TMI Blog2014 (4) TMI 1040X X X X Extracts X X X X X X X X Extracts X X X X ..... C-I(CSTB) - Dated:- 22-1-2014 - P R Chandrasekharan and Anil Choudhary, JJ. For the Appellant : Shri V.Sridharan, Sr. Adv., Shri Badri Narayan,Adv For the Respondent : Shri S.G. Dewalwar, Addl. Commissioner (AR) JUDGEMENT Per: Anil Choudhary; The appellant M/s SKOL Breweries Ltd. 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 under the impression that Foster India Pvt. Ltd. are using the brand name and technical know-how of another person (appellant), and paying the consideration amount in lieu of use of brand name and technical know-how of the brand owners but not paying Service Tax, believing it to be taxable under the category of Intellectual Property Right under Section 65(65a) of the Finance Act, 1994 and also under the category of Franchise Service which is under Section 65(48) of the Finance Act, 1994. A show-cause notice dated 29.9.2010 was issued ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vant clauses are noticed as follows:- 5.1 As per the Recitals Clause (A), Foster India Pvt. Ltd. (FIPL in short) is a company engaged in the business of manufacturing beer and possesses necessary and adequate facilities for manufacturing and bottling of beer and for this owns and operates a brewery at Plot No. 99, MIDC, Waluj, Aurangabad in the State of Maharashtra under valid license. 5.2 As per Clause (B), the appellant and FIPL are desirous of entering into a contract for manufacturing and sale agreement for the production and sale of Skol Beer of the quality and quantity as prescribed by Skol which FIPL agrees to produce, bottle and dispatch to Skol and/or to its Indenters to the complete satisfaction of Skol in accordance with the provisions of agreement. 5.3 Clause (1.8) defines Skol Beer as goods manufactured under the Trade Marks belonging to Skol (appellant). Clause (2.1) provides that FIPL shall brew and bottled at the Brewery such brands of Skol Beer as specified by Skol from time to time and transport, supply and sell them in accordance with the directions and instructions given by Skol including as regards which states they should be transported, supplied and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tration fee for labels shall be borne by Skol. Clause (2.16) provides that Skol shall provide FIPL the specifications to manufacture and sell Skol beer solely for the limited purpose of manufacturing such products to be supplied as per the directions of Skol in terms of this Agreement. Clause (2.22) provides that any deduction by Indenters on Supply of Skol Beer will be to the account of Skol. 5.6 Under Prices Clause (3.1) it is provided that Skol and FIPL shall, from time-to-time, agree on the sale price of a Beer case of 12 bottles of 650 ml, and 24 bottles of 330 ml. each of Skol Beer (a Case ) manufactured by FIPL in terms of and, in accordance with this Agreement. Out of the sale proceeds collected from the Indenters, FIPL will pay Skol the net proceeds of Rs. 27/- per Case. Under Clause (3.2) it is also provide that the net proceeds shall be exclusive of local excise duty, sales tax, export pass fee, octroi, freight, breakages, transit insurance and any other statutory taxes and levies. FIPL shall be responsible for the remittance of all taxes, duties and any other levies and indemnify Skol against any liabilities arising thereof. FIPL also agrees to pass on the concessio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cular further in para 3.1 recognizes Contract Manufacturing Arrangement where the BO gets alcoholic beverages manufactured by the licensee/manufacturer, the latter holding the required State Licenses for manufacture of the alcoholic beverages. In trade, such licensees/manufacturers are called the Contract Bottling Units or CBUs. The cost of raw materials (and in some cases, even capital goods) and other expenses are either paid by the BO or reimbursed by the BO. Statutory levies (i.e. State excise Duty) are also reimbursed to the CBU by the BO. The alcoholic beverages are sold by or as per the directions of the BO and profit or loss on account of manufacturing and sale of alcoholic beverages is entirely on account of BO, who thus holds the property, risk and reward of the products. The CBU receives consideration (i.e. job charges) for undertaking the manufacturing activity on job work basis. There is no doubt that under such an arrangement, CBU is a service provider providing services to BO. A doubt has arisen whether or not the CBU provides a taxable service namely the Business Auxiliary Service (BAS) to BO. This taxable service however, by definition excludes any activity that a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e on the bottling/job charges, distribution costs and other reimbursable. b) So far as inputs i.e. raw materials and packing materials are concerned, one of the conditions of the exemption notification No. 39/2009-ST is that there should be documentary proof specifically indicating the value of these inputs. Therefore, service tax on the value of raw materials and packaging materials would be exempt only when such charges are specifically mentioned in the invoice raised/documents maintained by the CBU. c) As regards the statutory levies, namely, excised duty/VAT. They do not present any consideration' for rendering the service. Whether such amount is paid by BO or by CBU, they have no nexus with the provisions of service. As such, these levies will not be included for charging service tax. d) Similarly, the surplus/profit earned by the BO being in the nature of business profit (which falls within the purview of direct taxes), will not be chargeable to service tax. 6.6 Thus, the appellant claims 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 (ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hise Service are attracted nor the provisions of Intellectual Property Right are attracted. 7. The learned Addl. Commissioner (AR) appearing for the Revenue supports the Order-in-Original and the appellate order. Further, referring to the various clauses to the contract particular clause 2.1 and 3.2 where it is provided that local license fee/tax to be incurred under the agreement shall be borne by FIPL. Further, SKOL (appellant) shall not bear the cost of Annual Brewery Licence Fee. Thus, it is amply clear that essential element of contract of CBU is not satisfied. Further reference is made to clause 2.7 of the agreement which provides that FIPL should be solely responsible for manufacturing appropriate quality standards of Skol beer and packaging as per applicable law. In the event of any claims or complaints being made by any third party in relation to the quality of Skol beer or packaging to Skol beer manufactured and bottled by FIPL. FIPL, at its cost, shall arrange to collect such stocks and drain the same in the presence of Skol representative. In any event, FIPL shall indemnify Skol against all claims, proceedings, losses, damages, charges, expenses etc., if any, which m ..... X X X X Extracts X X X X X X X X Extracts X X X X
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