2020 (1) TMI 427 - AT - Service Tax

Classification of services - Franchise service or not - appellant has entered into agreements with various independent bottlers who possesses the necessary licenses for manufacturing of alcoholic liquors - view of the Revenue is that the appellant has granted representational right to the CBUs and that such service appropriately classifiable as Franchise Service - CBEC Circular No. 249/1/2006-CX.4 dated 27.10.2008. HELD THAT - As per the said circular, the appellant being brand owner and earned the profit/surplus, the same being in nature of business profit and the same is not chargeable to service tax. The said circular has not been withdrawn by the CBEC yet. Moreover, the CBUs are paying service tax under the category of Business Auxiliary Service which means the appellant is not a service provider but is a service recipient, in that circumstances, relying on the decision of M/S. BDA PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE, MEERUT 2015 (6) TMI 586 - CESTAT NEW DELHI where it was held that the 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. Thus, the appellants are not liable to pay service tax - appeal allowed - decided in favor of appellant.

Summary

Issues:
Interpretation of service tax liability in contract bottling arrangements.

Analysis:
The appellant, engaged in the manufacture and sale of alcoholic beverages, entered into agreements with independent bottlers. The issue revolved around the service tax liability under 'Business Auxiliary Services' due to the profit retained by the appellant in the arrangement. The Revenue contended that the appellant provided representational rights to the bottlers, categorizing the service as 'Franchise Service.' The appellant argued against this, citing CBEC Circulars clarifying that the bottlers provide services to the brand owners, making the appellant a service recipient, not a provider. The appellant relied on various judicial precedents to support their position.

The Tribunal referred to CBEC Circulars and previous decisions to analyze the taxability of the profit/surplus earned by the appellant. Circular No. 332/17/2009 clarified that the surplus/profit retained by the brand owner is business profit and not subject to service tax. The Tribunal found that the appellant, as the brand owner, falls under this category, and the circular has not been withdrawn. Additionally, the CBUs were paying service tax under 'Business Auxiliary Service,' indicating the appellant's role as a service recipient. Previous Tribunal decisions supported the appellant's stance, emphasizing that the appellant's profit is not taxable under service tax laws.

Considering the appellant's own case for an earlier period, the Tribunal reiterated that the demand under 'Franchise Service' was not legally sustainable. The Tribunal referenced specific agreements and circulars to support its decision that the appellant is not liable to pay service tax. The impugned order was set aside based on the established legal principles and precedents. The Tribunal concluded that the appellant was not liable to pay service tax, allowing the appeal with consequential relief, if any.