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2022 (8) TMI 927 - AT - Service TaxLevy of Service Tax - Intellectual Property Service - permission granted to the CBUs / TMUs to affix the brand name / trade name belonging to them on the IMFL manufactured - value of taxable service - 2% of net sale realization as held by the Commissioner or the total amount paid by the CBUs / TMUs as contended by Revenue in their appeals - eligibility for CENVAT Credit - extended period of limitation - HELD THAT - In the facts and circumstances of the case, the brand owner has not transferred any intellectual property relating to the trade name, trade mark, brand name, technical know-how etc. pertaining to the goods manufactured by the Contract Bottling Units; the Contract Bottling Units are in no position to commercially exploit or to avail any financial benefit out of the above; they are paid fixed charges as per the agreements and the surplus whatever accrues to the brand owner appellant. When the transferee is not in a position to use the technical know-how etc., it cannot be said that the Contract Bottling Units have availed any services with respect to intellectual property rights from the brand owner appellants. It is seen that it is the brand owner himself who is using his own brand and technical know-how albeit the manufacturing activity is outsourced to the Contract Bottling Units. The ultimate beneficiary of the technical know-how are the intellectual property if any for that matter is the appellant themselves and therefore, it is incorrect to say that there is any transfer of temporary leasing of intellectual property. Therefore, the entire case of the Department is based on a false surmise. The issue is no longer res integra and is decided in favour of the appellants. The Apex Court has decided a similar case in respect of THE COMMISSIONER CENTRAL EXCISE, MEERUT VERSUS M/S. BDA PVT. LTD. 2015 (11) TMI 1585 - SC ORDER holding that in such cases, the brand owner does not give any right to the TMU to use his brand. Thus, the Department has not made out any case against the appellants for demand of service tax on Intellectual Property Services. The Revenue has filed appeals contesting the valuation for the purpose of levy of service tax adapted by the appellants - the appellants are not liable to pay service tax therefore the issue of valuation becomes redundant to that extent. Admissibility of CENVAT Credit - HELD THAT - The learned Commissioner observes that the appellant was not found to have furnished any evidence or argument that without the use of such input services, they would not be able to provide the output service i.e. Intellectual Property Service, to the satisfaction of the recipient of the output service; therefore, he considers that the credit availed by the appellants on all such aforesaid input and services, considering them to be input and input services, are not eligible to CENVAT credit, as such input services are not found to fulfil the definition of input and input service as defined in the CENVAT Credit Rules - there is considerable force in the averments of argument of the learned Commissioner. As per the scheme of the CENVAT credit, the appellants have a responsibility thrust upon them to show the nexus between the inputs/input services to the ultimate output/output services, as the case may be. The appellants are also required to follow the procedure contained in Rule 6 of CENVAT Credit Rules. The appellants did not specify the nexus between the credit availed and the output services provided. During the hearing or in the written submissions no clarification was given, except relying on the interim order of this bench granting stay - As per the available records, it cannot also be ascertained as to whether the appellants have maintained separate accounts to show the inputs/input services which are used in exempted and dutiable products. The issue requires to go back to the adjudicating authority to verify the claims of the appellants on the issues eligibility of CENVAT credit on inputs/inputs services, the nexus between the input/ input services with the output/output services and the adherence of the appellants to the procedure prescribed under Rule 6 of CENVAT Credit Rules - Appeal allowed in part and part matter on remand.
Issues Involved:
1. Whether the appellants have rendered Intellectual Property Service under Section 65(105)(zzr) of the Finance Act 1994 and are liable to service tax. 2. Determination of the value of taxable service, if applicable. 3. Eligibility of the appellants for CENVAT credit. 4. Applicability of the extended period of limitation and imposition of penalties. Issue-wise Detailed Analysis: 1. Intellectual Property Service: The appellants entered into agreements with Contract Bottling Units (CBUs) for manufacturing Indian Made Foreign Liquor (IMFL). The Department contended that the appellants rendered Intellectual Property Services by allowing CBUs to use their brand names and technical know-how, thus liable to service tax under Section 65(105)(zzr) of the Finance Act 1994. However, the Tribunal found that the appellants retained effective control over production and sale, and the CBUs could not commercially exploit the intellectual property. The agreements indicated that the appellants were merely getting the alcoholic beverages manufactured by the CBUs. The Tribunal concluded that the appellants did not transfer any intellectual property rights to the CBUs, and thus, no Intellectual Property Service was rendered. 2. Value of Taxable Service: The Department argued that service tax should be levied on the entire amount paid by the CBUs to the brand owner, while the Commissioner had determined it to be 2% of net sale realization. Since the Tribunal held that the appellants did not render any Intellectual Property Service, the issue of determining the value of taxable service became redundant. 3. Eligibility for CENVAT Credit: The appellants contended that they were eligible for CENVAT credit on advertising services used for promoting their brand names. The Commissioner had restricted the CENVAT credit to 20% of the service tax payable, as the brand names were also used for IMFL. The Tribunal found that the appellants did not provide sufficient evidence to show the nexus between the input services and the output services. The Tribunal remanded the issue to the original authority for fresh consideration based on the evidence that may be submitted by the appellants and available records. 4. Extended Period of Limitation and Penalties: The appellants argued that the extended period of limitation should not be invoked, and no penalties should be imposed. The Tribunal found that the Department was aware of the appellants' activities and had issued notices in the past. Given the ambiguity and CBEC's clarifications, the Tribunal held that the extended period of limitation was not applicable, and penalties under Section 78 were not leviable. Conclusion: - Appeals No. 386, 387, and 388 of 2010 were partly allowed. - The demand of service tax of Rs. 13,15,91,471 and the penalty of an equal amount were set aside. - The issue of CENVAT credit of Rs. 10,17,92,834 was remanded to the original authority for fresh consideration. - Appeals No. 389, 390, 391 of 2010, filed by the Department, were dismissed. (Order pronounced in the Open Court on 10/08/2022)
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