Custom, Excise & Service Tax Tribunal
Sab Miller Brewerles Pvt Ltd vs Cce Aurangabad on 11 July, 2019
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CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
MUMBAI
REGIONAL BENCH - COURT NO.1
Appeal No.ST/85828/2014
ST/CO/91102/2014
[Arising out of Order-in-Original No.39/ST/COMMR/2013 dt. 27.12.2013,
passed by the Commissioner of Central Excise & Service Tax, Aurangabad]
M/s SABMiller Breweries Pvt. Ltd ......Appellant
VERSUS
Commissioner of Service Tax, Aurangabad ......Respondent
Appearance:
Shri V. Sridharan, Advocate for the Appellant
Shri K.M. Mondal, Special Counsel (A.R.) for the Respondent
CORAM:
HON'BLE DR. D.M. MISRA, MEMBER (JUDICIAL)
HON'BLE MR. SANJEEV SRIVASTAVA, MEMBER
(TECHNICAL)
FINAL ORDER NO. A/86242 / 2019
Date of Hearing: 15.01.2019
Date of Decision: 11.07.2019
PER: D.M. MISRA
This is an appeal filed against Order-in-Original No.
39/ST/COMMR/2013, dt.27.12.2013, passed by Commissioner
Service Tax, Aurangabad.
2. Briefly stated the facts of the case are that the appellants
have been engaged in the business of brewing and bottling of
beer at its plant in Aurangabad. They had entered into a
bottling agreement on 11.4.2007 with M/s SKOL Breweries
Ltd., (now known as SAB Miller India Limited) under which the
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appellant manufactured beer for SKOL affixing their brand their
name but using own raw materials, man power and
infrastructure and sold the said manufactured beer at the
direction of SKOL to their (SKOL's) customers on payment of
appropriate VAT/CST. On the basis of investigation by DGCEI,
it is alleged that the appellant provided services under the
category of "Business Auxiliary Services" as defined under
section 65 (19) read with section 65 (105)(zzb) of the Finance
Act, 1994, in view of the amendment brought to the said
provision by the Finance Act, 2009, but were neither registered
under the said category of taxable service nor paid service tax
of Rs.23,62,70,548/- for the period from 23.9.2009 to
21.06.2012; consequently demand notice was issued to them
on 24.12.2012 for recovery of the service tax not paid along
with interest and penalty. On adjudication, the demand was
confirmed with interest and penalty. Hence, the present
appeal.
3. Learned advocate for the appellant providing a brief back
ground of the present Appellant has submitted that South
African Breweries (SAB) was established in the year 1895 in
South Africa and Miller Brewing was a company operating in
UK. In May 2002 SAB acquired Miller Brewing and thereby
forming SAB Miller Plc U.K.. SABMiller later acquired "Fosters"
brand. SKOL Breweries Ltd. was incorporated in India and were
manufacturing beer under the brand name 'knockout',
Heywards' 'Royal challenge' at its various manufacturing facility
spread throughout India and selling the beer across the country
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through its own marketing/dealer network. They were also
having a manufacturing unit at Aurangabad.
4. The appellant has entered into a bottling/brewing
agreement dated April 11, 2007, with M/s SKOL Breweries Ltd.
for manufacture and bottling of beer with the brand name
'Fosters'. Elaborating the main features of the agreement, the
learned Advocate for the appellant has submitted that the
appellant manufactures 'Fosters Beers' as per the knowhow,
specification of SKOL and the brand name "Fosters' belongs to
SKOL. The purchase of raw materials, packing materials,
chemicals, labels, consumables etc. for manufacturing the said
bear was on account of appellant and the title, property and
ownership of manufactured beer having brand name 'Fosters'
vest solely with the appellant. The said manufactured beer is
sold by the appellant to SKOL or buyers nominated by SKOL on
outright basis at the price fixed by SKOL. The appellant
receives sale price/consideration on sale of the beer from the
respective buyers. As a consideration for the agreement dated
11.4.2007, the appellant pays Rs.27/- per case (of 12 bottles)
to SKOL. The appellant discharges appropriate excise duty and
other taxes leviable under the State Excise Act on the
manufactured beer; also pays applicable Sales Tax being
VAT/CST on the outright sale of the beer manufactured by
them. Earlier a demand notice was issued to SKOL for the
period from Sept, 2006 to March, 201 alleging that the amount
of Rs.27/- per case received by them in providing taxable
service under the category of Intellectual Property Right (IPR)
service and alternatively under Franchise Service. However, the
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said issue was decided in favour of M/s SKOL by Tribunal vide
Order dated 22.1.2014 reported at 2014-TIOL-588-CESTAT-
MUM.
4.1. Pursuant to the amendment to Section 65(19) of the
Finance Act, 1994 in the definition of Business Auxiliary Service
(BAS) w.e.f. 01.9.2009, the present demand notices were
issued on 24.12.2012 to the appellant alleging that the
appellant has rendered "services in relation to manufacture and
processing of goods" to SKOL and accordingly liable to Service
Tax under clause 65(105)(zzb) read with Section 65(19) of the
Finance Act, 1994 for the period from 23.9.2009 to
24.12.2012.
4.2. It is the contention of the learned Advocate that the
activities undertaken by the appellant pursuant to agreement
dated 11.4.2007 amounts to manufacture and outright sale of
beer to SKOL or buyers nominated by SKOL and it cannot be
considered to come within the scope of the expression "in
relation to production and processing of goods for or on behalf
of the client" and attract Service Tax on the same. He has
submitted that the appellant purchases raw materials and
packing materials, labels, chemical etc. at their own cost and
undertake various processes in their factory to manufacture
beer. All the activities relating to manufacture of beer like,
maintenance of records, supervision, bottling, transportation
etc. are performed by the appellant and the ownership of the
raw materials/finished goods at all stages vest with the
appellant. They possessed all the requisite licenses required for
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manufacture of beer, necessary infrastructure, man power,
workforce, manufacturing skills, long term and short term
capital etc. for manufacturing beer on their own since 1998.
The supervision by SKOL to ensure quality of their product and
the specification belonging to SKOL,inno manner would change
the veracity of legal and factual position that the right to
manufacture of the beer remains with the appellant. After
manufacture of the beer, the appellant sell the same either to
SKOL or to the buyers/indenters of SKOL as directed by SKOL
at the price indicated by SKOL. The prices for sale of the goods
are also being paid by the customers to the appellant. The
appellant did not receive anything from SKOL as a
consideration for providing any service and rather the appellant
has been paying Rs.27/- per case(12 bottles) of Fosters beer to
SKOL in terms of the agreement.
4.3. The learned Advocate referring to the judgment of the
Hon'ble Supreme Court in the case of Union of India Vs.
Cibatul Ltd. - 1985 (22) ELT 302 (SC) submitted that Section
2(f) of the Central Excise Act defines 'manufacture' and
'manufacturer'. The phrase 'manufacturer' defined as 'a person
who manufactures on his own account'; it also refers to 'person
who employed/hired a labour'. Interpreting the terms of
agreement, the Hon'ble Supreme Court in the said held that
the manufacturer since manufactures the goods, in accordance
with the manufacturing programme drawn jointly by buyer and
seller, keeping in mind the restriction imposed by the buyer
relating to specification of the goods and price at which it is to
be supplied and the seller was obliged to affix buyer's trade
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marks on the goods produced as per the agreement, the seller
is not the manufacturer for on behalf of the buyer, but on their
own account. Further, he has submitted that when the seller is
in existence, having separate infrastructure, plant and
machinery employed their own labour, procuring raw materials
on their own, and manufactures the goods on its own behalf,
the principle laid down by various judgments of the Hon'ble
Supreme Court, namely Poona Bottling Co. Ltd. Vs. UOI - 1981
(8) ELT 389 (Del) affirmed by Hon'ble Supreme Court reported
in 2003 (154) ELT A240 (SC); Parel Beverages (P) Ltd. Vs. UOI
- 1982 (10) ELT 142 (Bom); Taggas Industrial Development
Ltd. - 1989 (39) ELT 0151 (Tri) affirmed by Hon'ble Supreme
Court reported in 1995 (78) ELT A146 (SC) and Goa Bottling
Company P. Ltd. Vs. UOI - 1987 (28) ELT 215 (Bom), then the
buyer who supplied the raw material or whose brand name was
affixed on the manufactured goods, cannot be treated as
manufacturer.
4.4. Referring to para 3 of the Circular 2491/2006-CX-4 dated
27.10.2008, the learned Advocate has submitted that the
amendment made by the Finance Act, 2009 inthe definition of
Business Auxiliary Service defined under Section 65(19) of the
Finance Act, 1994, it is the manufacture of excisable goods
alone was excluded from the levy of Service Tax on that
activity and manufacture of non-excisable goods was not
excluded from the scope of Section 65(19) of Finance Act,
1994. He has vehemently argued that para 3 of the aforesaid
Circular, and the amendment brought by Finance Act, 2009
applies only to manufacture on behalf of brand owner,
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however, if the manufacturer undertakes the complete
processes of manufacture, even of non-excisable goods, then
such activity is outside the ambit of Section 65(19) of FA,1994.
The amendment to Finance Act, 1994 was to cover the case
falling under para 3 of the said Circular to manufacturer on job-
work basis, for and on behalf of the client, using the client's
raw materials, which was escaping Service Tax as
manufacturer of non-excisable goods. But, in the present case,
it is the outright sale to buyers and not a case of manufacture
with customer's raw material, which can be called a contract of
service of client. Therefore, the amendment is not applicable to
their case.
4.5. The learned Advocate further argued that the Revenue
cannot re-write the contract made by the parties. In support,
he has referred to the judgment of the Madras High Court in
the case of CIT S. Ramal Amal (1982) 135 ITR 292. The nature
of the transaction in the present case is of sale of goods and
not the service per se. The intention of the parties in the
present case is of manufacture and sale of the goods on
outright basis. In the present case, the essence of the service
contract is rendition of service from SKOL to appellant and not
vice-à-versa. In support, the learned Advocate referred to the
judgment in the case of Bharat Sanchar Nigam Ltd. - 2006 (3)
SCC (1). It is his submission that in the present case, Revenue
cannot extract contract of service from the appellant to M/s
SKOL from contract of sale of beer by appellant to buyers.
Further, the parties have intended for rendition of service from
the appellant to SKOL and the stipulation in the contract also
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does not support the allegation of the department as the
consideration flows from appellant to SKOL and not from SKOL
to appellant.
4.6. The learned Advocate has further submitted that the
appellant manufactures and sell the entire quantity of beer
directly to customers nominated by SKOL on outright basis and
such sale involved transfer of ownership from appellant to the
buyers against purchase order issued by the said buyer. The
appellant receives consideration for such sale and the price is
decided mutually by the appellant and the SKOL. Therefore,
sale consideration received from nominated buyers cannot be
the consideration for the contract between appellant and SKOL.
Further, he has submitted that the price for sale transaction is
outside the purview of Service Tax even if it is accepted that
the transaction is liable to Service Tax, but in absence of any
machinery provisions for determination of value of such
services, the levy itself should fail. In support, the learned
Advocate referred to the judgment of Hon'ble Supreme Court in
the case of Commissioner of Central Excise, Vishakhapatnam
Vs. Larsen & Toubro Ltd. - 2015 (39) STR 913 (SC).
4.7 Further, he has submitted that alternatively the appellant
is entitled to the benefit of Notification No.12/2003-ST dated
20.6.2003. Further, the learned Advocate submits that the
appellants are entitled to benefit of Notification No. 39/2009-ST
dated 23.9.2009 read with Circular No. 332/17/09-TRU dated
30.10.2009. It is also submitted that the C.A. certificate
produced by the appellant to fortify the fact that the value of
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material component and profit share of SKOL included in Net
Sale price of beer sold under contract manufacturing
arrangement.
4.8 The Ld. Advocate has also submitted that the appellant
had since merged with SKOL during the relevant period,
therefore services rendered by the appellant to self cannot be
chargeable to service tax. Elaborating his argument, learned
advocate has submitted that they had filed a Scheme of
Arrangement before the Hon'ble Bombay High Court in
accordance with Section 391 to 394 of erstwhile Indian
Companies Act, 1956 under which the brewery business of
appellant shall be transferred on an going concern basis to
SKOL and the appointed date was mentioned as 31.3.2009 in
the Arrangement scheme. The said scheme was sanctioned by
the Hon'ble High Court on 29.03.2012. Consequently, the
resulting company applied for change of name under Section
21 of the Companies Act, 1994 from its old name SKOL
Breweries Ltd. to SABMiller India Ltd. asthe said section 21 of
the Act, inter alia, requires obtaining a fresh certificate of
incorporation in new name. Therefore, the resulting company
obtained fresh certificate of incorporation in the new name on
22.6.2012. It is his contention that since the arrangement has
been sanctioned by the Hon'ble Bombay High Court w.e.f. the
appointed date i.e. close of business as of March 31, 2009,
therefore, the reason given by the adjudicating authority
observing the change of name dated i.e. 22.6.2012 as the
material date for considering the merger is incorrect. In
support, the learned Advocate placed reliance on the judgment
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in the case of Marshall Sons & Co. (India) Ltd. Vs. ITO - (197)
2 SCC (302), CST Vs. ITC Hotels Ltd. - 2012 (27) STR 145
(Tri-Del), CIT Vs. Swastik Rubber Products Ltd. - (1983) 140
ITR 304 (Bom).
4.9. Learned Advocate has also submitted that the demand
notice is barred by limitation as there is no suppression of facts
inasmuch as the details pertaining to contract of
manufacturing agreement were placed before the Department
in the year 2007 and the Department had issued as how cause
cum demand notice for the period from Sept, 2006 to March,
2010 on SKOL demanding Service Tax on the total amount
received @ Rs.27/- per case under the category of IPR service
and alternatively under the 'Franchise Service'. The demand
was issued to SKOL alleging that being brand name owner,
they were rendering Intellectual Property Right (IPR) Service to
the manufacturer-Appellant. Thus, the Department has been
aware of the entire facts relating to manufacture of beer by the
appellant as per the agreement between the appellant and M/s
SKOL. The Department has now issued the show cause notice
to the appellant, pursuant to the amendment to the meaning of
Business Auxiliary Service, with effect from01.9.2009.Besides,
through the letters dated 9.9.2010, 18.4.2011 and 30.5.2011,
the appellant has provided the details of contract of
manufacturing arrangement, labour bills etc., hence the
Department all along was aware of the fact that the appellant is
in agreement with SKOL for manufacture of beer. Besides,
since the issue involved is a question of interpretation of law,
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neither extended period of limitation can be invoked nor
penalty is liable to be imposed on the appellant.
5. Per Contra, the learned Special Counsel Mr. K. M. Mondal
for the Revenue has submitted that by the Finance Act 2009,
the definition of Business Auxiliary Service has been amended
and thereafter the Board had issued instruction on 06.7.2009
clarifying the scope and effect of amendment brought into
force. In para 3.1 of the said clarification, it has been clearly
mentioned that the activity undertaken, if resulted in the
manufacture of excisable goods, then it falls outside the scope
of the levy of Service Tax under Business Auxiliary Service, but
in the event the resultant product in non-excisable goods, then
Service Tax would be attracted. He has submitted that Chapter
Note 4 of Chapter 22 of Central Excise Tariff Act, 1985, does
not cover alcohol/liquors for home consumption. After the
aforesaid amendment, the Central Govt. has issued a
Notification No. 39/2009-Service Tax dated 23.9.2009 laying
down that exemption from Service Tax that would be available
subject to the conditions mentioned there under. Further, he
has submitted that further clarification was issued on
30.10.2009 stating that Service Tax would be payable by the
service providers on the bottling/job charges, distribution cost
and other reimbursable expenses. So far as inputs i.e. raw
materials and packing materials are concerned, the exemption
Notification No. 39/2009-ST would be available to the service
provider provided, however, there should be documentary
proof specifically indicating value of these inputs. Thus, the
Service Tax has been imposed only on the value of service
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provided by the contract bottling unit and does not tax the
product and manufacture of alcohol beer. The value of raw
materials and packing materials are not considered as elements
for computing Service Tax under the said Notification. Besides
statutory levy like, state excise duty, VAT, etc. are excluded
while computing the taxable value for levy of Service Tax.
Thus, it is only on the actual value of the service provided by
the job workers has been considered for the purpose of Service
Tax.
5.1 Referring to the bottling/brewing agreement between the
appellant and SKOL dated 11.4.2011, the learned Spl. Counsel
has submitted that various services in relation to production
and processing of alcoholic beverages, to SKOL has been
provided. It is his contention that all these services are clearly
in relation to production and processing of alcoholic beverages,
therefore, satisfies the amended definition of Business Auxiliary
Service, accordingly, taxable under Section 65(105)(zzb) read
with Section 65(19) of the Finance Act, 1994.
5.2 Further, he has submitted that Service Tax is levied on
the taxable service falling under the category of Business
Auxiliary Service provided by any person in relation to
production and processing of goods for or on behalf of the
client and not on the manufacture of alcoholic beverages itself.
He has argued that Section 65(19) of the Finance Act, 1994
while defining Business Auxiliary Service has mentioned the
words "services in relation to" and further at sub-clause (v),
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"production and processing of goods for and on behalf of
client". In addition to this, the exclusion clause has amended
and excludes the activity that amounts to manufacture of
excisable goods from the purview of said service, wherein the
'manufacture' has the meaning assigned to clause (f) of Section
2 of the Central Excise Act, 1944 and excisable goods has the
same meaning assigned to it under clause (d) of Section 2 of
the said Act. The service element came into existence when the
activities are performed for and on behalf of client for
consideration and thus, from the wording of Section 65(19), it
is clear that intention of the legislature is not to levy tax on the
manufacture of beverages', but the services rendered in
relation to production and processing of said goods for and on
behalf of client.
5.3 He has further submitted that in the present case the
appellant has been providing various services/facilities to SKOL
like, providing storage space for material, packaging materials
and finished products; maintaining accounts with regard to the
raw materials, packaging materials, and finished goods;
providing transportation, in war and out for handling of the raw
materials, packaging materials and finished products; providing
laboratory facilities, equipment and office space; providing
manpower for carrying out the work of SKOL. It is his
contention that all these above activities combine with the
actual brewing and bottling activity are the entire scope of the
work carried out by the appellant for and on behalf of SKOL.
Thus, it is clear that the appellant had provided services in
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relation to production or processing of goods for and on behalf
of SKOL. Therefore the services provided by appellant to SKOL
is clearly 'business auxiliary service'. Further, he has submitted
that on a plain reading of section 65 (19) of the Finance act
1994, it is quite clear that service tax is not levied on the
manufacture of alcoholic beverages, it is levied on the services
provided in relation to such manufacture/processing carried out
by the service provider for or on behalf of its client. Therefore,
the contention of the appellant that service tax which is sought
to be levied is nothing but tax on manufacture of goods or sale
of goods is totally incorrect.
5.4 The Ld. special counsel further submitted that the
appellants rendering services in relation to the manufacture or
processing of non-excisable goods for or on behalf of SKOL. As
per the amended definition of business auxiliary service, taxes
not levied when any person undertakes manufacturing of
alcoholic beverages on his own account. It is levied only when
services are provided in relation to production or processing of
goods for or on behalf of clients. It is to be noted that service
tax is being levied on the service provided and not on
manufacture or sale of alcoholic beverages. Therefore it is
incorrect to say that the activities undertaken by the appellant
amount the manufacture and outright sale of beer. Under the
agreement, the appellant has no option to effect any outright
sale of the branded beer to any person of its choice. Entire
production has to be sold to SKOL or to its indenters or other
person as may be determined and at the price communicated
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by SKOL on payment of state excise duty or VAT which would
be reimbursed to it by SKOL.
5.5 He has further submitted that as per the
'bottling/brewing agreement, the appellant is just a service
provider (i.e. job worker of SKOL). It has paid the job charges
i.e. service charges by SKOL, who are brand owner and who
have proprietary right over the goods. As per clause 2.8 of the
agreement, the appellant will manufacture and supply the beer
as may be determined by SKOL from time to time. As per
clause 2.9 the appellant shall supply the branded beer to SKOL
or to the indenters or other persons as may be determined by
SKOL. As per clause 3.3, the sale of SKOL beer shall be made
according to dispatch instruction issued by SKOL or its
nominated indenters and that invoices shall be raised by the
appellant at the prices communicated by SKOL from time to
time. As per clause 3.1, out of the sale proceeds collected from
the buyers the appellant will pay SKOL the net proceeds of Rs.
27/- per case of 12 bottles of 650 ML and 24 bottles of the 330
ML. The balance would be retained by appellant as service
charges which would cover manufacturing cost and
manufacturing profit.
5.6. Responding to the argument of the appellants that there is
no valuation mechanism for ascertaining the value of beer
manufactured on job work basis, learned special counsel has
submitted that section 67 of the Finance Act, 1994 read with
Service Tax (Determination of value) Rules, 2006 provides for
16
determination of value of taxable service for charging service
tax. Notification No. 39/2009-ST dated 23/9/2009 and the
clarification issued by the board dated 30/10/2009 provide for
the method of determination of taxable value for the services
rendered by any person in relation to production or processing
of alcoholic beverages for or on behalf of the client. He has
contended that the notification cannot create a liability, on the
contrary it reduces the burden of incidence of tax on the value
of inputs, subject to certain conditions.
5.7 Further, rebutting the argument that the date of merger
of brewing business of the appellant with M/s SKOL Breweries
Ltd. was 31/3/2009 and not 29/3/2019, the Ld. Special counsel
has urged that a combined reading of the meaning of
'appointed date', 'effective date', clause 2 which provides for
date of coming into effect, clause 9.5, clause 9.8 and clause 16
which provides that the scheme is conditional, would indicate
that merger becomes effective only upon fulfillment of all the
conditions as per clause 16 of the scheme of arrangement. It is
clear from the records that after approval of the scheme by the
Hon'ble High Court, certificate of incorporation was obtained
from the Registrar of Companies on 22/6/2012. Therefore the
effective date of merger would be 22/6/2012 and not
31/3/2009 as claimed by the appellant. Thus it follows that the
appellant had functioned independently till 21/6/2012 and
provided services to SKOL in relation to production or
processing of alcoholic beverages. In support he has referred to
the judgment of Hon'ble Patna High Court in the case of Tata
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iron and steel Co Ltd Vs. Presiding officer and others (2001)
IIILLJ 66 Pat., Tribunal in the case of Technocraft Industries
India Ltd Vs CCE Mumbai 2000(120) ELT 106 (T), CCE
Chandigarh Vs Nahar Industries Pvt. Ltd. 2009 (236) ELT 206
(T), Marigo Paints Ltd Vs CCE Vadodara 2014(308) ELT 421
(T),and Hon'ble Gujarat High Court in the case Indus Tower Ltd
Vs State of Gujarat 2017-TIOL-1845-HC-AHM-VAT.
5.8 On the issue of limitation, the Ld. Special counsel has
submitted that the appellant though provided services under
the taxable category of Business auxiliary service to its client, it
did not take registration under the said category and failed to
declare that the facts to the Department. Thus, non-declaration
of the said facts tantamounts to suppression of facts. Further
he has contended that the amendment to the definition of
business auxiliary service was from 1/9/2009 by the Finance
Act,1994 and the appellant was aware that its activities under
the bottling/brewing agreement dated 11/4/2007 with SKOL
are clearly covered by the definition of Business auxiliary
service under section 65(19) of the Finance Act, 1994. For the
said reason the appellant filed a writ petition No.6851 of 2013
before Hon'ble Bombay High Court challenging its constitutional
validity. Therefore it cannot be acceptable that under a
bonafide belief the appellant carried out manufacture and sale
of beer for and on behalf of SKOL. Further he has contended
that the argument that the department was aware of the
details of the contract of manufacturing agreement
dt.11.4.2007 hence extended period limitation cannot be made
18
applicable, does not obliterate the act of suppression of fact as
held by Hon'ble Gujarat High Court in the case of CCE, Surat-I
Vs. Neminath Fabrics Ltd. - 2010 (256) ELT 369 (Guj). Hence,
demand with interest have rightly conformed and appropriate
penalties imposed by the adjudicating authority.
6. Heard both sides at length and perused the records.
7. The issues involved in the present appeal for
determination are whether:
(i) the Appellants(formerly known as M/s Fosters India
Pvt. Ltd.), who manufactured beer, affixed with the
Brand name "Fosters" of M/s SKOL Breweries Ltd.
and sold under their instruction as per
Bottling/Brewing agreement dt.11.4.2007,
rendered services under the taxable category of
"Business Auxiliary Services"(BAS) and the
Computation of the demand is correct;
(ii) The merger/amalgamation of Appellant Company
with M/s SKOL Breweries Ltd. be taken as the
appointed date i.e. 31.3.2009 as per the scheme of
amalgamation or 21.06.2012, when the certified
copy of the order of High Court sanctioning the
scheme was filed with Registrar of Companies,
Mumbai, thereby, service rendered to self, for the
disputed period, hence no tax is payable;
(iii) the demand is barred by limitation.
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8. By virtue of an agreement between the Appellant and
M/s SKOL Breweries Ltd dt.11.04.2007, made effective from
12.09.2006, the Appellant agreed to manufacture beer, bearing
the brand name owned by M/s SKOL, and clear/sale the same
in the local market to the customers/indenters of M/s SKOL
Ltd. or supply the same to M/s SKOL itself. The sale proceeds
are retained by the Appellant but were required to pay Rs.27/-
per case of 12 bottles of beers as per the agreement to M/s
SKOL. The department confirmed service tax on the entire sale
proceeds received by the Appellant on sell of the said beer.
9. The Revenue alleged that the Appellants had provided
taxable service under the category of "Business Auxiliary
Service", as amended w.e.f 01.9.2009 particularly under
clause (v) i.e. production or processing of goods for, or on
behalf of the client, hence liable to service tax.
10. The Appellants in a simpler way, responded to the said
argument stating that even though under the bottling
agreement, the Appellant is required to manufacture and sell
the beer affixing/using brand name of M/s SKOL Breweries
Ltd., but the entire transaction is only that of a sale transaction
with the customers under a separate contract and no service
of 'production or processing of goods for, or on behalf of the
client' has been provided to M/s SKOL Breweries Ltd, since the
goods were manufactured out of their own raw material, using
their own infrastructure, and the consideration is paid by them
to M/s SKOL Breweries Ltd. for using their Brand name, and no
consideration was flowing from M/s SKOL Breweries Ltd. for the
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said service. In any case the demand of service tax cannot be
confirmed on the sale price of the branded beer to the
customer.
11. Before proceeding further, it is necessary to read the
relevant provisions of the Finance Act, 1994 i.e. the definition
of Business Auxiliary Services (BAS) as contained in Sec.65(19)
of the said Act prior to and after 01.09.2009.
Before 01.9.2009
[(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 goods for, or on behalf of, the client;]
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-
clauses (i) to (vi), such as billing, issue or collection or recovery
of cheques, payments, maintenance of 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 and any
activity that amounts to "manufacture" within the meaning of
clause (f) of Section 2 of the Central Excise Act,1944.
[Explanation. -- For the removal of doubts, it is hereby declared that for
the purposes of this clause, --
(a) "commission agent" means any person who acts on behalf of
another person and causes sale or purchase of goods, or provision or
receipt of services, for a consideration, and includes any person who,
while acting on behalf of another person --
(i) deals with goods or services or documents of title to such
goods or services; or
21
(ii) collects payment of sale price of such goods or services;
or
(iii) guarantees for collection or payment for such goods or
services; or
(iv) undertakes any activities relating to such sale or purchase
of such goods or services;
........................................................................
After 01.9.2009 [(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 goods for, or on behalf of, the client;]
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-
clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of 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 activity that amounts to manufacture of excisable goods].
[Explanation. -- For the removal of doubts, it is hereby declared that for the purposes of this clause, --
(a) "commission agent" means any person who acts on behalf of another person and causes sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person --
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services;
or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
[(b) "excisable goods" has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944); 22
(c) "manufacture" has the meaning assigned to it in clause (f) of section 2 of the Central
12. The change that has been brought into the definition of the BAS w.e.f. 01.9.2009 is the nerve chord of dispute. In the previous definition the exclusion clause was expressed as:
"[but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of Section 2 of the Central Excise Act,1944."
13. The amendment to the said clause reads as:
"but does not include any activity that amounts to manufacture of excisable goods.
14. And the meaning of "manufacture" and "excisable goods"
mentioned under the said clause reads as:
"(b) "excisable goods" has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944);
(c) "manufacture" has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944)."
15. Now, Reading both the provisions in juxtaposition prevailing prior to 1/9/2009 and thereafter, it can be noticed that in the earlier provision it was prescribed that any activity that amounts to manufacture within the meaning of section 2(f) of Central excise Act, 1944 be excluded from the scope of the said definition. It did not prescribe the resultant of such activity whether excisable goods or otherwise, but, by implication, it is to be understood that goods which fall within the purview of the Central Excise Tariff Act,1985 were only covered there under the exclusion clause. In the amended provision, after 1/9/2009, it is stipulated that to fall within the exclusion clause, not only the activity should be 'manufacture' 23 within the scope of section 2(f) of Central Excise Act, but the resultant should also be an 'excisable goods'. The meaning of 'manufacture' is retained as was assigned earlier however, the meaning of 'excisable goods' has been prescribed under the new provision.
16. The revenue's contention is that the mischief in the earlier provision which excluded the activity of 'manufacture', applicable both to excisable goods as well as non-excisable goods, in the amended provision has been removed as the exclusion clause restricted only to 'excisable goods' as defined under section 2 (d) of Central Excise Act, 1944. In other words, even if the activity carried out has resulted into 'manufacture' of non-excisable goods, such activity, even if satisfies the tests laid down in ascertaining whether a process or series of processes results into emergence of a product having different name, character, use, etc., and thus become 'manufacture', still it would fall under the category of 'Business auxiliary service', and leviable to service tax. The said argument of the revenue is in line with the circular issued by the board after amendment, the relevant portion reads as under:
Government of India Ministry of Finance Department of Revenue Tax Research Unit *** D.O.F. No.334/13/2009-TRU New Delhi, 6th July, 2009 Dear Chief Commissioner/Director General/Commissioner, The Finance Minister has introduced the Finance (No. 2) Bill, 2009 in the Lok Sabha on the 6th of July, 2009. Clause 112 of the Finance (No. 2) Bill, 2009 covers all the changes relating to Chapter V of Finance Act, 1994. Changes are also being proposed in the provisions of the, -24
xxxxxx
3. Alteration in the scope of existing taxable services :
The following alteration/modifications have been done in the existing taxable services. These changes would come into effect from a date to be notified after the enactment of the Finance (No. 2) Bill, 2009.
3.1 Modification in Business Auxiliary Service (BAS) [section 65(19)] It may be recalled that production or processing of goods for or on behalf of a client falls within the purview of this service. However, if any such activity amounts to manufacture within the meaning of section 2(f) of the Central Excise Act, the same is excluded from its purview. This exclusion has been modified to state that it would apply only if the activity results in manufacture of 'excisable goods'. Both the words/phrases i.e. 'manufacture' and 'excisable goods' would have the same meaning as defined under the Central Excise Act. The impact of this change would be that even if a process of manufacture is undertaken for the client, but the resultant product does not fall under the category of excisable goods, such as alcoholic beverages, the service tax would be attracted. Certain other goods which would also fall under BAS on account of the proposed change would be kept outside the tax net by way of exemption notification, to be issued at the appropriate time."
17. We find merit in the argument of the revenue. After the amendment to the definition of Business Auxiliary Service with effect from 1/9/2009, the activity of manufacture of non-excisable goods, that is alcoholic beverages, would fall within the scope of Business Auxiliary Service. This receives support from the judgment of Hon'ble Delhi High Court where under the constitutional vires of levy of service tax on the activity of brewing/bottling undertaken by the independent bottling/brewing Manufacturers of alcoholic beverages for their clients, has been held to be constitutionally valid. Therefore, it can safely be concluded that the activity of manufacture of alcoholic beverages, being not an excisable goods, accordingly, does not fall within the exclusion clause of the amended definition of Business Auxiliary Services. Consequently, the CBEC Circular No. 249/1/2006-CX-4 dt.27.10.2008 issued clarifying the applicability of un-amended definition of Business 25 Auxiliary Service, hence is not relevant to the facts of the present case.
18. The next vital argument advanced on behalf of the appellant is that the activity undertaken by them does not come within the scope of the clause (v), that is, "(v) production or processing of goods for, or on behalf of, the client;"
19. It is their contention that the beer is manufactured by them using their own raw materials, manpower, infrastructure and it is sold by them against consideration to the buyers under a separate contract, on payment of appropriate sales tax/VAT, hence, the production and manufacture of beer is on their own account and not for or on behalf of M/s SKOL, merely because of the fact that they affix the brand name belonging to M/SKOL. In support of their argument, they heavily relied upon the judgment of the Hon'ble Supreme Court in Cibatul Ltd.'s case, Delhi High Court judgment in Poona Bottling Co. Ltd.'s case, later upheld by the Hon'ble Supreme Court and other case laws on similar line.
20. In order to examine the said contention, it is quite essential to analyze the arrangement/agreement between the Appellant and M/s SKOL through the agreement dt.11.04.2007; the relevant conditions/stipulations reads as under:-
BOTTLING /BREWING AGREEMENT This Agreement ("this Agreement") is entered into on this eleventh day of April 2007 with retrospective effect from the twelfth day of September 2006 BY AND BETWEEN 26 SKOL BREWERIES LIMITED, a company incorporated under the provision of Companies Act, 1956, having its corporate office at Jalahalli Camp Road, Yeshwanthpur, Bangalore 560 022 (hereinafter referred to as "Skol" which expression shall, unless it be repugnant to the context or meaning thereof, be deemed to mean and include its successors and assigns) of the ONE PART.
AND FOSTERS INDIA PRIVATE LIMITED, a company incorporated under the provisions of the Companies Act, 1956 and having its registered office at Plot No.99, MIDC, Waluj, Aurangabad 431 136 (hereinafter referred to as FIPL which expression shall unless repugnant to the context or meaning thereof, be deemed to mean and include its successor or successors and buyer / buyers and permitted assigns) of the OTHER PART.
RECITALS A. FIPL 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 purpose own and operates a brewery at Plot No.l99, MIDC, Waluj, Aurangabad 431 136 under a valid and effective license from the State of Maharashtra.
B. Skol is a company also engaged in the business of manufacturing beer. Accordingly, the parties are desirous of entering into a contract manufacturing and sale arrangement for the production and sale of Skol Beer of the quality and quantity as prescribed by Skolwhich 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 thereof.
C. The parties have agreed mutually on the terms and conditions of the above arrangement and wish to reduce the same into writing.
NOW THIS AGREEMENT WITHNESSETH AS UNDER:
1. DEFINITIONS In this Agreement (including the Recitals) the following words and phrases shall, unless the context requires otherwise, have the following meanings -
1.1 Agreement Means this Agreement and any amendments, modifications, supplements, restatements, or notations thereto or thereof, as applicable.
1.2 Brewery Means the brewing plant of FIPL situated at Plot No.99, MDIC, Waluj, Aurangabad 431 136 where Skol beer shall be manufactured in accordance with the provisions of this Agreement.
1.3 Effective date Means 12 September 2006 27 1.4 Formulae Means all relevant information, data and material not otherwise generally known relating to manufacture of Skol beer and include characteristics, selection, judgment of properties and data relating to materials for the manufacture of Skol beer processes, techniques and methods used or useful in the production of Skol beer, owned and/or developed by Skol and disclosed to FIPL hereunder.
1.5 Indenters Has the meaning assigned to it in Clause 2.9 1.6 Person Includes bodies corporate, individuals, firms, partnerships and any other body of persons whether incorporated or not.
1.7 Specifications Means the specifications for the composition, process procedures, standards of quality, packaging, storing and presentation of Skol Beer, including all information relating to raw materials, ingredients, chemicals and Formulae used in connection with the brewing of Skol Beer, methods, processes, procedures, recipes, secrets, operating manuals, knowledge and any general and technical information relating to brewing and dealing with the Skol Beer which Skol notifies to FIPL from time to time, including any changes Skol may make at its absolute discretion;
1.8 SKOL Beer Means goods manufactured under the Trade Marks belonging to Skol.
2. GENERAL OBLIGATION 2.1 Subject to the terms and conditions herein 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 Sates they should be transported, supplied and sold in and the manner and pricing thereof.
2.2 Further, 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 binding on FIPL.
2.3 FIPL shall not advertise, market or promote Skol Beer.28
2.4 FIPL agrees to manufacture the quality of Skol Beer as per the Specifications laid down by Skol. In the event that the quality of the Skol Beer manufactured by FIPL does not conform to the Specifications, the same shall be deemed to be a material breach of this Agreement by FIPL.
2.5 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.
2.6 FIPL shall immediately set aside storage space to store all raw materials, packing materials and chemicals and consumables to be used for manufacturing Skol Beer and keep and maintain adequate records and provide complete and accurate information on stocks of raw materials, packing material and chemicals and consumables on a weekly basis and in any event upon such request being made by Skol.
2.7 FIPL shall permit Skol's technical representatives ("Skol Representatives") to enter its premises who shall from time to time supervise the manufacture of Skol Beer at the Brewery. FIPL shall, free of charge, provide suitable office accommodation and laboratory chemicals equipment/s etc, and facilities to the satisfaction of Skol for the Skol Representative to be deputed at the Brewery for supervision as deemed fit by Skol.
The presence of the Skol Representative shall not absolve FIPL of its responsibility to manufacture Skol Beer according to the Specifications. FIPL shall solely be responsible for maintaining appropriate quality standards of Skol Beer and packaging as per relevant applicable laws. In the event of any claims or complaints being made by any third party in relation to the quality of Skol Beer or packaging, of the Skol Beer manufactured and bottled by FIPL under this Agreement, FIPL, shall, at its cost, arrange to collect such stocks (after getting necessary excise and other permissions), and drain the same in the presence of Skol Representative. In any event, FIPL shall indemnify Skol against all claims, processing, 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 information delay or loss in production or deterioration in the quality of the Skol Beer manufactured by FIPL, due to machinery breakdown or any other reason.
2.8 FIPL agrees to manufacture and make available and supply, the Skol Beer as may be determined by Skol 29 from time to time. The quantities are subject to a variation of plus or minus 10% (ten percent). 2.9 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/ licences under the relevant excise laws or other applicable regulations to purchase/deal in Skol Beer (the said Persons hereinafter collectively called "Indenters") as Skol may from time to time direct.
2.10 FIPL agrees that it will comply with all the environmental laws, directives, rules and regulations and legal requirements as required by the Maharashtra Pollution Control Board.
2.11 FIPL shall ensure that the plant is in proper running condition for continuous operations at all times. FIPL shall ensure payments to the state electricity board and other local authorities as per due dates to avoid any disruption in the smooth operation of the Brewery and production of Skol Beer. FIPL has assured Skol that it has the necessary infrastructure and manpower to implement the provisions of this Agreement. 2.12 FIPL and Skol shall respectively comply with all the laws and statutory rules and regulations relating to manufacture and sale of Skol Beer.
2.13 FIPL hereby agrees that it will not enter into any contracts with any companies manufacturing and marketing brands owned by United Breweries, Asia Pacific Breweries, Inbev, Carisberg or Scottish and Newcastle or any other multinational or local brewer. 2.14 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 that are for the account of FIPL. 2.15 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 feefor labels shall be borne by Skol.
2.16 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 30 directions of Skol in terms of this Agreement. 2.17 Skol shall depute Skol Representatives and/or other technical personnel at its cost who shall be competent to supervise the whole process of manufacturing, bottling, dispatch and/or other related works and who shall from time to time supervise the manufacture of Skol Beer at the Brewery covered under this Agreement.
2.18 Skol shall inform FIPL in writing the name of the Skol Representatives/technical personnel to be deputed by Skol from time to time as mentioned above prior to such deputation and FIPL undertakes and assures all co- operation, assistance and access to all such departments for this purpose of such supervision.
2.19 Skol shall be responsible for sending excise duty paid import/bond permits to FIPL to enable FIPL to dispatch Skol Beer to Skol or the indenters as the case may be. Wherever necessary, Skol shall be responsible for obtaining the verification certificates and/or other evidences from the excise authorities with regard to the dispatches of Skol Beer and furnish the same to FIPL. 2.20 Skol shall be free to resell or direct the sale to the indenters of Skol Beer on such terms and conditions as Skol may determine in its sole discretion.
2.21 Skol will provide detailed Specifications for each brand or product comprising Skol Beer to be manufactured by FIPL, Skol shall consult with FIPL the production schedule for different brands/products of Skol Beer, at periodic meetings and the production plan of FIPL shall be drawn in advance for the succeeding month, atleast15 (fifteen) days before the beginning of such succeeding month, which plan shall not be modified without the prior approval of Skol.
2.22 Any deduction in Indenters on supply of Skol Beer will be to the account of Skol.
2.23 FIPL hereby confirms represents and warrants that there are no legal or contractual impediments to enter into contracts for the manufacture of Skol Beer by FIPL and generally give effect to the terms and conditions of the Agreement by Skol and FIPL.
2.24 FIPL, on a request from Skol, shall produce and make available any additional quantities as may be agreed upon.
2.25 FIPL is further obligated to ensure that packaging, including body labels, back labels, foils, etc, shall be in accordance with directions given by Skol, from time to time and that the Skol Beer shall be bottled in universally acceptable beer bottles or as may be 31 specified by Skol.
3. PRICES 3.1 Skol and FIPL shall, from time to time, agree on the sale price of a Beer case of 12 (twelve) bottles of 650 ml and 24 (twenty four) bottles of 330 ml each of Skol Beer (a "Case") manufactured by FIPL in terms of and in accordance with this Agreement. Out of sale proceeds collected from the indenters, FIPL will pay Skol the net proceeds of Rs.27/- (Rupees Twenty Seven only) per case.
3.2 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 other levies and indemnify Skol against any liabilities arising thereof. FIPL also agrees to pass on the concessions/exemptions on taxes or duties and levies to Skol as long as such benefits are made available to them.
3.3 The Parties agree that the sale of Skol Beer shall be made according to dispatch instructions issued by Skolor 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 Skol's account.
..................................................................................................
21. On a quick analysis of the aforesaid stipulations, reveals that the object and purpose of the agreement is clearly mentioned in clause (B) of the Recitals; the intention of the parties is to enter into a contract of manufacturing and sale arrangement for the production and sale of SKOL beer as per the quality and quantity prescribed by M/S SKOL and the appellant accepts to produce, bottle and dispatch the beer to Skol and/or to its indenters. Under the general obligations, it is clear from clause 2.1 that the appellant is required to brew and bottle at their Brewery the Skol brand beer and supply/sale the 32 same in accordance with the directions and instructions of Skol; clause 2.2 stipulates that the price at which the beer are to be supplied and sold be determined by Skol; clause 2.3 states that the appellant shall not advertise, market or promote Skol beer; clause 2.4 mentioned that if the quality of the Skol beer manufactured by appellant does not conform to the specification then it shall be treated as breach of agreement; clause 2.5 stipulates that the appellant will obtain at its cost all the materials packing materials levels chemicals renewables in accordance with the specifications as specified by Skol; clause 2.6 requires the appellant to maintain adequate records and provide complete and accurate information on stocks of raw materials, consumables etc. on weekly basis; close 2.7 prescribes that the technical representatives of M/s Skol be allowed to supervise the manufacture of beer at the Brewery and the appellant shall provide suitable office accommodation and laboratory chemicals equipment etc. free of charge; clause 2.9 stipulates that the appellants shall supply/invoice by said to Skol or to the indenters or other persons as may be determined by Skol; clause 2.11 stipulates that the plant is in proper running condition for continuous operations at all times and appellant shall ensure payment of all dues to the local Electricity Board and other authorities to avoid disruption of production; clause 2.14 stipulates that all expenses namely, diesel, furnace oil, water, power, stores and spares for plant and machinery, consumables, workers remuneration, fixed overheads local licenses fees, taxes and other statutory levies shall be borne by the appellant; under clause 3.1 SKOL and 33 appellant shall agree on the sale price of a beer case of 12 bottles of 650ml. and 24 bottles of 330ml and out of the sale proceeds collected from the indenters, the appellant will pay Skol the net proceeds of ₹ 27 per case; clause 3.2 stipulates that the net proceeds shall be exclusive of excise duty, sales tax octroi, freight, breakages, transit insurance etc.; clause 3.3 states that sale of beer be made according to dispatch instructions issued by Skol or its indenters, the invoices shall be raised by appellant at the prices communicated by Skol to them chronically, the appellants shall not be entitled to receive any amount other than expressly set out and any other realization from sale of Skol beer shall be remitted to Skol's account.
22. In nut shell, the Appellant was to procure raw materials, packing materials, lables, chemicals, consumables, manufacture using its own infrastructure, manpower in accordance with the specifications and standards, affix the brand name "Fosters" under the strict supervision of M/s Skol Brewery Ltd., maintain the quality and standard; the price of the branded beer would be determined by M/s Skol Brewery Ltd and the goods were to be sold only under the instructions of M/s Skol Brewery Ltd to the customers/indenters as may be directed.
23. The Revenue's contention is that the condition of arrangement between the Appellant M/s Skol Brewery Ltd. is that of production of goods for, or on behalf of M/s Skol Brewery Ltd/. In rebuttal the contention of the learned 34 Advocate for the Appellant referring to the judgment of Hon'ble Supreme Court in Cibatul Ltd's case (supra), is that the buyer in the said case could not be designated as a 'manufacturer' of the goods for and on behalf of the seller merely because the same were manufactured bearing brand name of the seller- supplier and out of raw materials and joint manufacturing programme drawn by the buyer and the seller.
24. In the said case the facts in brief are that M/s Cibatul Ltd (the seller) had entered into an agreement with M/s Ciba Geigy of India Ltd.(the buyer) on 24.07.1971 under which the products, namely, UF resins and MF resins were to be manufactured by the seller in accordance with the manufacturing programme drawn up jointly by seller and the buyer. The Resins were to be manufactured in accordance with the restrictions and specifications constituting buyer's standards and they were supplied at the prices agreed upon between the sellers and the buyers from time to time. The buyer was entitled to test a sample of each batch of these goods and it was only after approval by the buyers the goods were released for sale to the buyers. The buyer, who obtained trademarks from its foreign company, authorised the seller to affix the trade mark and the seller was to do so "as an agent"
for and on behalf of the buyer and not on his own account.
The Respondents M/s Cibatul Limited filed price list declaring the wholesale prices of the manufactured goods. The Assistant Collector revised the wholesale prices upward on the basis of wholesale prices at which the buyer sold the products in the market. The question before Hon'ble Supreme Court was 35 whether the wholesale price of the goods at which it was sold by the seller to the buyer for assessment or the price at which the buyer sold the goods in wholesale in the market be adopted for the purpose of assessment. In these circumstances, the Hon'ble Supreme Court has held that the goods were manufactured by the seller M/s Cibatul Ltd. on his own account and not on behalf of the buyer, hence, the whole sale price at which it was cleared/sold to the buyer M/s Ciba Geigy Ltd. be relevant for excise duty purpose.
25. In Poona Bottling's case, the petitioner was manufacturing and bottling of soft drinks like Gold Spot, Limca, Thumsup etc. They are registered with the Central Excise Department for the purpose of manufacturing the said soft drinks and installed the bottling plant by an investment of about Rs.40 lakhs. For the manufacturing of soft drinks it has to be purchase numerous articles such as bottles, crown corks, sugar, citric acid etc. Besides these, it also purchased essence from M/s Parle under franchise agreement dt.25.07.1977 and 27.02.1978. The issue was whether because of franchise agreement between the petitioner and M/s Parle, it would be construed that the petitioner deemed to have been manufacturing the soft drinks for and on behalf of M/s Parle. By virtue of notification number 211/77 dt.4.7.1977 a manufacturer of aerated waters allowed partial exemption from duty, not exceeding fifty lakh bottles for home consumption by or on behalf of a manufacturer from one or more factories during any financial year subsequent to 1977-78 and for such clearances not exceeding thirty seven lakh bottles 36 during the period commencing from July 4 1977 and ending till 31 March 1978.Analyzing the franchise agreement and the provisions of Contract Act, the Hon'ble High Court has held that the petitioner are the manufacturers of soft drinks and not M/s Parle who was not issued with notice for exceeding the prescribed limit for allowing the exemption from excise duty.
26. We do not find relevance of the principle laid down in the aforesaid judgments, inasmuch as the question involved in these cases for determination as to who was the manufacturer within the provisions of Central Excise Act for the propose of valuation in Cibatul Ltd.'s case and eligibility of exemption Notification in Poona Bottling Ltd.'s case. In the present case, the levy is on rendering of services, in contrast to the aforesaid cases, where the taxable event is on the manufacture of goods and liability to discharge the duty is on the manufacturer of goods. Further, the question in the instant case is neither the assessment of beer, nor who is the manufacturer, but it is the service rendered by the Appellant in the production of the beer to cater to the marketing needs of M/s SKOL. Therefore, the ratio laid down in the aforesaid judgments cannot be made applicable to the present case.
27. It is the contention of the Appellant that in any service, consideration flows from the service receiver to the service provider, whereas in the present case, the appellants paid Rs.27/- per case of twelve bottles to M/s Skol, hence, it is not a service. At the first blush the argument sounds quite attractive but on deeper analysis will not be sustainable. The 37 arrangement/agreement for manufacture and sale of branded alcoholic beverages between the appellant and M/s Skol is a complex one; even though the appellant is authorised to sale the manufactured branded beer in the local market, but the customers/indenters are as per the instruction of M/s Skol; the sale price is fixed by M/s Skol after mutual consultation. Thus it is not a simple provision of service agreement, where under, the service is flown from appellant to M/s Skol and the consideration is received against the service rendered. It is the argument advanced on behalf of the revenue that the service charges are adjusted against the sale price, and the balance amount returned to the service receiver out of the sale proceeds of manufactured branded beer for and on behalf M/s SKOL. Thus in determining the taxable value, in the present circumstances, Notification 39/2009 dt. 23.9.2009 has been issued, allowing deductions on the value of inputs used in the manufacture/processing of alcoholic beverages, subject to the conditions laid down there under. The said Notification reads as:
Business Auxiliary Services -- Exemption to value of inputs used for providing taxable service during manufacture/processing of alcoholic beverages In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable service specified in sub-clause (zzb) of clause 105 of section 65 of the Finance Act, provided by a person (hereinafter called the 'service provider') to any other person (hereinafter called the '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 same service, subject to the following conditions, namely :-38
(a) that no Cenvat credit has been taken under the provisions of the Cenvat Credit Rules, 2004;
(b) that there is documentary proof specifically indicating the value of such inputs; and
(c) 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, despatches of goods as well as financial transactions relating thereto.
2. This notification shall come into force on the date of publication in the Gazette of India.
Explanation.- For the purposes of this notification, the words or phrase 'input', or as the case may be, 'capital goods' shall have the meaning as is assigned to them under rule 2 of the Cenvat Credit Rules, 2004.
[Notification No. 39/2009-S.T., dated 23-9-2009] Therefore, the value of the services needs to be determined keeping in mind the aforesaid notification and the principles of valuation prescribed under Section 67 of the Finance Act and the Valuation Rules, 2006. The Adjudicating authority has erred in adopting the sale price of the Appellant.
28. The next issue for determination is the date of amalgamation/ transfer of the Appellant's brewery unit with M/s Skol Breweries Ltd. In the scheme of arrangement as per Section 391 to 394 of the Companies Act, 1956 for amalgamation of the Appellant's brewery division with M/s Skol Breweries Ltd., the appointed date and the effective date have been defined under Clause 1.1 (b) & (f) of the said scheme, respectively, as follows:-
(b) "Appointed Date" means the close of business hour on 31st March 2009 or such other date as may be fixed by the High Court of Judicature at Bombay, or by such other authority having jurisdiction under law.39
......
(f) "Effective Date" means the last of the dates on which all the conditions and matters referred to in Clause 16 hereof have been fulfilled. References in this Scheme to the date of "coming into effect of this Scheme" or "effectiveness of the Scheme" shall mean the Effective Date.
In Clause 2 of the said arrangement, it is mentioned as:
2. Date of Coming into Effect:
The scheme shall be deemed to be effective from the appointed date, but shall be operative from the Effective date.
29. The Hon'ble Bombay High Court by order dt.29.03.2012, allowed the said Scheme and directed the petitioner company to lodge copy of the order and the scheme with the concerned Registrar of Companies within 30 days from the date of issue of the order by the Registrar. It is the contention of the Appellant that the appointed date i.e.31.03.2009 be considered as deemed transfer date of the Appellant Company and not the effective date, whereas Revenue's contention is that the scheme of amalgamation would come into force only on submission of the Hon'ble High Court's order and receipt of new certificate of incorporation from the Registrar of Companies, i.e. 22.06.2012 as per clause 16 of the scheme dealing with conditionality of the Scheme.
30. The learned Advocate, in support of their contention that the appointed date be considered as the date of transfer of brewing business of the Appellant Company and merging with M/s Skol, placed reliance on the judgment of Hon'ble Supreme Court in the case of Marshal & Sons & Co India Ltd Vs ITO 40 (1997) 2SCC 302, CIT Vs. Swastic Rubber Products Ltd, 1983 (140) ITR 304 (Bom.), State of Andhra Pradesh Vs Jindal Strips,(2007) 10 VST 777; Usha International Ltd. Vs CCE 2016 (43) STR 552 (Tri.-Del), CIT Kanpur Vs Reliance Media Works Ltd.(2017) 394 ITR 427;Gujrat High Court Order dt. 16.7.2012 in Cadilla Healthcare Ltd Vs Dy.Commissioner of Sales Tax, National Organic Chemical Industries Ltd Vs State of Maharashtra 2004 (135) STC (Bom.).
31. Revenue, on the other hand, placed the judgment of Hon'ble Patna High Court in the case of Tata Iron and Steel Co Ltd Vs. Presiding officer and others (2001) IIILLJ 66 Pat., Tribunal decisions in the case of Technocraft Industries India Ltd Vs CCE Mumbai 2000(120) ELT 106 (T), CCE Chandigarh Vs Nahar Industries Pvt. Ltd. 2009(236) ELT 206 (T) Marigo Paints Ltd Vs CCE Vadodara 2014(308) ELT421(T),and also the Hon'ble Gujarat High Court judgment in the case Indus Tower Ltd Vs State of Gujarat 2017-TIOL-1845-HC-AHM-VAT.
32. The principle in this regard has been considered in the context of Income Tax Act,1961 by Hon'ble Supreme Court in Marshal & Sons Co. India Ltd's case(supra). Their Lordships at Para 14, observed as follows:-
"14. Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. 1.1.1982. it is true that while sanctioning the scheme, it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the Court so specifies a date, there is little doubt that such date would be the date of amalgamation/date of transfer. But where the Court does not prescribe any specific date but merely sanction sanctions the 41 scheme prescribed to it - as has happened in this case - it should follow that the date of amalgamation/date of transfer is the date specified in the scheme as "the transfer date". It cannot be otherwise. It must be remembered that before applying to the Court under Section 391(1), a scheme has to be framed and such scheme has to contain a date of amalgamation/transfer. The proceedings before the Court may take some time; indeed, they are bound to take some time because several steps provided by Sections 391 and 394- A and the relevant Rules have to be followed and complied with. During the period the proceedings are pending before the Court, both the amalgamating units, i.e. the Transferor Company and the Transferee Company may carry on business, as has happened in this case but normally provision is made for this aspect also in the scheme of amalgamation. In the scheme before us, clause 6(b) does expressly provide that with effect from the transfer date, the Transferor Company (Subsidiary Company) shall be deemed to have carried on the business for and on behalf of the Transferee Company (Holding Company) with all attendant consequences. It is equally relevant to notice that the courts have not only sanctioned the scheme in this case but have also not specified any other date as the date of transfer/amalgamation. In such a situation, it would not be reasonable to say that the scheme of amalgamation takes effect on and from the date of the order sanctioning the scheme. We are, therefore, of the opinion that the notices issued by the Income Tax Officer (impugned in the writ petition) were not warranted in law. The business carried on by the Transferor Company (Subsidiary Company) should be deemed to have been carried on for and on behalf of the Transferee Company. This is the necessary and the logical consequence of the Court sanctioning the scheme of amalgamation as presented to it. The order of the Court sanctioning the scheme, the filing of the certified copies of the orders of the Court before the Registrar of Companies, the allotment of shares etc may have all taken place subsequent to the date of amalgamation/ transfer, yet the date of amalgamation in the circumstances of this case would be 1.1.1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal Vs Bank of Upper India Ltd."
33. The Hon'ble Andhra Pradesh High Court in Jindal Strips Ltd.'s case, while considering the issue whether the merger of two companies was w.e.f. 01.04.1995 or from the effective date i.e. 19.09.1996, for the purpose of demand of sales tax/VAT, following the ratio laid down by Hon'ble Supreme Court in Marshal Sons & Co.'s case, held that while approving the scheme if the Court has not fixed any specific date as the effective date, then the date agreed upon by the parties would be the effective date of amalgamation.
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34. This Tribunal in the case of ITC Hotels Ltd.'s case (supra) was confronted with the question whether the amalgamation of M/s ITC Hotels Ltd and M/s Ansal Hotels Ltd with the parent company M/s ITC Ltd. was as on 01.04.2004,i.e. the appointed date as per the Amalgamation schemeduly approved by the Hon'ble High Courts or the effective date of amalgamation, when the application filed with Registrar of companies that is 23.03.2005. Following the judgment of Hon'ble Supreme Court in Marshall Sons & Co. Ltd.'s case, it is held that the date of amalgamation would be the 'appointed date' presented in the scheme. Further, the Tribunal has observed that even though the said judgment was delivered in the context of Income Tax law, but binding relating to the issues arising under Central Excise Act or under Chapter 5 of Finance Act, 1994.It is observed as:
"10. The law declared by the Apex Court is binding and is required to be followed. The submission of the learned DR that the ratio of the above judgment given in the context of income tax would not be applicable to the facts of the present case as there is no specific provision to that effect under the Central Excise Act or under the Chapter V of the Finance Act, 1994 cannot be appreciated inasmuch as the law declared by the Supreme Court is binding on all the Courts, in terms of the Article 141 of the Indian Constitution. The Hon'ble High Court of Delhi and the Kolkata having held the date of amalgamation as 1-4-2004 has to be considered as the correct date of amalgamation. If that be so, admittedly, the appellant cannot be held to be providing services to itself. The Tribunal in the case of Precot Mills - 2006-TIOL- 818-CESTAT-BANG. = 2006 (2) S.T.R. 495 (Tri.-Bang.), has held that for leviability of service tax, there should be a service provider and a service receiver. No one renders service oneself, as such, there can be no question of leviability of service tax. Having held that the amalgamation is effective from 1-4-2004, the service provided by the respondent has to be considered as provided to himself, in which case, no service tax would arise against them. The order of the Commissioner cannot be faulted upon on this ground. At this stage, we may take into consideration the learned DR's reference to clause 7 of the scheme of amalgamation which is as follows :
"7. Savings of concluded Transactions : The transfer of the undertaking of the Transferor Companies under clause 4 above, the continuance of the proceedings under clause 5 above and the effectiveness of 43 contacts and deeds under clause 6 above, shall not effect any transaction or the proceeding already concluded by the transferor companies on or before the effective date and shall be deemed to have been done and executed on behalf of the Transferee Company."
By referring to the above clause, the contention of the learned DR is that any transaction or proceeding conducted by the transferor company on or before the effective date will not be affected by the scheme of amalgamation. However, we find that such clause stands incorrectly interpreted by the learned DR. A reading of the above clause is reflective of the fact that the action of the transferor company on or before the effective date shall be deemed to have been done and executed on behalf of the transferee company. As such, it is clear that the said clause supports the respondent's stand that any business conducted by the respondents is to be held as having been conducted on behalf of the transferee company. As such, the service tax provided to the ITC Ltd. and Ansal Hotels Ltd. have to be considered as having been provided on behalf of the transferee company viz. ITC. Ltd., in which case, no service tax liability would arise against the service provider."
35. Subsequently, this Tribunal, in Usha International Ltd.'s case, has considered all the aforesaid three judgments. The facts leading to the issue before the Tribunal was that a refund claim of Rs.84,76,586/- of service tax paid on royalty paid by the transferee company Usha International Ltd to M/s Joy Engineering Ltd, the transferor Company was filed on the basis of High Court's order dt.26.05.2008 approving the merger w.e.f. 01.04.2007 being the appointed date. This Tribunal, applying the principle laid down in Marshall Sons & Co. and that of Jindal Strips Ltd, held as follows:-
"7. In the light of the foregoing binding precedents there remains no scope for any debate that the date of amalgamation in the present case is to be held to be 1-4-2007 and not 20-6-2008. Obvious consequence of this is that the service rendered during the impugned period (1-4-2007 to 31- 3-2008) became service to self and consequently service tax paid during the said period became eligible for refund. ..............................................................................................................."
36. Revenue has referred to the judgment of Hon'ble Patna High Court in Tata Iron & Steel Co. Ltd's case. In the said case, there was merger/amalgamation of its subsidiary M/s 44 Indian Tube Co. Ltd with the holding company i.e M/s Tata Iron & Steel Co. Ltd. The issue before the Court was what pay scale, dearness allowance and other benefits the employees are entitled and from which the same shall be given to them. The Tube company merged with Tata Iron & Steel Co. Ltd with effect from 1.4 1983, the appointed date where as the Bombay High Court and Calcutta High Court had passed the Order on 15.5.1985 and the copy of the Orders were filed with the Registrar of Companies on 01.09.1985 and the scheme of amalgamation became effective from 01.10.1985. Taking note of the clauses relating to the effective date of operation of the scheme vis-à-vis clause 7 of the scheme which provides that the transferee company shall give a general notice of offer to the date preceding the effecting date offering employment to all the employees of the transferor company, the Hon'ble Patna High Court held that for the said purpose, the effective date would be considered for transfer of employees from the transferee company to transferor company as 01.10.1985. We do not find any relevance of the said judgment to the facts of the present case. The other judgments referred to by the Revenue viz. Technocrafts Industries India Ltd, Nahar Industrial Enterprises Ltd, which are passed while examining the question of extending the benefit of SSI exemption on amalgamation from the effective date as per the Order of the Court. The revenue has further argued that since the service tax was payable on the services rendered by the appellant to M/s Skol from 1/4/2009 to 22/6/2012, the said liability cannot be extinguished because of merger deemed to have been 45 applicable from the appointed date. In support, they referred to the recent judgment of Hon'ble Gujarat High Court in Indus Tower Ltd.'s case. In the said case a writ petition was filed under Article 226 of Constitution of India with prayer seeking declaration of Section 52 of GVAT Act 2003 as ultra vires to the Constitution of India. Their Lordships, distinguishing the judgment of Hon'ble Supreme Court in Marshall Sons & Co. Ltd case, observed as follows:-
"21. The decision of the Hon'ble Supreme Court in the case of Marshall Sons & Company Limited V. ITO (supra) is concerned, their cannot be any dispute with respect to the proposition of law laid down by the Apex Court, however, the same shall not be applicable to the facts of the case on hand; more particularly, considering Section 52 of the GVAT Act. As observed hereinabove, neither Section 52 of the GVAT Act cannot be said to be an encroachment upon the powers of the Union Legislation, as envisaged under Section 246 of the Constitution nor the same can be said to be in conflict with the provisions of the Companies Act, 1956. Therefore, the decision of Hon'ble Supreme Court in the case of State of West Bengal &Ors Vs Committee for Protection of Democratic Rights, West Bengal & Ors. (supra) as well as UCO Bank &Ors. Vs Dipak Debbarma & Ors. (supra) relied upon by the learned Counsel for the petitioners shall not be of any assistance to the petitioners. As observed hereinabove, both the Acts operate in different fields and with respect to different eventualities. Therefore, considering the pith and substance of Section 52 of the GVAT Act, it cannot be said to be in conflict with the Union Legislation."
Consequently, upholding the constitutional vires Section 62 of GVAT Act, 2003, their Lordships observed as follows:-
"28. In view of the above and for the reasons afore stated, it is held that Section 52 of the Gujarat Value Added Tax Act cannot be said to be beyond legislative competence, and therefore, the same cannot be said to be ultra vires to Article 246 & 252 of the Constitution of India. It is held that Section 52 of the GVAT Act is within the State legislative competence under Entry 52 of List II of Seventh Schedule and the same cannot be said to be encroaching upon the powers of the Union legislation. Therefore, challenge to the constitutional validity of Section 2 (23) (d) and 52 of the to the GVAT Act fails."46
37. We do not find any relevance of the said judgment to the present case as no such enactment has been passed validating levy of collection of service tax under the Finance Act,1994 similar to that of Sec.52 of GVAT Act. Therefore, the 'appointed date' i.e. as on 31.3.2009 be taken as the date of amalgamation/merger of the Brewery Division with M/s SKOL as sanctioned by the Hon'ble Bombay High Court.
38. The learned Advocate for the Appellant has further submitted that the demand is barred by limitation as initiating investigation on the very same agreement dt.11.4.2007, periodical show cause notices were issued for the period September 2006 to March 2007 to M/s SKOL Breweries Ltd. demanding service tax of amount of Rs.27/- per case of 12 bottles under the category of Intellectual Property Right and alternatively under Franchise service. Therefore, the fact that the Appellant had manufactured beer, affixed the brand name of SKOL and supplied it to them or sold to the customers of M/s SKOL is known to the department. Therefore, there was no suppression of fact, hence, extended period of limitation cannot be invoked. We find substance in the argument of the learned Advocate for the Appellant. We have gone through the sample show cause notices annexed to the appeal memo and find that for the very same agreement, investigations have been initiated by the Appellant against M/s SKOL and demand was issued for recovery of service tax on the amount of Rs.27/- per case of 12 bottles by the Appellant to M/s SKOL as per the arrangement/agreement dated 11.04.2007. Therefore, the demand is barred by limitation.
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39. We summarize are finding as follows:-
(i) During the relevant period, the Appellant had rendered services to M/s SKOL Beverages Ltd, falling under the amended definition of "Business Auxiliary Service" as laid down under Section 65 (19) of Finance Act, 1994 and the computation of demand ought to have been carried out taking note of Notification No.39/2009, dt.23.03.2009.
(ii) The appointed date in the scheme of amalgamation i.e. 31.03.2009 be considered as the date for considering the service tax liability and not the effective date when the certificate of incorporation was issued by the Registrar of Companies i.e. 21.06.2012.
(iii) Demand is barred by limitation.
40. In view of the above, the impugned order is set aside and the appeal is allowed. CO disposed off.
(Order pronounced in the open court on 11.07.2019) (D.M. Misra) Member (Judicial) (Sanjeev Srivastava) Member (Technical) Bahalkar