By TIOL News Service

MUMBAI, APRIL 06, 2017: THE appellant is engaged in the manufacturing of Pepsi, Mirinda, Mountain Dew, 7-up, Slice, Aquafina and fruit juices; is a franchisee of M/s. Pepsi Foods Pvt. Ltd. and is also engaged in trading of Pepsi brand products like Slice, Nimboo, bottle and cans of Pepsi, Mirinda Orange, 7-up and Mountain Dew.

The traded items are purchased from M/s. Pepsico India Holdings Pvt. Ltd. The main appellant purchased concentrate i.e. basic raw material from M/s. Pepsi Foods Pvt. Ltd. (PFL). Officers of the department visited the premises of the main appellant and scrutinized the records and found that in the balance sheet, appellant is showing additional income under the head "Net Incentive" and "Support of other receipts".

Taking a stand that the amounts received under these heads are liable for service tax under the head BAS, demand notice was issued for the period 1.5.2006 to 2010-11.

The AA confirmed the demand with interest and also imposed penalties on the appellant as well as its executive director.

After considering the lengthy submissions made by both sides, the Bench observed -

+ In order to enhance the sales of aerated waters, the main appellant undertakes marketing and advertising of the products. As per the agreement entered into with PFL, the said expenses are shared in a particular manner and the main appellant has received an amount during the relevant period from PFL, which is sought to be taxed by the adjudicating authority under the head "business auxiliary service".

After extracting the definition of "Business Auxiliary service", the CESTAT further observed -

+ The adjudicating authority has sought to tax the amounts received by the main appellant under category (i) or (ii) of the definition [(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]. For doing so, he has relied upon the PFL's Bottling Appointment and Trade Mark Licence Agreement entered into by the main appellant.

+ On perusal of the said clauses (of the agreement), we notice that it talks about the steps necessary to be taken by the main appellant to promote and enhance the visibility and goodwill of trademarks and in particular the main appellant shall endeavour to maximize the sales and to increase the beverage's share of market. Both the clauses when scrutinized in depth, do not indicate that the main appellant is required to promote or market or sale of goods produced or provided or belonging to PFL . In the case in hand, PFL is only producing and selling concentrate to the main appellant for converting into aerated water. The adjudicating authority's findings that the concentrates are belonging to PFL, also does not cut the ice, inasmuch as the said concentrate is sold on payment of excise duty to the main appellant, which would indicate that once the sale takes place, the concentrate does not remain the property of PFL.

+ The definition of "business auxiliary service" may not cover the transaction in this case, as the main appellant is not promoting or marketing of services provided by PFL as there is no service which has been provided by PFL in the case in hand . The findings of the adjudicating authority that the agreement requires the main appellant to promote the trademarks, which in turn is nothing but the goods, seems to be farfetched as in the case in hand there is no mention of trade marks in the definition of BAS . In short, we conclude that the main appellant is not promoting or marketing or selling the concentrates which are produced or provided by PFL to them for manufacturing of aerated waters.

Holding that the impugned order is unsustainable, the same was set aside and the appeals were allowed.

(See 2017-TIOL-1150-CESTAT-MUM)