complete process of manufacture of alcoholic beverage under the 'contract bottling arrangement' as described above then such activity would not fall under the taxable service, namely the BAS. However, in case the activity undertaken by the CBU falls short of the definition of manufacture (such as activity of 'packing' or 'labelling' alone) then such activity would fall within its ambit and would be charged to service tax.
6.4 Further, the appellant drew our attention to notification/ clarification issued by CBE&C vide F. No. 332/17/2009-TRU dated 30.10.2009 on value of taxable services under the category of Business Auxiliary Services for manufacture of liquor on job-work basis. It is mentioned in the Circular that Service Tax has been imposed by Finance (No. 2) Act, 2009 under Business Auxiliary Services to include the manufacture of alcoholic beverages on job-work basis. In this connection, in the earlier Notification No. 39/2009-ST dated 23.9.2009, it was clarified that the Government exempts the taxable service specified in sub-clause (zzb) of Section 65 (105), provided by a person (service provider) to any other person (service receiver) during the course of manufacture or processing of alcoholic beverages by the service provider, for or on behalf of the service receiver, from so much of value which is equivalent to the value of inputs, excluding capital goods, used for providing the said service, subject to the condition that no CENVAT Credit has been taken under the provisions of Cenvat Credit Rules, 2004; there is documentary proof specifically indicating the value of such inputs, and where the service provider also manufactures or processes alcoholic beverages, on his or her own account or in a manner or under an arrangement other than as mentioned aforesaid, he or she shall maintain separate accounts of receipt, production, inventory, dispatches of goods as well as financial transactions relating thereto.
6.5 Further, the Circular dated 30.10.2009 clarified that: -
a) Service tax would be payable on the bottling/job charges, distribution costs and other reimbursable.
b) So far as inputs i.e. raw materials and packing materials are concerned, one of the conditions of exemption notification No.39/2009-ST is that there should be documentary proof specifically indicating the value of these inputs. Therefore, service tax on the value of raw materials and packaging materials would be exempt only when such charges are specifically mentioned in the invoice raised/documents maintained by the CBU.
c) As regards the statutory levies, namely, excise duty /VAT, they do not present any consideration' for rendering the service. Whether such amount is paid by BO or by CBU, they have no nexus with the provision of service. As such, these levies will not be included for charging service tax.
d) Similarly, the surplus/profit earned by the BO being in the nature of business profit (which falls within the purview of direct taxes), will not be chargeable to service tax.
6.6 Thus, the appellant claims that in view of the amendment brought in 2009 w.e.f. 1.9.2009, the bringing into tax net, the activity of job-work provided by the Bottling Unit (service provider) to the service receiver Brand Owners, there is no exigibility of Service Tax in the appellants case prior to 1.9.2009. Further, reliance is placed on the ruling of Co-ordinate Bench of this Tribunal in the case of Diageo India Pvt. Ltd. Vs. Commissioner of Central Excise, Thane-II 2013-TIOL-790-CESTAT-MUM where in a similar arrangement between the parties, it was held that Brand Owner is not required to pay any Service Tax under the category of Franchise Service taking the notice of clarification vide Boards Circular dated 30.10.2009.
6.7 The appellant also drew our attention to the distinction between the user agreement, licensed user agreement, registered user agreement and a manufacturing agreement. As per the book of P. Narayanan, Sixth Edition - Ordinarily in a user agreement, licensed user agreement or a registered user agreement, the licensee gets the right to sell the goods manufactured under the agreement on its own. In a manufacturing agreement the owner of a trade mark gets the goods manufactured by a manufacturer on the basis of something like a job work and for the specific purpose authorizes the manufacturer to apply the mark on the goods, on condition that the whole of the goods so manufactured bearing the trade mark should be sold to the owner of the mark. The manufacturer is not given the right to sell the goods on his own. In such an agreement the owner of the trade mark is the actual user of the mark in a trade mark sense and obviously the benefit of such user goes to him. The name of the manufacturer may or may not appear on the labels. It would be advisable not to mention the name of the manufacturer on the goods or on the labels or in any trade literature. This may not be possible in the case of certain goods like drugs and cosmetics where the relevant statute imposes a condition that the name of the manufacturer should appear on the labels. In such cases to safeguard the ownership of the trade mark it should be clearly indicated on the labels and other material where the trade mark appears as to who is the owner of the trade mark and that the goods are manufactured solely for the owner of the mark. It is further advisable that the agreement for the manufacture should be entered into only after making an application for registration of the mark.
6.8 Thus, the appellant vehemently argues that that neither the provisions of Franchise Service are attracted nor the provisions of Intellectual Property Right are attracted.
7. The learned Addl. Commissioner (AR) appearing for the Revenue supports the Order-in-Original and the appellate order. Further, referring to the various clauses of the contract particular clause 2.1 and 3.2 where it is provided that local license fee/tax to be incurred under the agreement shall be borne by FIPL. Further, SKOL (appellant) shall not bear the cost of Annual Brewery Licence Fee. Thus, it is amply clear that essential element of contract of CBU is not satisfied. Further reference is made to clause 2.7 of the agreement which provides that FIPL should be solely responsible for manufacturing appropriate quality standards of Skol beer and packaging as per applicable law. In the event of any claims or complaints being made by any third party in relation to the quality of Skol beer or packaging to Skol beer manufactured and bottled by FIPL, FIPL, at its cost, shall arrange to collect such stocks and drain the same in the presence of Skol representative. In any event, FIPL shall indemnify Skol against all claims, proceedings, losses, damages, charges, expenses etc., if any, which may be made against or suffered by Skol with respect to the Skol Beer manufactured by FIPL. Further, FIPL shall also be liable to bear all costs, claims or losses arising on account of any inordinate delay or loss in production or deterioration in the quality of the Skol Beer manufactured by FIPL. Further, the appellant is entitled to collect an amount of Rs.27/- per case of beer bottle out of the sale proceeds collected by FIPL. Thus, the risk of profit/losses is borne by FIPL. It is not a pure bottling arrangement between parties and thus, Service Tax is attracted as Franchise Service and/or Intellectual Property Right Service.
8. Having considered the rival submissions, we find that as per the agreement between the parties, the risk of manufacture and sale lies with the appellant in respect of the Foster Brand beer got manufactured by it from FIPL. It is evident from the contract that FIPL is only responsible for bottling, packing and dispatch as per the specification, terms, formula etc. as laid down by the appellant. Further, FIPL is bound to charge the price from the notified Indenter of the appellant as fixed by the appellant. Only for the risks associated with the manufacturing process fastend on FIPL (CBU), it cannot be said that as FIPL is responsible for proper quality, quantity and timely production, they are providing Franchise Service and/or IPR Service. Further, taking notice of the definitions which are reproduced below: -
47. franchise means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved] (48) "franchisor" any person who enters in to franchise with a franchisee and includes any associates of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term "franchisee" shall be construed accordingly. From the aforementioned definitions, it is crystal clear that in the facts and circumstances, no services have been provided by the appellant to FIPL under the classification of Franchise Service and IPR Service.
9. Thus, the impugned orders are set aside and appeals are allowed with consequential relief, if any.
(Operative portion of the order pronounced in Court)
(P.R. Chandrasekharan) (Anil Choudhary)
Member (Technical) Member (Judicial)
Sinha
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