By TIOL News Service

MUMBAI, FEB 14, 2015: THE Assessee is manufacturing 'country liquor' under their own brand name "Pahili Dhar" which is approved by the State Excise Authority. The assessee had entered into 'selling agency agreement' with M/s Talreja Trade (HUF), Karad with intention to obtain higher returns on their investments in their country liquor plant by increasing the sale of country liquor of "Pahili Dhar" brand. As per the said agreement, the packing material, essence, etc. (required for manufacture/packing of the country liquor bearing "Pahili Dhar" brand) was to be supplied by M/s Talreja Trade (HUF) and M/s Talreja Trade (HUF) was supposed to collect the sale proceeds from the customers (to whom the country liquor of "Pahili Dhar" brand is sold by the assessee (as suggested by him)) and after deducting the price of the packing material, essence, etc. (supplied by him to the assessee) from the said sale proceeds, the remaining sale proceeds were to be handed over by him to the Assessee.

The Revenue is of the view that the assessee have undertaken manufacture of 'country liquor' from spirit on job work basis for M/s Talreja Trade. This activity falls under the category 'Business Auxiliary Services'. Further, the assessee have allowed M/s Talreja Trade to use its brand name "Pahili Dhar" for marketing 'country liquor' and this activity falls under the category intellectual property services.

Accordingly SCN was issued demanding Service Tax of Rs.13,80,627/- towards 'Business Auxiliary Services' and Rs.40,88,516/- towards 'Intellectual property service'.

The demand towards 'Business Auxiliary Services' was dropped but the demand of Rs.40,88,516/- under the category of 'Intellectual Property Service' was confirmed along with penalties. Finding was recorded that M/s Talreja Trade pays the 'minimum guaranteed margin' for sale of 50,000 bottles to the assessee and this amount is 'royalty' for the use of brand name.

The Bench after going through the 'Sole Selling Agents' agreement and the statements recorded observed -

"9. …, on appreciation of the clauses of agreement with the evidence on record, it is evident that no 'Intellectual Property Service' have been given by the respondent. The arrangement/agreement between the respondent and M/s Talreja Trade are for ensuring maximum production and sale of C.L. so as to maximise profits for both the parties. The minimum guarantee of profit per month given or assured by the agent to the respondent have been misunderstood as 'Royalty' which is not the fact. The ground of limitation is also upheld in favour of the respondent.

10. Thus, the appeals filed by the Revenue are dismissed. The respondent- assessee will be entitled to consequential relief, if any."

In passing:

Presumably, the assessee as well as the Revenue are before the Tribunal, both aggrieved with the portion of demand not decided in their favour -Assessee, against confirmation of demand under the head IPR Service & Revenue against dropping of demand under BAS. But the preamble to the order does not indicate the same clearly.So also, there is some confusion with regards to usage of the terms 'appellant' and 'respondent' in the order and the conclusion arrived at. And what happened to the Revenue appeal? Or are we missing out on something?

Be that as it may, on a similar issue & in the matter of appeal number ST/40/209 filed by the assessee Y.M.Krishna SSK Ltd. against Order-in-Original No. 2/ST/2008, dated 27.11.2008? passed by the Commissioner of Central Excise, Pune-II,the same was decided by the Bench in favour of the assessee on 15.01.2014 and reported by us as 2014-TIOL-1299-CESTAT-MUM. In that order the Bench had held that no service tax is payable under the head 'Intellectual Property Services'.

Incidentally, as for the demand under the head 'BAS' confirmed against the assessee in another case, Reference appeal no. ST/362/12 [O-in-A PIII/RKS/70/2012 dt. 02.03.2012], the Bench had while allowing the appeal of the assessee held thus [2013-TIOL-263-CESTAT-MUM] -

ST - Appellants are the manufacturer of country liquor under the brand name "Pahili Dhar", registered in their name and are having agreement with M/s. Talreja Trade (HUF) for marketing this liquor - it cannot be said that the appellant are the job workers for Talreja Trade as they are the selling agents - they are not liable to pay service tax under "Business Auxiliary Service" - Appeal allowed with consequential relief: CESTAT [para 5]

Interestingly, in the current order that we are reporting, the Bench has concluded its observations thus -

"10. Thus, the appeals filed by the Revenue are dismissed. The respondent-assessee will be entitled to consequential relief, if any."

Perhaps a corrigendum or for that matter a ROM is on its way.

I have taken more good from alcohol than alcohol has taken from me - Winston Churchill.

(See 2015-TIOL-336-CESTAT-MUM)