2015 (2) TMI 661 - AT - Service Tax

Intellectual Property service - Demand of service tax - Agreement for marketing country liqour - Held that - For the packing material and essence supplied by M/s Talreja Trade to respondent, proper sale invoices have been issued charging Sales Tax/VAT as applicable. Respondents have also directly purchased packing material and essence from others. - For sale of 'country of liquor' by respondent, proper sale invoices have been issued. In the said sale invoices the name of M/s Talreja Trade (HUF)' is shown as 'selling agent'. - The sale of 'country liquor' have been declared in the returns filed with the Sales Tax Department by the respondent. 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 respondent. The arrangement/agreement between the respondent and M/s Talreja Trade are for ensuring maximum production and sale of C.L. so as to maximise profits for both the parties. The minimum guarantee of profit per month given or assured by the agent to the respondent have been misunderstood as 'Royalty' which is not the fact. The ground of limitation is also upheld in favour of the respondent. - Decided against Revenue.

Issues Involved:
1. Classification of activities under 'Business Auxiliary Services' and 'Intellectual Property Services'.
2. Validity of demands for Service Tax under 'Business Auxiliary Services' and 'Intellectual Property Services'.
3. Applicability of the extended period of limitation.
4. Imposition of penalties under Sections 76 and 78 of the Finance Act.

Issue-wise Detailed Analysis:

1. Classification of Activities under 'Business Auxiliary Services' and 'Intellectual Property Services':
The Revenue issued show-cause notices alleging that the appellant's activities fell under 'Business Auxiliary Services' and 'Intellectual Property Services'. The appellant had entered into a 'selling agency agreement' with M/s Talreja Trade (HUF) for selling their country liquor under the brand name "Pahili Dhar". The Revenue claimed that the manufacture of country liquor for M/s Talreja Trade constituted 'Business Auxiliary Services' and allowing the use of the brand name constituted 'Intellectual Property Services'. However, the adjudicating authority dropped the demand for 'Business Auxiliary Services' but confirmed the demand for 'Intellectual Property Services'.

2. Validity of Demands for Service Tax under 'Business Auxiliary Services' and 'Intellectual Property Services':
The respondent contested the demand, arguing that the agreements were solely for appointing M/s Talreja Trade as the 'sole selling agent' and not for allowing the use of the brand name. The agreements explicitly stated that the brand name remained the exclusive property of the respondents, and M/s Talreja Trade had no claim or right to it. The Tribunal concluded that the agreements and the documents on record indicated that the transactions were purely sales through an agent and not for allowing the use of intellectual property. The minimum guaranteed margin was misunderstood as 'royalty', which was not the case.

3. Applicability of the Extended Period of Limitation:
The respondent argued that the extended period of limitation was not applicable as there was no suppression of facts with intent to evade tax. The Tribunal upheld this argument, stating that the demand was not sustainable on merits as well as on the point of limitation.

4. Imposition of Penalties under Sections 76 and 78 of the Finance Act:
Since the demand for 'Intellectual Property Services' was not sustainable, the penalties imposed under Sections 76 and 78 were also deemed unsustainable. The Tribunal concluded that the transaction was not of allowing another to use intellectual property, and therefore, the penalties could not be imposed.

Conclusion:
The Tribunal dismissed the appeals filed by the Revenue, holding that no 'Intellectual Property Service' was provided by the respondent. The agreements were for ensuring maximum production and sale of country liquor to maximize profits for both parties. The minimum guaranteed profit was misunderstood as 'royalty'. Consequently, the respondent-assessee was entitled to consequential relief, if any, and the demands and penalties were not sustainable.

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