TMI Blog2019 (7) TMI 955X X X X Extracts X X X X X X X X Extracts X X X X ..... - Held that:- The arrangement/agreement for manufacture and sale of branded alcoholic beverages between the appellant and M/s UBL is a complex one; even though the appellant is authorised to sale the manufactured branded beer in the local market, but the customers/indenters are as per the instruction of M/s UBL; the sale price is fixed by M/s UBL after mutual consultation. Thus it is not a simple provision of service agreement, where under, the service is flown from appellant to M/s UBL and the consideration is received against the service rendered. It is the argument advanced on behalf of the revenue that the service charges are adjusted against the sale price, and the balance amount returned to the service receiver out of the sale proceeds of manufactured branded beer for and on behalf M/s UBL. The value of the services needs to be determined keeping in mind the N/N. 39/2009 ST dt. 23.9.2009 and the principles of valuation prescribed under Section 67 of the Finance Act and the Valuation Rules, 2006. The Adjudicating authority has erred in adopting the sale price of the Appellant. - Decided in favor of assessee. Cessation of service tax liability - Date of amalgamation/ mer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the branded beer. Under the said agreement, UBL granted non-assignable, non-transferable and non-exhaustive rights to the Appellant to brew the beer under the brand owned by UBL. The Appellant had paid UBL all inclusive consideration of ₹ 5/- per case of beer for usage of brand names of UBL and UBL has discharged service tax liability on the said amount under Intellectual Property Right Services. The Appellant has undertaken manufacturing of beer on his own and sold the same to third party in the same manner it manufactured and sold beer under on its own brand name. The entire production bearing the brand name of UBL has been sold by the Appellant directly to the customers, distributors of UBL and also to UBL. Such sales are made under invoices raised by the Appellant on all customers including UBL and applicable sales tax was paid by the Appellant. It is his contention that the allegations in the show cause notice is that they have rendered services under the taxable category of business auxiliary service Sec. 65(19) of Finance Act,1994 i.e. under clause (v) production or processing of goods for, or on behalf of the client , pursuant to the amendment brought to the said de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s service and the service receiver of the said service. In the present case, service provider has been rendering service under IPR service in terms of Circular No.249/1/2006-CX-4, dt.27.04.2008. Since UBL has already provided service on its beer brands manufactured by the Appellant, on the same transaction again how Appellant could have provided service to UBL. It is his contention that Service tax cannot be calculated at both ends of the same transaction. Referring to Section 67 of the Finance Act, 1994, the learned Advocate has submitted that receipt of consideration is a pre-requisite for service tax levy; in the present case the consideration was for the goods supplied and not for the services rendered. The Appellant had not received any consideration from UBL for rendition of any service. Referring to the Board Circular dt.30.10.2009, he has submitted that the service tax should be payable on bottling, job charges, distribution cost and other reimbursable. As regards the statutory levy, they do not represent consideration for rendering the service. Such amount will not be included in the value for charging service tax. Similarly, the surplus/profit earned by the brand owner be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.04.2010, hence there is no question of any liability of service tax after the said date. He has submitted that the amalgamation is done as per Section 17 (2) of Sick Industrial Companies (Miscellaneous Provisions) Act, 1987 and the said Act is having over-riding effect over all other laws for the time being in force. The scheme has attained finality under the said Act. In support, he has referred to the judgment on the issue viz. Marshal Sons Vs Income Tax Officer 1997 (2) SCC 302, CCE Trichy Vs IOC Ltd 2011 (23) SER TR 625. 3.5 He has further contended that once applicable sales tax/VAT is paid on the transaction, service tax is not payable again in relation to the subject transaction. He has referred to the judgment in the case of Idea Mobile Communication 2006 (4) STR 132 (T), Thermax Ltd Vs CCE Pune-I 2007 (8) STR 487 (T). 3.6 The learned Advocate has further submitted that extended period of limitation cannot be made applicable as there has been no willful suppression of facts on behalf of the Appellant in manufacturing and selling of beer bearing the brand name of M/s UBL when the consideration paid for use of brand name has already suffe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -ST, dt.23.09.2009, the learned A.R. has submitted that valuation in this regard has been prescribed, which is equivalent to the cost of production less the value of the input, based on which the taxable value of the goods could be arrived at. However, the basic condition to apply the said notification is that the service provider should maintain separate account of receipt, production, inventory and dispatches of goods as well as the financial transaction between the alcoholic beverages manufactured on his own account and manufactured on behalf of another. In the present case, the Appellant has not complied any of the said condition. Further, he has submitted that reliance placed on the Circular of 2008 was erroneous, especially in view of Notification Nol.39/2009 which encompasses various charges liable for arriving at the valuation of the goods. 4.3 Further, rebutting the argument of amalgamation of the Appellant with M/s UBL from the appointed date of 01.04.2010, the learned A.R. has submitted that on verification from division office, it has been ascertained that M/s UBL was issued a service tax registration on 05.12.2012 only for various services on the address of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase of Ambica Quarry Works Anr. Vs State of Gujarat Ors. 1987 SCR (1) 562, CCE Mumbai Vs Fiat India Pvt. Ltd 2012 (283) ELT 161 (SC). 4.6 On the issue of limitation, the learned A.R. has submitted that neither copy of the contract was declared to the Department nor the transactions had been mentioned in the ST-3 returns filed by the Appellant. As there was no declaration at any stage to the Department about the said activity pursuant to the brewing agreement, therefore, the Appellant has suppressed the material facts, hence, the demand is rightly confirmed invoking extended period of limitation. 5. Heard both sides at length and perused the records. 6. The issues involved in the present appeal for determination are whether: (i) the Appellants, who manufactured beer, affixed with the Brand name of M/s United Breweries Ltd. and sold under their instruction as per Bottling/Brewing agreement dt.01.4.2005 02.3.2009, rendered services under the taxable category of Business Auxiliary Services (BAS) and the computation of the demand is correct; (ii) The merger/amalgamation of Appellant Company with M/s United Breweries Ltd. be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omotion 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 [ * * * * ] (iii) any customer care service provided on behalf of the client; or (iv) procurement of goods or services, which are inputs for the client; or [Explanation. - For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, inputs means all goods or services intended for use by the client;] [(v) production or processing of goods for, or on behalf of, the client;] (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, 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 and any activity that amounts to manufacture wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person - (i) deals with goods or services or documents of title to such goods or services; or (ii) collects payment of sale price of such goods or services; or (iii) guarantees for collection or payment for such goods or services; or (iv) undertakes any activities relating to such sale or purchase of such goods or services; [(b) excisable goods has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944); (c) manufacture has the meaning assigned to it in clause (f) of section 2 of the Central 11. The change that has been brought into the definition of the BAS w.e.f. 01.9.2009 is the nerve chord of dispute. In the previous definition the exclusion clause was expressed as: [but does not include any information technology service and any activity that amounts to manufacture within the meaning of clause (f) of Section 2 of the Central Excise Act,1944. 12. The amendment to the said clause reads as: , [but does not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ministry of Finance Department of Revenue Tax Research Unit *** D.O.F. No.334/13/2009-TRU New Delhi, 6th July, 2009 Dear Chief Commissioner/Director General/Commissioner, The Finance Minister has introduced the Finance (No. 2) Bill, 2009 in the Lok Sabha on the 6th of July, 2009. Clause 112 of the Finance (No. 2) Bill, 2009 covers all the changes relating to Chapter V of Finance Act, 1994. Changes are also being proposed in the provisions of the, xxxxxx 3. Alteration in the scope of existing taxable services : The following alteration/modifications have been done in the existing taxable services. These changes would come into effect from a date to be notified after the enactment of the Finance (No. 2) Bill, 2009. 3.1 Modification in Business Auxiliary Service (BAS) [section 65(19)] :- It may be recalled that production or processing of goods for or on behalf of a client falls within the purview of this service. However, if any such activity amounts to manufacture within the meaning of section 2(f) of the Central Excise Act, the same is excluded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ely because of the fact that they affix the brand name belonging to M/s UBL. In support of their argument, they heavily relied upon the judgement of the Hon ble Supreme Court in Cibatul Ltd. s case, Delhi High Court judgement in Poona Bottling Co. Ltd. s case, later upheld by the Hon ble Supreme Court and other case laws on similar line. 19. In order to examine the said contention, it is quite essential to analyze the arrangement/agreement between the Appellant and M/s SKOL through the agreement dt.01.4.2005. In the recital of Agreement the intention and purpose behind such agreement has been spelt out in clear terms; it is M/s UBL who was on the lookout for reliable brewer for manufacturing and bottling beer in various territories. Under Clause 5.9 of the agreement, it is made clear that the Appellant was manufacturing and disposing UBL s beer to State Beverages Corporation / State regulated Depots or to the wholesellers, indentors holding necessary permit licences under the relevant Excise law and who are authorized to purchase/sale. beer in terms of relevant regulation upon their placing purchase orders/indents on the brewer. Clause 6 which makes it clear that the manuf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r. 24. In the said case the facts in brief are that M/s Cibatul Ltd (the seller) had entered into an agreement with M/s Ciba Geigy of India Ltd.(the buyer) on 24.07.1971 under which the products, namely, UF resins and MF resins were to be manufactured by the seller in accordance with the manufacturing programme drawn up jointly by seller and the buyer. The Resins were to be manufactured in accordance with the restrictions and specifications constituting buyer s standards and they were supplied at the prices agreed upon between the sellers and the buyers from time to time. The buyer was entitled to test a sample of each batch of these goods and it was only after approval by the buyers the goods were released for sale to the buyers. The buyer, who obtained trademarks from its foreign company, authorised the seller to affix the trade mark and the seller was to do so as an agent for and on behalf of the buyer and not on his own account. The Respondents M/s Cibatul Limited filed price list declaring the wholesale prices of the manufactured goods. The Assistant Collector revised the wholesale prices upward on the basis of wholesale prices at which the buyer sold the products i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ption Notification in Poona Bottling Ltd. s case. In the present case, the levy is on rendering of services, in contrast to the aforesaid cases, where the taxable event is on the manufacture of goods and liability to discharge the duty is on the manufacturer of goods. Further, the question in the instant case is neither the assessment of beer, nor who the manufacturer is, but it is the service rendered by the Appellant in the production of the beer to cater to the marketing needs of M/s SKOL. Therefore, the ratio laid down in the aforesaid judgments cannot be made applicable to the present case. 27. It is the contention of the Appellant that in any service, consideration flows from the service receiver to the service provider, whereas in the present case, the appellants paid ₹ 5/- per case to M/s UBL, and M/s UBL paid service tax under the category of IPR service on the said amount, hence, it is not a service. At the first blush the argument sounds quite attractive but on deeper analysis will not sustain. The reason for not discharging service tax under Business Auxiliary Services as the amount paid by the Appellant to M/s UBL suffered service tax in the hands of M/s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (c) where the service provider also manufactures or processes alcoholic beverages, on his or her own account or in a manner or under an arrangement other than as mentioned aforesaid, he or she shall maintain separate accounts of receipt, production, inventory, despatches of goods as well as financial transactions relating thereto. 2. This notification shall come into force on the date of publication in the Gazette of India. Explanation .- For the purposes of this notification, the words or phrase input , or as the case may be, capital goods shall have the meaning as is assigned to them under rule 2 of the Cenvat Credit Rules, 2004. [Notification No. 39/2009-S.T., dated 23-9-2009] 28. Therefore, the value of the services needs to be determined keeping in mind the aforesaid notification and the principles of valuation prescribed under Section 67 of the Finance Act and the Valuation Rules, 2006. The Adjudicating authority has erred in adopting the sale price of the Appellant. 29. The next issue for determination is the date of amalgamation/ merger of the Appellant s unit with M/s United Breweries Ltd. In the scheme of arrangement as per t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he merger/amalgamation cannot be 01.4.2010. In support, he has referred to the judgment of Shaw Wallace Distilleries Ltd case. Further, the learned A.R., referring to the judgment of Hon ble Gujarat High Court in the case of M/s Indus Tower Ltd Vs State of Gujarat 2017-TIOL-1845-HC-AHM-VAT, has submitted that the liability of service tax for the services rendered by the Appellant till the effective date cannot be obliterated merely because of the fact that amalgamation was deemed to have been effected from the appointed date. 33. The principle in this regard have been considered in the context of Income Tax Act,1961 by Hon'ble Supreme Court in Marshal Sons Co. India Ltd. s case(supra). Their Lordships at Para 14, observed as follows:- 14. Every scheme of amalgamation has to necessarily provide a date with effect from which the amalgamation/transfer shall take place. The scheme concerned herein does so provide viz. 1.1.1982. it is true that while sanctioning the scheme, it is open to the Court to modify the said date and prescribe such date of amalgamation/transfer as it thinks appropriate in the facts and circumstances of the case. If the Court s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircumstances of this case would be 1.1.1982. This is also the ratio of the decision of the Privy Council in Raghubar Dayal Vs Bank of Upper India Ltd. 34. The Hon ble Andhra Pradesh High Court in Jindal Strips Ltd. s case, while considering the issue whether the merger of two companies was w.e.f. 01.04.1995 or from the effective date i.e. 19.09.1996, for the purpose of demand of sales tax/VAT, following the ratio laid down by Hon ble Supreme Court in Marshal Sons Co. s case, held that while approving the scheme if the Court has not fixed any specific date as the effective date, then the date agreed upon by the parties would be the effective date of amalgamation. 35. This Tribunal in the case of ITC Hotels Ltd. s case (supra) was confronted with the question whether the amalgamation of M/s ITC Hotels Ltd and M/s Ansal Hotels Ltd with the parent company M/s ITC Ltd. was as on 01.04.2004, i.e. the appointed date as per the Amalgamation scheme duly approved by the Hon ble High Courts or the effective date of amalgamation, when the application filed with Registrar of companies that is 23.03.2005. Following the judgment of Hon ble Supreme Court in Marshall Sons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... learned DR is that any transaction or proceeding conducted by the transferor company on or before the effective date will not be affected by the scheme of amalgamation. However, we find that such clause stands incorrectly interpreted by the learned DR. A reading of the above clause is reflective of the fact that the action of the transferor company on or before the effective date shall be deemed to have been done and executed on behalf of the transferee company. As such, it is clear that the said clause supports the respondent s stand that any business conducted by the respondents is to be held as having been conducted on behalf of the transferee company. As such, the service tax provided to the ITC Ltd. and Ansal Hotels Ltd. have to be considered as having been provided on behalf of the transferee company viz. ITC. Ltd., in which case, no service tax liability would arise against the service provider. 36. Subsequently, this Tribunal, in Usha International Ltd. s case, have considered all the aforesaid three judgments. The facts leading to the issue before the Tribunal was that a refund claim of ₹ 84,76,586/- of service tax paid on royalty paid by the transferee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n support, they referred to the recent judgment of Hon ble Gujarat High Court in Indus Tower Ltd. s case. In the said case a writ petition was filed under Article 226 of Constitution of India with a prayer seeking declaration of Section 52 of GVAT Act 2003 as ultra vires to the Constitution of India. Their Lordships, distinguishing the judgment of Hon ble Supreme Court in Marshall Sons Co. Ltd case, observed as follows:- 21. The decision of the Hon ble Supreme Court in the case of Marshall Sons Company Limited V. ITO (supra) is concerned, their cannot be any dispute with respect to the proposition of law laid down by the Apex Court, however, the same shall not be applicable to the facts of the case on hand; more particularly, considering Section 52 of the GVAT Act. As observed hereinabove, neither Section 52 of the GVAT Act cannot be said to be an encroachment upon the powers of the Union Legislation, as envisaged under Section 246 of the Constitution nor the same can be said to be in conflict with the provisions of the Companies Act, 1956. Therefore, the decision of Hon ble Supreme Court in the case of State of West Bengal Ors Vs Committee for Protection of Democ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts is untenable in law. Revenue s contention on the other hand is that even though the amendment was made to the definition of Business Auxiliary Service w.e.f. 1.9.2009. Circular was issued in this regard by the Board for knowledge of the trade about the liability to discharge service tax, on the said service clarifying the position after amendment. In the self assessment era they are required to pay duty correctly and the Appellant cannot claim bonafide in not discharging as at no point of time they have disclosed to the Department about manufacturing or processing of alcoholic beverages for and on behalf of M/s UBL. 42. There is no dispute of the fact that on the same agreement dt.01.04.2005, the consideration of ₹ 5/- per case has been paid to M/s UBL by the Appellant, and applicable service tax was paid under the taxable category of Intellectual Property Right by M/s UBL. Thus, the arrangement between the Appellant and M/s UBL for manufacture of branded beer on behalf of M/s UBL has been disclosed and within the knowledge of the Department. In these circumstances, the allegation of suppression cannot be sustained against the Appellant. Therefore, the demand is b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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