2017 (3) TMI 942 - AT - Service Tax

Business Auxiliary services - marketing and advertising of the products - demand of duty with penalty - Held that - On perusal of the said clauses of the agreement, we notice that it talks about the steps necessary to be taken by the main appellant to promote and enhance the visibility and goodwill of trademarks and in particular the main appellant shall endeavour to maximize the sales and to increase the beverage s share of market. Both the clauses when scrutinized in depth, do not indicate that the main appellant is required to promote or market or sale of goods produced or provided or belonging to PFL - In the case in hand, PFL is only producing and selling concentrate to the main appellant for converting into aerated water - the main appellant is not promoting or marketing or selling the concentrates which are produced or provided by PFL to them for manufacturing of aerated waters - the impugned order is unsustainable - appeal allowed - decided in favor of appellant.

Summary

Issues:
Tax liability under business auxiliary service (BAS) for amounts received by the main appellant from PFL for marketing expenses and support.

Analysis:
The main appellant, engaged in manufacturing and trading of Pepsi brand products, received amounts under the heads of Net Incentive and Support of other receipts from PFL. The department issued a show cause notice demanding service tax, interest, and penalty for the period 1.5.2006 to 2010-11 under BAS. The adjudicating authority confirmed the demands, but the main appellant contested the notice on merits and limitation.

The main appellant argued that the relationship with PFL does not fall under the scope of BAS as they received amounts related to the sale of finished goods, not services. They emphasized the principal-to-principal basis of their relationship with PFL and cited relevant case laws to support their position. The main appellant contended that the expenses incurred were for promoting their products, not on behalf of PFL, thus BAS should not apply.

The departmental representative highlighted clauses from the agreement between the main appellant and PFL, indicating the promotion and marketing responsibilities of the main appellant. They argued that the amounts received were for marketing expenses and support, indirectly benefiting PFL by increasing sales of concentrate.

The Tribunal analyzed the agreement and the definition of BAS under Section 65(19) of the Finance Act, 1994. They found that the main appellant's activities did not align with promoting or marketing goods produced by PFL, as they purchased concentrate for manufacturing aerated waters. The Tribunal concluded that the impugned order was unsustainable, citing relevant case laws supporting the main appellant's position.

Since the Tribunal disposed of the appeal in favor of the main appellant on merits, they did not address the limitation aspect. As the impugned order was set aside, no penalties were imposed. The appeals were allowed, and the impugned order was deemed unsustainable.

This detailed analysis of the judgment clarifies the issues surrounding tax liability under BAS for amounts received by the main appellant, ultimately leading to the decision in favor of the main appellant based on the interpretation of relevant legal provisions and case laws.