2019 (6) TMI 272 - AT - Service Tax

Business Auxiliary Services - short paid/non paid service tax - sale, promotion the marketing activities for beverages undertaken by the appellants directly promotes the sale of concentrate manufactured by or on behalf of Coca Cola, Coca Cola India (CCI) on behalf of Coca Cola USA reimburses the cost proportionately - demand of interest and penalty - extended period of limitation. HELD THAT - The clause of the definition which is relevant for such invocation is i. Promotion or marketing or sale of goods produced or provided by or belonging to the client; . A plain reading of the said clause will make it evident that the activities undertaken by the service provider should be towards promotion or marketing or sale of goods produced or provided by the service recipient. In the present case how the Bottler Agreement or the clause 5 of the Business Protocol 2012, support such an conclusion is beyond comprehension of a rational mind. The clause 5 of Business Protocol clearly is not establishing the relationship of service provider and service recipient between the appellants and Coca Cola India - Appellants use the concentrate supplied/ procured from Coca Cola India, for the production/ manufacture of finished products. They sell their finished products in the market as pr the plan and marketing strategy finalized by them in association with the brand owners. The objective of the sale promotion activities undertaken by them is to promote the sale of Beverages of various brands owned by Coca Cola USA and bottled by them. Any further extrapolation made by revenue for drawing the conclusion is beyond the express intent of the Bottler Agreement. Since as the sale of his finished goods goes up automatically consumption of inputs will go up and accordingly he promotes the sale of input manufacturer/ supplier. In our view such an interpretation is neither logical or rational. Both input suppliers and the finished product manufacturer are independent business entity acting in the interest of their business. From the definition of service as per section 65B(44), the essential ingredient of same are any activity carried out by a person for another and consideration for undertaking such and activity . Admittedly the dispute is not in respect of declared services or negative list of services or those falling in the exclusion clause. The phrase any activity carried out by a person for another , is very clear that the activity sought to be taxed, should be the activity carried out by one person for the another person. Thus any activity which has been undertaken by a person on his own account for himself cannot be said to be covered by the said phrase even if this activity is undertaken by the person with the financial assistance/ support of other person either partially or completely - In the present case the appellants were undertaking the marketing and sales promotion activity on their own account, Coca Cola India was only providing certain financial assistance in undertaking such activity. The activity undertaken were not performed by the appellant for Coca Cola India, but was performed for themselves. Since no activity has been performed by the appellant for Coca Cola India, we are of view that mere receipt of amounts under the head Market Support Received will qualify them as service under Section 65B(44). Since we are deciding the issue on the merits itself and dropping the demand as not maintainable we do not take other issues of limitation and penalty argued before us in this appeal. The demand of service tax set aside - appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services under "Business Auxiliary Service" (BAS).
2. Validity of the Show Cause Notice.
3. Invocation of the extended period for demand.
4. Imposition of penalties under various sections of the Finance Act, 1994.
5. Entitlement to cum tax benefit.

Issue-wise Analysis:

1. Classification of Services under "Business Auxiliary Service" (BAS):
The core issue was whether the amounts received by the appellants from Coca Cola India for marketing and promotional activities could be classified under "Business Auxiliary Service" as defined under Section 65(19) of the Finance Act, 1994. The Commissioner concluded that these activities promoted the sale of concentrates supplied by Coca Cola India, thus falling under BAS. However, the Tribunal found that the marketing and promotional activities were undertaken by the appellants for their own account and not for Coca Cola India. The Tribunal emphasized that the relationship of service provider and service recipient was not established merely by the financial assistance provided by Coca Cola India. The Tribunal also noted that similar notices issued to group companies were decided in favor of the appellants, reinforcing the view that such activities did not fall under BAS.

2. Validity of the Show Cause Notice:
The appellants argued that the Show Cause Notice did not specify the clause under Section 65(19) under which the demand was made, making it legally untenable. The Tribunal found that the notice sufficiently indicated the relevant clause of BAS, thus rejecting the appellants' contention. The Tribunal stated that the notice provided enough detail to classify the service under BAS, and therefore, the objection raised by the appellants lacked merit.

3. Invocation of the Extended Period for Demand:
The appellants contended that the demand was barred by limitation and that the extended period could not be invoked. They argued that their records were regularly audited, and no such dispute was raised during those audits. The Tribunal agreed with the appellants, noting that the extended period could not be invoked as the appellants' records were regularly audited, and the details were verified by the officers. The Tribunal referenced the decision in the case of Nizam Sugar Factory, which was set aside by the Hon'ble Supreme Court, supporting the appellants' position.

4. Imposition of Penalties under Various Sections of the Finance Act, 1994:
The Commissioner had imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994, for non-payment of service tax, suppression of taxable value, and delayed filing of returns. The appellants argued that penalties could not be imposed as there was no deliberate defiance of law. The Tribunal, having decided the issue on merits and dropping the demand as not maintainable, did not address the penalties separately. However, it implicitly accepted that penalties were not justified given the circumstances.

5. Entitlement to Cum Tax Benefit:
The appellants argued that even if the tax was demandable, they should have been extended the cum tax benefit. The Tribunal did not specifically address this issue in its final decision, as it had already decided to drop the demand on merits.

Conclusion:
The Tribunal found no justification for the demand of service tax raised under "Business Auxiliary Service" for the period before and after 01.07.2012. It concluded that the marketing and promotional activities undertaken by the appellants were for their own account and not for Coca Cola India. The relationship of service provider and service recipient was not established, and the mere receipt of amounts under "Market Support Received" did not qualify as a service under Section 65B(44) of the Finance Act, 1994. Consequently, the impugned order was set aside, and the appeal was allowed.

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