ST - Appellant, country liquor manufacturer, enters into selling agency agreement with HUF allowing them to use brand name 'Pahili Dhar' - No Service Tax is payable under IPR - Appeal allowed: CESTAT
By TIOL News Service
MUMBAI, JULY 22, 2014: THE applicant is a manufacturer of sugar and molasses. The applicant is also manufacturing country liquor under their brand name "Pahili Dhar" which is approved by the State Excise authority. The applicant had entered into selling agency agreement with M/s Talreja Trade (HUF) with intention to obtain higher returns on their investments in their country liquor plant by increasing the sale of country liquor of their brand "Pahili Dhar".
The contention of the Revenue is that the applicants have allowed M/s Talreja Trade (HUF) to use their brand name "Pahili Dhar" in selling the products and hence they are liable to pay Service Tax under the category " Intellectual Property Services ”.
The Commissioner of Central Excise, Pune vide Order-in-Original dated 27.11.2008 confirmed the demand of Service Tax of Rs.38,39,187/- and imposed penalties under sections 76 and 78 of the Finance Act, 1994.
After hearing the submissions made while seeking stay, the CESTAT observed that nowhere the Department has made out that M/s Talreja Trade is using the brand name of the applicants for their products . It was also noted that the applicants were having a good prima facie case in their favour.
Holding so, the Bench granted complete waiver of pre-deposit of entire service tax and penalties till final disposal of the appeal.
We reported this Stay order as 2009-TIOL-1029-CESTAT-MUM.
Incidentally, it needs mention that the impugned SCN also alleged that the appellant had undertaken manufacture of 'country liquor' from spirit on job work basis for M/s Talreja Trade and this activity fell under the category 'Business Auxiliary Services' and service tax of Rs.12,66,140/- is payable thereon. This portion of the demand was dropped by the adjudicating authority and we do not know whether the Revenue is in against the said portion of the order. In fact, in another proceeding where a service tax demand of Rs.2.26 lakhs was confirmed against the appellant under the head BAS, the CESTAT had set aside the o-in-a and this was reported by us as 2013-TIOL-263-CESTAT-MUM.
Be that as it may, the instant appeal was heard and decided more than six months ago but the order was received by us recently.
The appellant inter alia submitted that they are manufacturing branded country liquor (out of their own raw material/packing material) and because of the agreements with M/s Talreja Trade (HUF) , they are bound to sell the entire country liquor to the customers suggested by M/s Talreja Trade (HUF). Hence to safeguard their interest, they have decided on the minimum profit which they must get in the transaction, which is being wrongly treated as ‘royalty' for allowing M/s Talreja Trade (HUF) for alleged use of the brand name of the appellants to sell the country liquor.
It is further submitted that the transaction is purely of sale of the goods through an agent and not a transaction of allowing another to use intellectual property. Merely because the part of the amount received for the said sale transaction is described as ‘royalty' in the letter written to the department and in the statement of the Chief Accountant, the same can't be held as royalty received for allowing M/s Talreja Trade (HUF) for alleged use of the appellants brand name. The above said stand of the appellants is squarely supported by the statement of the proprietor of M/s Talreja Trade (HUF) which is totally ignored by the learned Commissioner while passing the impugned order, rendering the findings perverse.
The Bench extracted the agreements entered into by the appellant with M/s Talreja Trade and after studying the same concluded -
"9. Thus, on appreciation of the clauses of agreement with the evidence on record, it is evident that no ‘Intellectual Property Service' have been given by the appellant. The arrangement/agreement between the appellant and M/s Talreja Trade are for ensuring maximum production and sale of C.L. so as to maximize profits for both the parties. The minimum guarantee of profit per month given or assured by the agent to the appellant have been misunderstood as ‘Royalty' which is not the fact. The ground of limitation is also allowed in favour of the appellant."
The order of the CCE, Pune was set aside & the appeal was allowed with consequential relief.
In passing: I have taken more good from alcohol than alcohol has taken from me - Winston Churchill.
(See 2014-TIOL-1299-CESTAT-MUM)
