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2015 (6) TMI 586 - AT - Service TaxIntellectual Property service - payment received for royalty or mere profit making activity - good manufactured by the job worker on behalf of appellant - Revenue is of the view that M/s. Pilkhani is using the brand name and technical knowhow of the appellant and paying consideration in terms of royalty for use of brand name and technical knowhow of the brand owner - Held that - Arrangement between the appellant and M/s. Pilkhani is squarely covered under clause 3 of said Circular wherein the appellant gets IMFL manufactured by M/s. Pilkhani who is holding the State license of manufacture of alcoholic beverages. In particular M/s. Pilkhani is owner as contract bottling i.e. CBU. As per the agreement, cost of raw material and other expenses were either paid by the appellant or reimbursed by the appellant. The State levies such as excise levy or taxes were also reimbursed to M/s. Pilkhani by the appellant. The IMFL was sold by or as per the direction of the appellant on profit /loss on account of the manufacturing and sale of IMFL is entirely on account of appellant who holds the property risk and reward of the product. M/s Pilkhani received consideration for undertaking the manufacture of job work done basis. In these circumstances, the appellant is not required to pay service tax at all. As per the agreement between the parties, the risk of manufacture and sale lies with the appellant in respect of the Foster Brand beer got manufactured by it from FIPL. It is evident from the contract that FIPL is only responsible for bottling, packing and dispatch as per the specification, terms, formula etc. as laid down by the appellant. Further, FIPL is bound to charge the price from the notified Indenter of the appellant as fixed by the appellant. Only for the risks associated with the manufacturing process fastened on FIPL (CBU), it cannot be said that as FIPL is responsible for proper quality, quantity and timely production, they are providing Franchise Service and/or IPR Service. Appellant are the Brand Owner of IFML and M/s. Pilkhani is a job worker manufacturing IMFL on behalf of the appellant and the amount retained by the appellant is the business profit not liable to be taxed under the Finance Act, 1994 under the category of Intellectual Property service. Therefore on merits, we hold that appellant are not required to pay Service Tax under the category of Intellectual Property Right service. - Decided in favour of assessee.
Issues Involved:
1. Liability of the appellant to pay Service Tax under the category of Intellectual Property Service. 2. Jurisdiction of the Commissioner of Central Excise, Meerut to issue the show cause notice. 3. Applicability of the extended period of limitation for issuing the show cause notice. Issue-wise Detailed Analysis: 1. Liability of the appellant to pay Service Tax under the category of Intellectual Property Service: The appellant, owner of the brand name "Officers Choice," entered into an agreement with M/s. Pilkhani Distillery and Chemical Works for the manufacture and sale of Indian Made Foreign Liquor (IMFL). The Revenue contended that the appellant should pay Service Tax on the royalty received for allowing M/s. Pilkhani to use its brand name and technical knowhow, categorizing it under Intellectual Property Service as per Section 65(65A) of the Finance Act, 1994. The appellant argued that they were not liable to pay Service Tax as M/s. Pilkhani was merely a job worker, and the arrangement was clarified by CBEC Circular No. 249/I/2006-CX.4 dated 27.10.2008 and Ministry of Finance letter dated 30.10.2009, which stated that no Service Tax was payable on such arrangements. The appellant also relied on tribunal decisions in the cases of Diageo India Pvt. Ltd. and Skoll Breweries Ltd. The Tribunal analyzed the agreements and found that the appellant was the brand owner and engaged in the manufacture of alcoholic beverages through M/s. Pilkhani, who acted as a job worker. The terms of the agreements indicated that M/s. Pilkhani received consideration for job work charges and not for using the brand name independently. The Tribunal referred to the Supreme Court's decision in Panipat Woollen and General Mills Co. Ltd. and the Larger Bench decision in Pagariya Auto Center, emphasizing that the substance of the agreement should be considered rather than its form. Further, the Tribunal referred to CBEC Circular dated 27.10.2008 and subsequent clarifications, which supported the appellant's contention that the arrangement was a contract manufacturing arrangement, not subject to Service Tax under Intellectual Property Service. The Tribunal also noted that the profit earned by the appellant was in the nature of business profit, not subject to Service Tax. 2. Jurisdiction of the Commissioner of Central Excise, Meerut to issue the show cause notice: The appellant contended that the Commissioner of Central Excise, Meerut, had no jurisdiction to issue the show cause notice as the appellant did not have any registered office within its jurisdiction. The Tribunal, however, did not decide on this issue as it held in favor of the appellant on merits and limitation. 3. Applicability of the extended period of limitation for issuing the show cause notice: The show cause notice was issued by invoking the extended period of limitation. The appellant argued that the demand was barred by limitation as the issue of Service Tax liability was not clarified until the CBEC Circular dated 27.10.2008 and Ministry of Finance letter dated 30.10.2009. The Tribunal agreed, holding that the extended period of limitation was not invokable since the issue was clarified only through the circulars, and there was no suppression of facts by the appellant. Conclusion: The Tribunal concluded that the appellant was not liable to pay Service Tax under the category of Intellectual Property Service, as the arrangement with M/s. Pilkhani was a contract manufacturing arrangement. The demand was also barred by limitation. Consequently, the impugned order was set aside, and the appeal was allowed with consequential relief.
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