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TMI Blog2019 (6) TMI 272X X X X Extracts X X X X X X X X Extracts X X X X ..... ts 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 decl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verable from the Noticee. 3. Under Section 76 of the Finance Act, 1994, I impose a penalty on the Noticee of ₹ 200/- per day during which failure continues OR at the rate of two percent of such tax per month, whichever is higher. This penalty is applicable in respect of non-payment of service tax for the period upto 10/05/2008 starting from the first day of the due date till the date of actual payment of outstanding amount of service tax under Section 76 of the Finance Act, 1994read with Rule 6 of the Service Tax Rules, 1994 as the Noticee failed to pay Service Tax in accordance with the provisions of Section 68 of the Finance Act, 1994, provided that the total amount of penalty payable in terms of this section shall not exceed the service Tax payable. 4. I impose a penalty of ₹ 90,71,731/- on the Noticee under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services with malafide and premeditated intent to evade payment of service tax which has resulted in short payment of service tax. In this regard, the attention is invited to relevant provisos of Section 78 of The Finance Act, 1994 as per which if the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement/ compensation received from Coca Cola. 2.5 A show Cause Notice dated 20.02.2014 has been issued to the Appellant asking them to show cause as to why service tax short paid/ not paid amounting to ₹ 90,70,731/- be not demanded and recovered from them under the proviso to section 73(1) of Finance Act, 1994. Also why interest at appropriate rate on the amount determined as short/ not paid be demanded under Section 75 and penalties under Section 76, 77 78 be not imposed on them. Penal amount should not be recovered under Rule 7C of the Service Tax Rules, 1994. 2.6 Show Cause Notice has been adjudicated by the Commissioner as per his order referred in para 1, supra. Aggrieved by the order of Commissioner Appellants have filed this appeal. 3.1 In their appeal Appellants have assailed the impugned order stating- i. The finding of the adjudicating authority to effect that they were rendering Business Auxiliary Service as defined under Section 65(105)(zzb) read with Section 65(19) of Finance Act, 1994 is erroneous. ii. The finding of Commissioner to effect that they were providing service to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onducted are as follows: S No Period of Audit Month of Audit a April 2006 to June 2010 September 2010 b July 2010 to September 2012 November 2012 c October 2012 to November 2013 January 2014 ii. Though the unit was being regularly audited no such dispute a raised in Show Cause Notice dated 20.02.2014 for the period October 2008 to March 2013 was ever pointed out. iii. Wrong and contrary facts have been recorded in impugned order: a. Though they were filing the returns it has been recorded that they were not filing the returns. The order at some place records the fact of filing the return and at other place records that returns were not being filed, Inherent contradictions in the order. b. Records were admittedly provided by them but order states that they were recovered under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ks Ltd. [2014 (36) STR 37 (CAL)] xi. Penalty is not leviable. 4.3 Learned Authorized Representative appearing for revenue submitted- i. Appellants are providing Business Auxiliary Service in form of promotion or marketing or sale of goods produce or provided by or belonging to client ii. In case of Coca Cola India Pvt Ltd [2009 (15) STR 657 (Bom)] Bombay High Court has allowed the CENVAT Credit to concentrate manufacture on advertising service used for marketing of soft drinks manufactured by bottlers. The advertisement of aerated water is integrally connected with manufacture and sale of concentrate. Beverages are made by diluting concentrate with water and addition of sugar and carbon dioxide. iii. The advertisement of soft drink enhances the marketability of concentrate has already been settled in case of Pepsi Food Ltd [1996 (82) ELT 33 (T)], [1997 (1) ELT 544 (SC)] and [2003 (158) ELT 552 (SC)]. iv. Once it is established that advertisement of aerated water promoted marketability of concentrate the natural corollary that follows is that such activities are rightly covered in the sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the course of arguments along with written submissions filed. 5.2 During the course of investigation and scrutiny of records, revenue found that Appellant s had received certain amounts from Coca Cola India under the head Marketing Support Received . Revenue has sought to subject this amount tax under the category of Business Auxiliary Services for the period upto 01.07.2012. Section 65(19) of the Finance Act, 1994 defines Business Auxiliary Service as follows: 19) business auxiliary service means any service in relation to, - (i) Promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) Promotion or marketing of service provided by the client; or (iii) Any customer care service provided on behalf of the client; or (iv) Procurement of goods or services which are inputs for the client; or Explanation: For the removal of doubts, it is hereby declared that for the purposes of this sub clause, inputs means all goods or services intended for use by the client. (v) Production or processing of good f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of CCI. The above statement of fact made in the show cause notice do not appear to reflect the correct position as the agreement under consideration is between Coca Cola Company, USA and appellant and not between Coca Cola India and Appellant. Further show cause notice refers to Business Protocol for 2012 between Superior Group (comprising of Superior Drinks Pvt Ltd, Nagpur, Udaipur Beverages Ltd., Jabalpur Narmada Drinks Pvt Ltd. Bilaspur) and Coca Cola India BU and states From the Business Protocol for 2012 it appears that the Business Protocol gives details of commitments from both side on various aspects like volume of growth of business, consumer prices, execution plant etc.. A portion of Business Protocol is dedicated to marketing investments. Clause 5 of the said Business Protocol relates to marketing investments which indicate the total budget for marketing spend and how much marketing spend will be shared between CCI and Noticee (i.e. sharing ratio). The said clause 5 is reproduced below: 5. Marketing Investments Value in Rs DME BUDGET 2012 AC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00 1:03 750000 2250000 Fridge Pack Promo 1000000 1:02 333333 666667 Coke Activation in Trade 1000000 1:03 250000 750000 OYA 13860000 6006000 7854000 Modern Trade Promotions 1000000 1:01 500000 500000 Local Festive Activation 1400000 1:03 350000 1050000 IMC s Sprite Limca 1000000 1:02 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service recipient between the appellants and Coca Cola India. It only states what shall be the investment/ expenditure undertaken by both in respect of various activities specified therein. The said expenditure could have been incurred independently or jointly by the both in terms of the said clause. This expenditure if incurred in joint manner gets shared in the ratio indicated. The conclusion drawn by the revenue on the basis of said clause 5 and Bottlers Agreement do not flow from these and is a conclusion drawn to establish service provider and service recipient relationship. The conclusion drawn that these promote the sale of concentrate is also without any legal basis. 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 e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tedly emphasized that the Explanatory Notes of HSN are valuable material for understanding the scope of various headings in the Central Excise Tariff. The relevant extract of the Explanatory Note of HSN of Heading 21.06 is as under :- 21.06 Food preparations not elsewhere specified or included. The heading includes, inter alia : (1) (2) ., (3) (4) (5) (6) (7) Non-alcoholic or alcoholic preparations (not based on odoriferous substances) of a kind used in the manufacture of various non-alcoholic or alcoholic beverages. These preparations can be obtained by compounding vegetable extracts of heading 13.02 with lactic acid, tartaric acid, citric acid, phosphoric acid, preserving agents, foaming agents, fruit juices, etc. The preparations contain (in whole or in part) the flavouring ingredients which characterize a particular beverage. As a result, the beverage in question can usually be obtained simply by diluting the preparation with water, wine or alcohol, with or without the addition, for example, of sugar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 15. In support of their contention that Advertisement is a service used in relation to the manufacture of the final product, viz., Concentrate. Counsel for assessee has advanced the following reasons in support : (i) The advertisement relates to the brand of the Appellants since the brands Coca-Cola, Thumps Up, Fanta, etc., are licensed to the Appellants ; (ii) The invoices of sale show that what is sold is Coca- Cola concentrate Fanta concentrate etc. (iii) The concentrate and the soft-drink manufactured therefrom are proprietary in nature and there is a direct co-relation between the demand for soft drink and the demand/manufacture of concentrate. (iv) The advertisement expenditure incurred in respect of soft drink forms part of the cost of manufacture of Concentrate ; (v) The advertisement of soft drink enhances the marketability of Concentrate. (vi) The concentrate is manufactured by the Appellants for sale exclusively to the bottling companies who, in turn manufacture the soft drinks. The bottling companies, in their turn, buy the concentr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ditions are imposed in the franchisee agreements requiring the use of the concentrate, sticking to the specifications specified by the concentrate supplier/brand holder etc. A license to use the brand name would also be given to the bottler. Thus, the business arrangement is not confined to mere manufacture and sale of the concentrate to the bottler but is an integrated/integral arrangement related to the purchase of the concentrate, use of the brand name of the bottler, adhering to the terms and conditions of the franchisee agreement. Thus, the business of manufacture of concentrate does not end with the manufacture and sale of concentrate, but continues and extends much beyond that. 23.4 In view of above, it is clear that CCI is contributing financially to the Noticee for promotional and marketing activities of their concentrates. It is also clear that the relationship of service provider and service receiver is well established and there is an explicit element of service in the instant case viz the Noticee had undertaken the sales promotion activities of concentrates of CCI for which CCI were compensating the noticee in the form of Market Support Received ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce of the concentrates on which duty has been paid. 5.10 While considering the questions as above High Court has recorded what has been state by the Commissioner. In the case before High Court, the advertisement expenses were incurred by Coca Cola India and High Court had held that expenses towards advertisement services are part of the cost incurred for production of the finished product, and hence these services are to be treated as input services for determining eligibility to CENVAT Credit. In our view the decision of High Court does not state what Commissioner has intended to conclude from the same. 5.11 Hence we do not find any merits in the order of Commissioner for the period to 01.07.2012. Similar view has been taken by the tribunal in case of similarly worded show cause notices issued to the group companies. Narmada Drinks Pvt Ltd [2017 (5) GSTL 205 (T-Del)] 9. BAS is an omnibus service covering within its fold various types of services. It has not been indicated either in the Show Cause Notice or Order-in-Original under which sub-clause the appellant's service is being charged to service t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is settled law that when a new service is introduced, the activities which are covered under the new services cannot be covered under any earlier services for the prior period. 13. The new service has been introduced under Section (65)(105)(zzzzq), which covers the service of promotion of brand names. Even if a view is taken that the service rendered by the appellant is covered under the new service w.e.f. 1-7-2010, the same cannot be charged to service tax under BAS for the earlier period. This view has been settled through various decisions of the High Courts and the Tribunal in the case of Sourav Ganguly v. Union of India [2016 (43) S.T.R. 482 (Cal.)]. The Hon ble High Court at Calcutta has dealt with an identical fact, the Hon ble High Court held as follows : I am inclined to agree with the submission 67. of ld. Counsel for the petitioner that since by amendment of the Finance Act, 1994, a new taxable service category of Brand Promotion was introduced with effect from 1 July, 2010, the logical corollary and inevitable inference is that such category of service was not taxable prior to 1 July, 2010. In this connection, I am in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ds marketing and promotion or sale of goods produced by their client. At best it can be said that they have participated in promotion of the brand name of Coca Cola , Pepsi etc. Such activities cannot be brought under Promotion or Marketing or Sale of Goods Produced or Service Provided by the Client , appearing under Business Auxiliary Service . 5.12 For the period from 01.07.2012, a entirely different regime for taxing the services was introduced. As per Section 65B(44) of the Finance Act, 1994,- service means any activity carried out by a person for another for consideration, and includes a declared service, but does not include - 5.13 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. Hence these are left out from our consideration in subsequent paragraphs. 5.14 The phrase any activity carried out by a pe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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