TMI Blog2010 (6) TMI 181X X X X Extracts X X X X X X X X Extracts X X X X ..... x, interest thereon and penalties. Two separate orders were passed by the Commissioner, one in adjudication of one show-cause notice confirming demand of service tax of Rs. 50,26,438/- against the appellant and the other in adjudication of two show-cause notices confirming demand of service tax of over Rs. 1.10 crores against them, both under the proviso to Section 73(1) of the Finance Act, 1994. Penalty equal to service tax was also imposed on the assessee in each order of the Commissioner. The applications seek relief against the adjudged dues. 2. After examining the records, we find that the impugned demand of Service tax is, alternatively, under sub-clause (zze) or sub-clause (zzr) of Clause 105 of Sec. 65 of the Finance Act, 1994, viz. "franchise"- related service or "intellectual property service". The Ld. Commissioner has taken the a view after considering the provisions of an agreement which was entered into between the appellant (hereinafter referred to as SKOL) and M/s. Foster India Pvt. Ltd. (FIPL for short) on 11-4-2007 with retrospective effect from 12-9-2006. This agreement called "Bottling/Brewing Agreement", in its recitals, described the intended transaction as " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this agreement by FIPL. Such specifications and formulae were to be the sole property of SKOL and FIPL did not have any right, title or interest therein. The agreement declared that any brand, trademark or intellectual property relating to SKOL beer, specifications and the formulae should always remain the property of SKOL. The imagery (label) in which the SKOL beer would be manufactured, supplied, delivered or sold by FIPL to SKOL would also be the sole property of SKOL. 3. The brand name "FOSTER'S" was acquired by SKOL from M/s. Foster's Australia Ltd. under an agreement dated 12-9-2006 and, according to that agreement, the said brand name stood assigned to SKOL with unfettered rights. It was this brand name which was supplied by SKOL alongwith specifications, formulae and other technical know-how to FIPL for manufacture of beer at the latter's brewery at Aurangabad. SKOL also had breweries including one at Aurangabad. They also manufactured the same commodity on their own and marketed the same all over India. The branded beer manufactured by FIPL was either marketed by them as directed by SKOL or supplied to SKOL or their indenters for marketing. In either situation, the goods ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owner. The manufacturer does not get any right to sell the goods on his own. In such an agreement, the owner of the trade mark is the actual user of the mark and the benefit of such use goes to the trade mark owner. Claiming support from this commentary, the Ld. counsel wants to rebut the finding entered by the Commissioner in favour of demand of service under Section 65(105)(zzr), viz. "intellectual property service". The Ld. counsel finally submits that, in any case, the view taken by the Commissioner in favour of classifying the service under two different headings, by itself, is contrary to the Board's Circular No. 51/13/2002 dated 7-1-2003, wherein it was clarified that service tax could be levied on any taxable service only once i.e. only under one heading. In this connection, the ld. counsel has also referred to Section 65A of the Act. This provision, which was inserted in the statute with effect from 14-5-2003, lays down that when, for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification shall be effected as follows:- (a) the sub-clause which provides the most specific description shall be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cture of SKOL beer, which would be pro vided by SKOL to FIPL, was a necessary requirement for performance of this agreement by FIPL. Such specifications and formulae were to be the sole property of SKOL and FIPL did not have any right, title or interest therein. The agreement declared that any brand, trademark or intellectual property relating to SKOL beer, specifications and the formulae should always remain the property of SKOL. The imagery (label) in which the SKOL beer would be manufactured, supplied, delivered or sold by FIPL to SKOL would also be the sole property of SKOL. 3. The brand name "FOSTER'S" was acquired by SKOL from M/s. Foster's Australia Ltd. under an agreement dated 12-9-2006 and, according to that agreement, the said brand name stood assigned to SKOL with unfettered rights. It was this brand name which was supplied by SKOL alongwith specifications, formulae and other technical know-how to FIPL for manufacture of beer at the latter's brewery at Aurangabad. SKOL also had breweries including one at Aurangabad. They also manufactured the same commodity on their own and marketed the same all over India. The branded beer manufactured by FIPL was either marketed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he goods, on condition that the entire production bearing the trade mark should be sold to the trade mark owner. The manufacturer does not get any right to sell the goods on his own. In such an agreement, the owner of the trade mark is the actual user of the mark and the benefit of such use goes to the trade mark owner. Claiming support from this commentary, the Ld. counsel wants to rebut the finding entered by the Commissioner in favour of demand of service under Section 65(105)(zzr), viz. "intellectual property service". The Ld. counsel finally submits that, in any case, the view taken by the Commissioner in favour of classifying the service under two different headings, by itself, is contrary to the Board's Circular No. 51/13/2002 dated 7-1-2003, wherein it was clarified that service tax could be levied on any taxable service only once i.e. only under one heading. In this connection, the ld. counsel has also referred to Section 65A of the Act. This provision, which was inserted in the statute with effect from 14-5-2003, lays down that when, for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of Section 65, classification ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount charged by the BO from the licencee/manufacturer." In this context, we note that the ld. counsel has relied upon para 3 of the circular, which we will be referring to at an appropriate later stage. The ld. JCDR has made an endeavor to vivisect the agreement dated 11-4- 2007 and interpret the various clauses which, according to him, are relevant to "intellectual property service". By this method, he submits that the arrangement between SKOL and FIPL is in the nature of "brand licensing arrangement" for the following reasons:- (a) The brand name 'FOSTER'S' is owned by SKOL and the same was only allowed to be used by FIPL on the product manufactured by the latter in terms of the agreement; (b) The agreement specifically obligated FIPL to provide infra structural facilities to technical experts deputed by SKOL so as to enable the experts to supervise the manufacturing operations. This provision of the agreement satisfies one of the requirements of 'Brand Licensing Arrangement' as clarified by the Board; (c) FIPL manufactured the product by using their own capital goods, work force as well as raw materials and, therefore, the prop erty in the product rested with them and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , under the agreement, SKOL dictated terms to FIPL. SKOL sup plied know-how in the form of specifications and formulae to FIPL to manufacture beer by using such raw materials as specified by SKOL and following such quality standards as prescribed by SKOL. However, the cost of manufacture was required to be incurred by the manufacturer. SKOL fixed the price of the goods although in consultation with FIPL. FIPL was required to use SKOL's brand name on the goods as also to market the goods in the manner prescribed by SKOL. The goods may be independently supplied to SKOL who would then market the same through their own channels. Alternatively, at the option of SKOL, the goods could be marketed by FIPL to such customers as may be named by SKOL. The most significant feature of this arrangement is that FIPL should pay Rs. 27/- per case to SKOL as what is termed "net proceeds." FIPL was also required to pass on the benefits of exemption/concession (if any) on State taxes or other levies to SKOL. The real nature of the transactions would, by and large, revolve around the nature of payment of Rs. 27/- per case by FIPL to SKOL. The agreement contained no express provision disclosing the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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