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TMI Blog2019 (6) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... failure continues OR at the rate of two percent of such tax per month, whichever is higher. This penalty is applicable in respect of non-payment of service tax for the period upto 10/05/2008 starting from the first day of the due date till the date of actual payment of outstanding amount of service tax under Section 76 of the Finance Act, 1994read with Rule 6 of the Service Tax Rules, 1994 as the Noticee failed to pay Service Tax in accordance with the provisions of Section 68 of the Finance Act, 1994, provided that the total amount of penalty payable in terms of this section shall not exceed the service Tax payable. 4. I impose a penalty of Rs. 90,71,731/- on the Noticee under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services with malafide and premeditated intent to evade payment of service tax which has resulted in short payment of service tax. In this regard, the attention is invited to relevant provisos of Section 78 of The Finance Act, 1994 as per which if the service tax determined under section 73 and interest payable thereon under Section 75 is paid within thirty days from the date of communication of this order, the amount of penalty lia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1994. Also why interest at appropriate rate on the amount determined as short/ not paid be demanded under Section 75 and penalties under Section 76, 77 & 78 be not imposed on them. Penal amount should not be recovered under Rule 7C of the Service Tax Rules, 1994. 2.6 Show Cause Notice has been adjudicated by the Commissioner as per his order referred in para 1, supra. Aggrieved by the order of Commissioner Appellants have filed this appeal. 3.1 In their appeal Appellants have assailed the impugned order stating- i. The finding of the adjudicating authority to effect that they were rendering Business Auxiliary Service as defined under Section 65(105)(zzb) read with Section 65(19) of Finance Act, 1994 is erroneous. ii. The finding of Commissioner to effect that they were providing service to Coca Cola India and the alleged promotion of sale of concentrates of CCI for which CCI was reimbursing the Appellants was not sharing of expenses and cannot be termed as taxable service for either period prior to 01.07.2012 or after that. iii. The finding of the Commissioner that they are promoting the sale of concentrate of CCI is erroneous and is based on conjectures and surmises. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The order at some place records the fact of filing the return and at other place records that returns were not being filed, Inherent contradictions in the order. b. Records were admittedly provided by them but order states that they were recovered under the Panchnama proceedings. c. Tribunal Larger Bench decision in case of Nizam Sugar Factory has been overruled by the Apex Court but the order still relies upon the same to hold the demand for extended period. iv. In case of the group companies, to whom similar notice was issued, the matter has been decided by the tribunal in their favour. Reliance placed on orders in case of Narmada Drinks (P) Ltd [2017 (5) GSTL 369 (T-Del)] and Final Order No ST/A/52245/2010- CU(DB) dated 18.06.2018 read with miscellaneous order 07.04.2014. v. Brand Promotion is separate and distinct service and is not covered under the category of Business Auxiliary Service, as has been held by the Tribunal in case of Sourav Ganguly [2016 (43) STR 482 (CAL)] and Shriya Saran [2014 (36) STR 641 (T-Del)]. In case of Indian National Shipowner [2009 (14) STR 289 (BOM)], Bombay High Court held that introduction of new entry presupposes that earlier entrie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ollary that follows is that such activities are rightly covered in the section 65 (19)(i) prior to 01.07.2012, and post 01.07.2012 they do not fall under the negative list and hence taxable. v. Neither show cause notice nor adjudicating authority holds that the demand is made under the category of brand promotion. vi. Even if it is assumed without admitting that it tantamount to brand promoting, automatically this will not imply exclusion from service category of sale promotion of concentrate. vii. Contention of appellant that they were only promoting sale of their own goods i.e. beverages is completely misleading & not acceptable. The Bottlers Agreement makes it very clear that there is nothing under control of Appellant for beverages made by them out of concentrates supplied to them by Coca Cola since the Coca Cola retains the sole and exclusive rights at all or at any time to determine the formula, composition or ingredient for the concentrate syrup and the beverage. viii. Cost of advertisement and other Promotional activities shared by Coca Cola and reimbursed to M/s Superior Drinks is chargeable to service tax ix. Group Company order referred to by the counsel s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , evaluation or development of prospective customer or vendor, public relation services, management or supervision. and includes services as a commission agent, but does not include any information technology service." 5.3 The demand has been made treating that this amount has been received by the appellant for undertaking marketing promotion of the goods belonging to the client i.e. concentrate supplied by Coca Cola India. Para 7 of the Part II of the Bottler's Agreement entered between the Coca Cola Company, a corporation organized and existing under the laws of the State of Delaware, United States of America, under the heading "OBLIGATIONS OF THE BOTTLER RELATIVE TO THE MARKETING, PLANNING AND REPORTING" reads as follows: "The Bottler must, for its own account, budget and expend such funds for advertising, marketing and promoting the beverage as may be reasonably required by the Company to create, stimulate and sustain the demand for the Beverage in the Territory, provided that the Bottler shall submit all advertising, marketing and promotional projects relating to the Trade Marks or the Beverage to the Company, for its prior approval and shall use, publish, maintain or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 000 Maaza Tetra Qpds 4000000 1:00 4000000 0 E & D Bar Activation 1000000 1:02 333333 666667 2LIT PROMO (On-Label/ Sticker) 4000000 1:03 1000000 3000000 600 MI Search Card Promo 3000000 1:03 750000 2250000 Fridge Pack Promo 1000000 1:02 333333 666667 Coke Activation in Trade 1000000 1:03 250000 750000 OYA 13860000 6006000 7854000 Modern Trade Promotions 1000000 1:01 500000 500000 Local Festive Activation 1400000 1:03 350000 1050000 IMC's Sprite & Limca 1000000 1:02 333334 666666 Red Elements 3150000 1:02 1050000 2100000 TOTAL 53734000 20074500 33659500" 5.5 On the basis of this and various debit notes raised by the appellant for recovery of these Marketting spent from CCI, and the statement of Shri Deepak Tibrewal, Finance Controller of M/s Superior Drinks P Ltd and decision of Bombay High Court in case of Coca Cola India Pvt Ltd [TIOL-449-HC-MUM-ST], it was concluded that appellants were receiving the amounts as indicated to promote the sale of Concentrate of Coca Cola India Ltd. Accordingly it was alleged that they are providing Business Auxiliary S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties undertaken by them is to promote the sale of Beverages of various brands owned by Coca Cola USA and bottled by them. Any further extrapolation made by revenue for drawing the conclusion is beyond the express intent of the Bottler Agreement. 5.8 Commissioner has in para 23.2 & 23.3 of his order quoted heavily from the order of Bombay High Court in case of Coca Cola India [2009-TIOL-449-HC-MUM-ST] and concluded that Appellants were in fact providing the services to the Coca Cola India. The said para of order of Commissioner are reproduced below: "23.2 It was further observed that the major ingredient of these beverages is "concentrate" which is exclusively supplied to the Noticee by CCI. Therefore, while promoting or marketing beverages, the concentrate manufactured and supplied by CCI was also being marketed or promoted. As per the Bottlers Agreement, the Noticee was also required to promote/ market and sell the brand name. The brand name is proprietary in nature. Concentrate made by CCI was only and only sold as part of beverage sold under the brand names of CCI. The only goods sold under these brand names were beverages produced from concentrate manufactured/ supplied by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xample, of sugar or carbon dioxide gas. Some of these products are specially prepared for domestic use; they are also widely used in industry in. order to avoid the unnecessary transport of large quantities of water, alcohol, etc. As presented, these preparations are not intended for consumption as beverages and thus can be distinguished from the beverages of Chapter 22. The heading excludes preparations of a kind used for the manufacture of beverages, based on one or more odoriferous substances (heading 33.02) The above extract demonstrates that the concentrates contain the flavouring ingredient are characteristics of a particular beverage. The beverage in question is obtained simply by diluting the preparation with water, sugar and carbon-dioxide gas. The Explanatory Note is therefore clear that there is a link between the concentrate and the beverage made from that. The above Explanatory Note also explains the rational for business being arranged in this industry in a particular manner. This method of doing business avoids unnecessary transport of large quantity of water. In addition, the bottles and crates have to be collected back from the shop keepers or dealers and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lants to any consumer other than the bottling companies, the singular manner of enhancing the marketability and demand for the Appellants products, therefore, is by enhancing the market for the soft drinks, for which purpose alone, the Appellant undertakes the activities such as market research and advertising. 16. According to the Applicant, advertisement of aerated water is integrally connected with manufacture and sale of concentrate. The concentrate/base is an essential intermediate product for the manufacture of relevant aerated water. The final product aerated water is simply obtained by diluting the concentrate with water, sugar and carbon dioxide. Essentially the flavour, taste etc. are derived from the concentrate. There is a direct correlation between the concentrate/base vis-a-vis aerated water. For example, the concentrate from Fanta Orange would be used for manufacturing Fanta Orange brand aerated water only and cannot be used for making Coca Cola or Thumps Up. In addition, concentrate of one brand name holder like Coca Cola is used solely and exclusively for the manufacture of the aerated water of the brand name holder. The dilution ratio between concentrate and ae ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Section 66 of Finance Act, 1994 for the period prior to 01.07.2012." 5.9 There cannot be more convoluted application of the decision of the High Court and stretching the provisions in an agreement for purpose of levy of tax. If the arguments of the Commissioner were to be accepted then in that case every manufacturer/ producer/ supplier of the goods who purchases and material/ inputs is promoting the sale of his input supplier. Since as the sale of his finished goods goes up automatically consumption of inputs will go up and accordingly he promotes the sale of input manufacturer/ supplier. In our view such an interpretation is neither logical or rational. Both input suppliers and the finished product manufacturer are independent business entity acting in the interest of their business. The issue before the High Court was vis a vis the admissibility of CENVAT Credit in respect of Advertisement services availed by the Coca Cola India as is evident from para 2 & 3 of order reproduced below: "2. The main question which is therefore, required to be considered, in the present Appeal, is whether the Appellants, who are manufacturers of non-alcoholic beverage bases (concentrates) ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, the Show Cause Notice, in Para 6.2, has stated that the amounts have been received from the brand owners to promote and market the brands of the brand owners. 10.When we look at the clause (i) the definition of the BAS, which covers promotion or marketing or sale of goods produced or service provided, we fail to see how the promotion of the brand name can be brought under the above clause. The appellant has received concentrate from M/s. Coca Cola. Obviously, the appellant is not marketing or selling the concentrate as a brand name. The appellant's contention is that they are manufacturing the goods bearing the brand name and not the brand owners and therefore they cannot be charged service tax for marketing and promotion of sales of their own goods. 11.A new service stands introduced with effect from 1-7- 2010, which covered specifically "Brand Promotion Service". The contention of the appellant is that only the new service will cover the activity undertaken by them and the same activity cannot be charged to service tax under BAS for the earlier period. 12.It is useful to refer to Para 4.2 of the TRU letter dated 26-2-2010 issued at the time of introduction of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. Since brand endorsement was not a taxable service during the period of time for which the tax demand has been raised, such demand cannot be sustained. Such service rendered by the petitioner could not taxed under the head of Business Auxiliary Service as has been sought to be done." We find that the above decision of the High Court settles the present issue in favour of the appellant. 14.In view of the above discussions, we find no justification for the demand of service tax raised under BAS for the period 2006-07 to 2009-2010. Consequently, the impugned order is set aside and the appeal allowed." Narmada Drinks Pvt Ltd [Final Order No ST/A/52245/2010-CU(DB) dated 18.06.2018] "5. After hearing both sides and perusal of record, we note that the lower Authority has held the appellant as liable to payment of Service Tax under BAS, for the amounts received from brand owners such as M/s Coca Cola India Ltd. for marketing of their product. It is well known that the bottlers receive concentrate from the brand owners such as M/s Coca Cola, manufacture aerated products there from and sell the same. Para 6.2 of the relevant show cause notice alleges that the amounts have been r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered certain services to wife, in terms of definition of service under section 65B(44) of the Finance Act,1994?". If the answer to this question is yes that act of making the payment was to determine, whether the husband has carried out an activity for his wife, then Commissioner would be right in his approach. In our view the consideration cannot be determinant of performance of an activity by one person for another. The service provider and service receiver relationship gets established only on identification of the activity that one person performs for the another. 5.15 In the present case the appellants were undertaking the marketing and sales promotion activity on their own account, Coca Cola India was only providing certain financial assistance in undertaking such activity. The activity undertaken were not performed by the appellant for Coca Cola India, but was performed for themselves. Since no activity has been performed by the appellant for Coca Cola India, we are of view that mere receipt of amounts under the head "Market Support Received" will qualify them as "service" under Section 65B(44). 5.16 We do not find any merits in the order of the Commissioner for th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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