2019 (4) TMI 1808 - AT - Service Tax

Classification of services - Business Auxiliary Service or Franchisee Service? - Indian Made Foreign Liquor (IMFL) and alcoholic beverages - Assessee is responsible for marketing the products, makes production plan and procures orders for bottler and sale proceeds are deposited in a joint bank account - HELD THAT - The matter is no longer res integra as the demand of service tax under the category of Franchisee Service as the same has been settled in the case of M/S DIAGEO INDIA PVT LTD VERSUS COMMISSIONER OF CENTRAL EXCISE, THANE-II 2013 (7) TMI 266 - CESTAT MUMBAI where it was held that for the services received prior to 18.04.2006, the appellants are not liable to pay service tax. Since the facts of this matter are similar to the one decided by the above mentioned decision of this Tribunal, after follow the same, we hold that the demand under category of Franchisee Service confirmed by the adjudicating authority by the impugned order-inoriginal is not legally sustainable; therefore, we set aside the same. Demand of service tax amounting to ₹ 14,75,497/- - duty paying invoices - demand only on the two grounds that some of the invoices on which the cenvat credit was availed, was in the name of one of the branch of the appellant which was not registered with the Service Tax department or where the invoices were in the name of the Seagram Manufacturing Pvt Ltd. - HELD THAT - It is a matter of record that Seagram Manufacturing Pvt Ltd has been merged with the appellant s firm and therefore, on the invoices which are in the name of the Seagram Manufacturing Pvt Ltd, legally cenvat credit of the service tax on such invoices cannot be denied to the appellant as both the entities namely Seagram Manufacturing Pvt Ltd and the appellant have merged together. We find that the Cenvat Credit Rules, 2004 do not provide that input service needs to be received in the premises of output service provider, therefore, the cenvat credit cannot be denied on this ground also. Thus, there is no violation of the Cenvat Credit Rules - appeal allowed - decided in favor of appellant.

Summary

Issues:
1. Whether the appellant provided 'Business Auxiliary Service' or 'Franchisee Service' to various bottlers.
2. Validity of the demand of service tax and reversal of cenvat credit.
3. Applicability of Rule 6(3)(c) of the Cenvat Credit Rules, 2004.

Analysis:

1. The appellant, engaged in manufacturing and marketing liquor, faced service tax demands under 'Business Auxiliary Service' and 'Franchisee Service.' The department issued five show cause notices, demanding a total of ?42,22,18,962/- and reversal of cenvat credit amounting to ?53,99,881/-. The Commissioner confirmed demands under 'Franchisee Service' in four notices, totaling ?42,22,18,962/-. The appellant contended that the Tribunal previously ruled in similar cases that the arrangements did not constitute 'Franchisee Service.' The Tribunal referred to relevant CBEC circulars and held the demand under 'Franchisee Service' was not legally sustainable, setting it aside.

2. Regarding the demand of ?53,99,881/-, the appellant argued against Rule 6(3)(c) of the Cenvat Credit Rules, 2004, stating it should not apply on a monthly basis. The appellant cited cases supporting their argument. The A.R. supported the impugned order. The Tribunal found no violation of Cenvat Rules, noting the merger of Seagram Manufacturing Pvt Ltd with the appellant and that the credit utilization was below the 20% limit specified in Rule 6(3)(c). Citing a similar case, the Tribunal concluded there was no breach of Cenvat Credit Rules and allowed the appeal.

3. The Tribunal analyzed the agreements and relevant circulars to determine the nature of services provided by the appellant to bottling units. The Tribunal considered the terms of the agreement, lack of intellectual property transfer, and commercial interests involved. Referring to CBEC circulars and previous decisions, the Tribunal concluded that the demand under 'Franchisee Service' was not sustainable. Additionally, the Tribunal addressed the demand related to invoices and cenvat credit, finding no grounds for denial based on the merger of entities and compliance with Cenvat Credit Rules.

This comprehensive analysis of the judgment highlights the issues involved, the arguments presented by the parties, and the Tribunal's detailed reasoning leading to the final decision.