2014 (4) TMI 1040 - AT - Service Tax

Demand of service tax - Intellectual property service - Franchise agreement - manufacture and sale of beer using the brand name and technical know-how of another person - Held that - As per the agreement between the parties, the risk of manufacture and sale lies with the appellant in respect of the Foster Brand beer got manufactured by it from FIPL. It is evident from the contract that FIPL is only responsible for bottling, packing and dispatch as per the specification, terms, formula etc. as laid down by the appellant. Further, FIPL is bound to charge the price from the notified Indenter of the appellant as fixed by the appellant. Only for the risks associated with the manufacturing process fastened on FIPL (CBU), it cannot be said that as FIPL is responsible for proper quality, quantity and timely production, they are providing Franchise Service and/or IPR Service - Decided in favour of assessee.

Summary

Issues Involved:
1. Jurisdiction of the Revenue to demand Service Tax.
2. Classification of the service provided under "Intellectual Property Right" or "Franchise Service".
3. Violation of principles of natural justice in the Order-in-Original.

Detailed Analysis:

1. Jurisdiction of the Revenue to demand Service Tax:
The appellant contested the jurisdiction of the Revenue, arguing that the payments were made to SKOL Breweries (Bangalore), which falls under a different Commissionerate. The Commissioner (Appeals) examined the Central Excise Registration and found no Service Tax Registration for the appellant at Aurangabad. It was also noted that there was no claim of double taxation for the same services in different jurisdictions. Thus, the question of jurisdiction was decided against the appellant.

2. Classification of the service provided under "Intellectual Property Right" or "Franchise Service":
The Revenue believed that the appellant provided taxable services under "Intellectual Property Right" and "Franchise Service". The appellant argued that FIPL was only a Contract Bottling Unit (CBU) manufacturing beer as per their specifications, and thus, no Franchise or IPR services were provided. The appellant referred to Circular F. NO. 249/1/2006-CX.4 and other relevant circulars, which clarified that in a contract manufacturing arrangement, the CBU provides manufacturing services, not Franchise or IPR services. The Tribunal noted that the agreement between the parties showed that FIPL was responsible for bottling, packing, and dispatch as per the appellant's specifications. The risk of manufacture and sale lay with the appellant, and FIPL was bound to charge the price fixed by the appellant. The definitions of "franchise" and "franchisor" were examined, and it was concluded that no Franchise or IPR services were provided by the appellant to FIPL.

3. Violation of principles of natural justice in the Order-in-Original:
The appellant claimed that the Order-in-Original violated the principles of natural justice. However, this issue was not elaborated upon in the judgment, and the primary focus was on the jurisdiction and classification of services.

Conclusion:
The Tribunal found that the appellant did not provide Franchise or IPR services to FIPL. The impugned orders were set aside, and the appeals were allowed with consequential relief. The operative portion of the order was pronounced in Court.