ST - FIPL is only a Bottling Unit, supplying beer - sale is also being made to appellant or to its Indenters - Thus, appellant has neither provided any Franchise Service nor any IPR to FIPL - demands set aside: CESTAT
By TIOL News Service
MUMBAI, APR 18, 2014: THE appellant 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 alleges that Foster India Pvt. Ltd. is using the brand name and technical know-how of another person (appellant) and in lieu of which they are paying consideration to the appellant. Inasmuch as on this consideration received, the appellant is required to pay service tax under the category of ‘Intellectual Property Right' is the stand of the department.
Accordingly, SCNs were issued for recovery of ST in excess of Rs.1.60 crores and seeking imposition of interest and also proposing to impose penalties.
The demands were confirmed by the lower authorities.
Before the CESTAT, the appellant referred to the various clauses in the agreement and submitted 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; 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 to be set aside.
The appellant also relied on the 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) and 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) and submitted 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 appellant's case prior to 1.9.2009. Reliance is also placed on the ruling of Co-ordinate bench of the 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 note of clarification issued vide Board's Circular dated 30.10.2009.
The Revenue representative supported the Order-in-Original and the appellate order.
The Bench observed -
"8. …, 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 fastened 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 an franchisee and includes any associated 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'."
In fine, the orders of the lower authorities were set aside and the appeals are allowed with consequential relief.
In passing : Stay - un-stay -Also see 2010-TIOL-1894-CESTAT-MUM.
(See 2014-TIOL-588-CESTAT-MUM)
