By TIOL News Service

MUMBAI, APRIL 28, 2017: CONTRACTS were entered with manufacturers of distillates of crude oil, and products thereon that are necessary for operation of automobiles manufactured by the appellant. Under the terms of contract, certain products created specifically for use in automobiles produced by the appellant are approved and, to signify that approval, these products are permitted to carry the specified logo/symbol as evidence of its compatibility and recommended usage. In addition, distributors of the licensee are required to supply these products to the trade channel of the appellant for sale of these products through the dealers of the appellant. The consideration that the appellant receives is specified at Rs.3 per litre sold with a minimum assurance of Rs.32 lakhs per year. This entire activity is also termed in the contracts as 'promotion' and the consideration is designated as a 'promotional fee'.

While confirming a service tax demand of Rs.64.16 lakhs under the head "BAS" for the period 1st July 2003 to 9th September 2004, the adjudicating authority held that the appellant had provided 'marketing and promotional service of goods belonging to the client', specified in section 65(19) of Finance Act, 1994, by allowing affixing of their brand-name on the products of M/s Castrol India Ltd., M/s Hindustan Petroleum Corporation Ltd. and M/s Bharat Petroleum Corporation Ltd. to indicate the approval of their usage in vehicles manufactured by the appellant.

Incidentally, the appellant had taken service tax registration in the category of "Intellectual Property Service" consequent upon incorporation of section 65(105)(zzr) in FA, 1994 from 10th September 2004, and had been discharging tax liability on the consideration received from the licensees.

Aggrieved with the order passed by the CST, Mumbai-II , the assessee is before the CESTAT.

After considering the submissions, the Bench observed –

+ Jurisdictional tax authorities have accepted the taxability thereof after 10th September 2004 and did not contest the levy of tax on the said consideration as provider of 'intellectual property service'. It is, therefore, not open to the tax authorities to collect tax under two different taxable heads in a regime of tax that is contingent upon enumeration of the various services that are liable to be taxed. - Indian National Shipowners' Association - 2009-TIOL-150-HC-MUM-ST [upheld by Supreme Court [2011-TIOL-05-SC-ST]] refers.]

Adverting to the decision in Hero Honda Motors Ltd. - 2012-TIOL-379-CESTAT-DEL which, on an identical set of facts, held that tax was liable as provider of 'intellectual property service' with the incorporation of section 65(105)(zzr) on the consideration for the affixing of their brand-name on the products of oil and lubricant manufacturers, the Bench concluded -

"…For another field formation of the same tax collection mechanism to take an alternative stand and, that too, for a limited period of time is best described, for want of another phrase, as 'tax opportunism'. That is contrary to the certainty that is the hallmark of tax collection authorised by the sovereign legislature and is reprehensible to the canons of taxation."

The impugned order was set aside and the appeal was allowed.

(See 2017-TIOL-1427-CESTAT-MUM)