2014 (7) TMI 974 - AT - Service Tax

Intellectual property rights for allowed user of its brand name - manufacture of country liquor; from spirit on job work basis - Held that - on appreciation of the clauses of agreement with the evidence on record, it is evident that no Intellectual Property Service have been given by the appellant. The arrangement/agreement between the appellant and M/s Talreja Trade are for ensuring maximum production and sale of C.L. so as to maximize profits for both the parties. The minimum guarantee of profit per month given or assured by the agent to the appellant have been misunderstood as Royalty which is not the fact. The ground of limitation is also allowed in favour of the appellant. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of services under 'Business Auxiliary Services' and 'Intellectual Property Services.'
2. Validity of the extended period for the demand notice.
3. Nature of the agreement between the appellant and M/s Talreja Trade (HUF).

Issue-wise Detailed Analysis:

1. Classification of Services:
The Revenue issued a show-cause notice alleging that the appellant's activities fell under 'Business Auxiliary Services' and 'Intellectual Property Services.' The demand for 'Business Auxiliary Services' was dropped, but the demand for 'Intellectual Property Services' was confirmed. The adjudicating authority concluded that the appellant allowed M/s Talreja Trade to use its brand name "Pahili Dhar" for marketing country liquor, interpreting the minimum guaranteed margin as 'royalty.' The appellant contested this, arguing that the agreements were solely for appointing M/s Talreja Trade as a 'sole selling agent' and not for allowing the use of the brand name. The Tribunal found that the agreements and evidence did not support the classification under 'Intellectual Property Services,' and the minimum guaranteed margin was misunderstood as 'royalty.'

2. Validity of the Extended Period for the Demand Notice:
The show-cause notice invoked an extended period for the demand. The appellant argued that the extended period was not applicable as there was no suppression of facts with intent to evade tax. The Tribunal agreed, noting that the appellant had regularly filed returns and there was no evidence of deliberate suppression. Hence, the invocation of the extended period was not justified.

3. Nature of the Agreement:
The agreements between the appellant and M/s Talreja Trade (HUF) were scrutinized. The Tribunal noted that the agreements were for the sale of country liquor through an agent, with detailed terms on responsibilities and financial arrangements. The agreements specified that the brand name "Pahili Dhar" remained the exclusive property of the appellant, and M/s Talreja Trade had no claim to it. The Tribunal concluded that the agreements were not for allowing the use of intellectual property but were commercial arrangements for maximizing production and sales. The minimum guaranteed margin was a business arrangement and not 'royalty.'

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order. It concluded that no 'Intellectual Property Service' was provided, and the demand under this category was incorrect. The ground of limitation was also decided in favor of the appellant. The operative part of the order was pronounced in open court.