2016 (6) TMI 366 - AT - Service Tax

Business Auxiliary Services rendered to various contracted CBU s - Whether or not the appellant have provided taxable services to the bottling units - Contract between appellant and various distilleries - Held that - in terms of the agreement the contract bottling units are actually manufacturing the branded liquor as job workers for the appellant for which they are getting fixed amount as per the rate approved in terms of the said agreement. The CBU has no freedom of marketing the manufactured products. The sale and distribution of manufactured product is in control of the appellants. Full sale proceeds are received by the appellants and the CBUs are paid amount as per the pre fixed rates. It is relevant to note here that after the amendment carried out w.e.f. 01.10.2009 in the definition of Business Auxiliary Services the CBUs are paying service tax under the said category. This will shows that it is the CBUs who are providing services to appellant not the other way around. It cannot be said that the appellants are promoting the business of bottlers. Therefore, by considering the applicability of Board s circular dated 27.10.2008, the various decided case and also the tax liability on CBUs introduced with effect from 01.09.2009 under Business Auxiliary Services category, it is clear that the impugned order is not sustainable and is set aside. - Decided in favour of appellant

Summary

Issues: Determination of service tax liability under Business Auxiliary Services for brand owners in liquor industry.

Analysis:

1. Background: The appellant, owners of various brands of Indian Made Foreign Liquor (IMFL), entered into contracts with bottling units for manufacturing liquor with their brand names. The issue revolved around whether the appellants provided taxable services to the bottling units, leading to service tax demands for the period from July 2003 to March 2012.

2. Appellant's Arguments: The appellant contended that they did not provide any services to the bottling units, as the units manufactured liquor with the appellant's brand name as contracted bottlers. They referenced circulars and legal decisions supporting their stance, emphasizing that they did not engage in market promotion services but operated for profit by owning brands and having them manufactured by the bottlers.

3. Revenue's Argument: The Revenue opposed the appellant's contentions, asserting that the appellants provided services such as identification of suppliers, promotion, marketing, and collection of payments, making them liable for service tax under Business Auxiliary Services.

4. Judgment: The Tribunal analyzed the agreements between the appellants and bottling units, noting that the appellants provided manufacturing practices, assistance in quality control, and other support, while the units were responsible for manufacturing, permits, and dispatch. The Tribunal found that the units were manufacturing the branded liquor as job workers for the appellants, receiving fixed amounts per case, and not having marketing freedom. The Tribunal referenced a Board's circular and previous decisions to conclude that the appellants were not liable for service tax under Business Auxiliary Services.

5. Precedents: The Tribunal cited previous cases where similar arrangements were examined, leading to decisions that the brand owners were not providing services to the bottling units, and the profit generated was not subject to service tax.

6. Conclusion: Based on the analysis of the agreements, circulars, precedents, and the tax liability introduced in 2009, the Tribunal held that the impugned order was not sustainable under the law. Consequently, the Tribunal set aside the order and allowed the appeals.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved, the arguments presented by both parties, the Tribunal's assessment of the agreements, and the legal basis for setting aside the service tax demands under Business Auxiliary Services for the brand owners in the liquor industry.