Case Law Details
it is undisputed that the main appellant is a bottler of Pepsi brand of aerated waters and is purchasing concentrate from PFL and converting into aerated waters sells the same to various distributors, PFL discharges central excise duty on the concentrate so sold to the main appellant; the manufacturing activity of aerated waters is diluting the concentrate purchased from PFL; the main appellant is also engaged in the trading activity of various canned products of Pepsi brand which are purchased by them from Pepsico India Holdings Ltd. which is not the same as PFL. In order to enhance the sales of aerated waters, the main appellant undertakes marketing and advertising of the products. As per the agreement entered into with PFL, the said expenses are shared in a particular manner and the main appellant has received an amount during the relevant period from PFL, which is sought to be taxed by the adjudicating authority under the head business auxiliary service.
We have perused the agreement entered into by the main appellant with PFL and find that the entire agreement talks about the sale of concentrate to the main appellant and the conditions for bottling the said trade mark like Pepsi, Mirinda, 7-up etc. The said agreement also provides for rights of PFL to sell and distribute beverages in other areas by appointing various bottlers. We have specifically perused the clauses relied upon by the adjudicating authority which is 11(b) and (d). On perusal of the said clauses, we notice that it talks about the steps necessary to be taken by the main appellant to promote and enhance the visibility and goodwill of trademarks and in particular the main appellant shall endeavour to maximise the sales and to increase the beverages share of market. Both the clauses when scrutinised in depth, do not indicate that the main appellant is required to promote or market or sale of goods produced or provided or belonging to PFL. In the case in hand, PFL is only producing and selling concentrate to the main appellant for converting into aerated water. The adjudicating authority’s findings that the concentrates are belonging to PFL, also does not cut the ice, inasmuch the said concentrate is sold on payment of excise duty to the main appellant, which would indicate that once the sale takes place, the concentrate does not remain the property of PFL.
The definition of business auxiliary service may not cover the transaction in this case, as the main appellant is not promoting or marketing of services provided by PFL as there is no service which has been provided by PFL in the case in hand. The findings of the adjudicating authority that the agreement requires the main appellant to promote the trademarks, which in term is nothing but the goods, seems to be far fetched as in the case in hand there is no mention of trade marks in the definition of BAS (as reproduced herein above). In short, we conclude that the main appellant is not promoting or marketing or selling the concentrates which are produced or provided by PFL to them for manufacturing of aerated waters.
Full Text of the CESTAT Order is as follows:-
These appeals are directed against order-in-original No. 53/ST/2012/C dated 20.9.2012. 2. The relevant facts that arise for consideration are M/s. SMV Beverages Pvt. Ltd. (hereinafter referred to as the main appellant) is engaged in the manufacturing of Pepsi range of products such as Pepsi, Mirinda, Mountain Dew, 7-up, Slice, Aquafina and fruit juices; is a franchisee of M/s. Pepsi Foods Pvt. Ltd. and is also engaged in trading of Pepsi brand products like Slice, Nimboo, bottle and cans of Pepsi, Mirinda Orange, 7-up and Mountain Dew. The traded items are purchased from M/s. Pepsico India Holdings Pvt. Ltd. The main appellant purchased concentrate i.e. basic raw material from M/s. Pepsi Foods Pvt. Ltd. (PFL). Officers of the department visited the premises of the main appellant and scrutinised the records and found that in the balance sheet, appellant is showing additional income under the head Net Incentive and Support of other receipts. On further enquiry, the departmental officers felt that the amounts received under these heads are liable for tax and statement of executive director was recorded. The licence agreement between the main appellant and PFL was sought for as also various records were scrutinised and a show cause notice dated 20.10.2011 was issued demanding service tax, interest thereof and also seeking to impose penalty for the period 1.5.2006 to 2010-11 under the category of business auxiliary service (BAS). The show cause notice also sought to impose penalty on the individual. Both the appellants contested the show cause notice on merits as well as on limitation. Adjudicating authority, after following due process of law, confirmed the demands raised with interest and also imposed penalties on both the appellants.
3. Learned counsel appearing on behalf of the appellants draws our attention to the show cause notice and the findings recorded by the adjudicating authority. He would submit that there is no merit in the findings, as the relationship between the main appellant and PFL will not fall under the scope and ambit of Section 65(19)(i) or (ii) of the Finance Act, 1994. It is the submission that the amounts received by them under the heads were in relation to sale of finished goods which were manufactured by the main appellant out of the concentrate supplied by PFL; they never received any amount with regard to Pepsi brands which were purchased by them for trading purposes; PFL raises invoices for sale of concentrate on the main appellant, which is further used in the manufacture of various aerated products of Pepsi brand; the aerated water is only sold by the main appellant to various distributors and a perusal of the documents reveals that the relationship between the main appellant and PFL is on principal to principal basis; it is an outright case of purchase of concentrate from PFL and various amounts received by the main appellant cannot be said to be towards the sale of concentrate which is being purchased; the sale of concentrate by PFL to the main appellant is on payment of central excise duty, VAT and other taxes and there is no element of any service which has been provided by the main appellant to PFL, hence there cannot be any levy of service tax on the amounts received from PFL; that the amounts which were received from PFL were sharing of marketing and other expenses, which mutually benefits the main appellant as well as PFL; the expenses incurred by the main appellant for promoting and marketing is in respect of the products sold by them and is not on behalf of PFL, which indicates that BAS is not applicable. He would submit that the decision of the Tribunal in the case of Bharat Petroleum Corporation vs. CST, Mumbai-I 2014 (36) STR 433 would be applicable, as in that case, BPCL and HPCL purchased CNG from Mahanagar Gas Ltd. and sold to their dealers, which required HPCL and BPCL to provide some facilities like water, electricity and other utilities, the cost of which was borne by MGL. It is his submission that the Tribunal held service tax is not attracted on the amounts received by HPCL and BPCL; the Honble High Court of Punjab & Haryana in the case of CCE, Chandigarh vs. Nahar Industrial Enterprises Ltd. 2010 (19) STR 166 (P&H) also held that service tax liability can be levied only if the services as sought are provided. He would submit that in the case of CST, Mumbai-I vs. Sai Service Station Ltd. 2014 (35) STR 625, the Tribunal held that amounts received for achievement of sales and target as incentive and incentive received on sale of spare parts are not taxable under BAS; similar view as taken in the case of Sharyu Motors vs. CST, Mumbai 2016 (43) STR 158 (T) as also in the case of AMR India Ltd. vs. CCE&ST, Hyderabad-II 2016 (42) STR 329 (T). On limitation, it is his submission that the department was aware of the activity of the main appellant as they were manufacturers of excisable products and the records were audited. It is his submission that on limitation as well as on merits, the issue is squarely covered in their favour.
4. Learned departmental representative, on the other hand, would draw our attention to the various clauses of Bottling Appointment and Trade Mark Licence Agreement entered into by the main appellant with PFL. He would draw our attention to the extracts produced from the said agreement in the ordering original and submit that the said agreement specifically in para 11(b) records that the main appellant shall take all steps necessary to promote and enhance the visibility and goodwill of the trademarks and in particular the main appellant shall endeavour to maximise the sales and to increase the Beverages share of market; para 11(d) also states to ensure consistency of image of the trademarks and products, the main appellant will seek prior approval of PFL for any advertising and sales promotion and other material, which if holistically read would mean that the main appellant is engaged in promotion or marketing or sale of goods produced or provided by or belonging to the client or promotion or marketing of services provided by the client as mentioned in the definition of BAS under Section 65(19) clause (i) and (ii). He would then read the findings of the adjudicating authority and draw our attention to the findings recorded in para 20.4 wherein the adjudicating authority has reproduced a table indicating the amounts received by the main appellant from PFL. After taking us through the said statement, he would submit that the narration in the debit notes clearly indicates that these debit notes were raised for marketing expenses incurred in respect of advertisement and additional support rendered by the main appellant. He would also submit that that there is an indirect benefit which flows to PFL in as much, that the advertising of aerated waters increases the sale of concentrate. It is his submission that by increasing the sale of aerated waters, the concentrate of such aerated waters are marketed by the main appellant.
5. We have considered the submissions made at length by both sides and perused the records.
6. We find that it is undisputed that the main appellant is a bottler of Pepsi brand of aerated waters and is purchasing concentrate from PFL and converting into aerated waters sells the same to various distributors, PFL discharges central excise duty on the concentrate so sold to the main appellant; the manufacturing activity of aerated waters is diluting the concentrate purchased from PFL; the main appellant is also engaged in the trading activity of various canned products of Pepsi brand which are purchased by them from Pepsico India Holdings Ltd. which is not the same as PFL. In order to enhance the sales of aerated waters, the main appellant undertakes marketing and advertising of the products. As per the agreement entered into with PFL, the said expenses are shared in a particular manner and the main appellant has received an amount during the relevant period from PFL, which is sought to be taxed by the adjudicating authority under the head business auxiliary service.
7. On this factual matrix, it is necessary that the definition of business auxiliary service under Section 65(19) of the Finance Act, 1994 needs to be read:-
Section 65(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 goods for, or on behalf of, the client;
(vi) provision of service on behalf of the client; or
(vii) a service incidental or auxiliary to any activity specified in sub-clause (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods.
Explanation : For the removal of doubts, it is hereby declared that for the purposes of this clause, –
(a) commission agent means any person who acts on behalf of another person and cause sale or purchase of goods, or provision or receipt of services, for a consideration, and includes any person who, while acting on behalf of another person –
(i) deals with goods or services or documents of title to such goods or services; or
(ii) collects payment of sale price of such goods or services; or
(iii) guarantees for collection or payment for such goods or services; or
(iv) undertakes any activities relating to such sale or purchase of such goods or services;
(b) excisable goods has the meaning assigned to it in clause (d) of section 2 of the Central Excise Act, 1944 (1 of 1944);
(c) manufacture has the meaning assigned to it in clause (f) of section 2 of the Central Excise Act, 1944 (1 of 1944).
8. The adjudicating authority has sought to tax the amounts received by the main appellant under category (i) or (ii) of the definition as reproduced herein above. For doing so, he has relied upon the PFLs Bottling Appointment and Trade Mark Licence Agreement entered into by the main appellant.
9. We have perused the agreement entered into by the main appellant with PFL and find that the entire agreement talks about the sale of concentrate to the main appellant and the conditions for bottling the said trade mark like Pepsi, Mirinda, 7-up etc. The said agreement also provides for rights of PFL to sell and distribute beverages in other areas by appointing various bottlers. We have specifically perused the clauses relied upon by the adjudicating authority which is 11(b) and (d). On perusal of the said clauses, we notice that it talks about the steps necessary to be taken by the main appellant to promote and enhance the visibility and goodwill of trademarks and in particular the main appellant shall endeavour to maximise the sales and to increase the beverages share of market. Both the clauses when scrutinised in depth, do not indicate that the main appellant is required to promote or market or sale of goods produced or provided or belonging to PFL. In the case in hand, PFL is only producing and selling concentrate to the main appellant for converting into aerated water. The adjudicating authority’s findings that the concentrates are belonging to PFL, also does not cut the ice, inasmuch the said concentrate is sold on payment of excise duty to the main appellant, which would indicate that once the sale takes place, the concentrate does not remain the property of PFL.
10. The definition of business auxiliary service may not cover the transaction in this case, as the main appellant is not promoting or marketing of services provided by PFL as there is no service which has been provided by PFL in the case in hand. The findings of the adjudicating authority that the agreement requires the main appellant to promote the trademarks, which in term is nothing but the goods, seems to be far fetched as in the case in hand there is no mention of trade marks in the definition of BAS (as reproduced herein above). In short, we conclude that the main appellant is not promoting or marketing or selling the concentrates which are produced or provided by PFL to them for manufacturing of aerated waters.
11. On merits itself, we hold that the impugned order is unsustainable. We find strong force in the contentions raised by the learned counsel that the ratio of case laws (cited by him) in the cases of Bharat Petroleum Corporation vs. CST, Mumbai-I 2014 (36) STR 433, CCE, Chandigarh vs. Nahar Industrial Enterprises Ltd. 2010 (19) STR 166 (P&H), CST, Mumbai-I vs. Sai Service Station Ltd. 2014 (35) STR 625, Sharyu Motors vs. CST, Mumbai 2016 (43) STR 158 (T) and AMR India Ltd. vs. CCE&ST, Hyderabad-II 2016 (42) STR 329 (T), are squarely applicable in the case in hand.
12. Since we are disposing of the appeal on merits itself in favour of the main appellant, we are not addressing our findings on the limitation aspect argued by both sides.
13. As we have held that the impugned order is not sustainable, the question of imposing penalty on any of the appellants does not arise.
14. In view of the foregoing, we hold that the impugned order is unsustainable and liable to be set aside and we do so.
15. The impugned order is set aside and the appeals are allowed.
