Unreported Decisions – ST – August 2019
By Vinay Jain & Sachin Mishra, Advocates
1. Whether manufacturing of beer affixing the Brand name of another entity under a Bottling/Brewing Agreement would be taxable under “Business Auxiliary Services” on the count that it amounts to “in relation to production and processing of goods for or on behalf of the client”? Whether on merger/amalgamation of an undertaking of service provider with the service recipient, ‘Appointed Date’ or ‘Effective Date’ shall be consider to ascertain the taxability of the activity undertaken by such undertaking of service provider to the service recipient?
Facts and Pleading:
M/s SAB Miller Breweries Pvt. Ltd (hereinafter referred to as ‘the Appellant’) has been engaged in the business of brewing and bottling of Beer. The Appellant entered into a bottling agreement with M/s SKOL Breweries Ltd. (‘SKOL’), under which the Appellant manufactured beer for SKOL. The Beer was sold after affixing SKOL’s brand name ‘Fosters’. Title, property and ownership of ‘Fosters’ beer manufactured by the Appellant vested solely with the Appellant. The said manufactured beer is sold by Appellant to ‘SKOL’ or buyers nominated by SKOL for outright price fixed by SKOL. The Appellant duly receives sale price/consideration for beer so sold by Appellant. During the relevant period, the aforesaid undertaking of the Appellant merged with SKOL (Merged entity i.e. SAB Miller India Limited) under a Scheme of Arrangement under Section 391 to 394 of the Companies Act, 1956 with an ‘Appointed Date’ of 31.03.2009 and ‘Effective Date’ of 22.06.2012.
The Department alleged that the Appellant is rendering services in relation to the manufacture or processing of non-excisable goods (Alcohol) for or on behalf of SKOL which is covered under amended definition of ‘Business Auxiliary Service’ under Section 65(105) (zzb) read with Section 65(19) of the Finance Act, 1994. The Department further alleged that the Scheme of Arrangement itself indicates that merger becomes effective only upon fulfillment of all the conditions as per Clause 16 of the Scheme of Arrangement. Hence, according to the department, the ‘Effective Date’ should be 22.06.2012 i.e. the date on which letter of incorporation was obtained from Registrar of Companies. Therefore, the Appellant has independently rendered the aforesaid ‘Business Auxiliary Service’ to SKOL.
The Appellant argued that the manufacturing of the said Beer was on account of Appellant and the title, property and ownership of manufactured beer having brand name ‘Fosters’ vested solely with the Appellant. Further, the manufacturing and selling activities were different contracts and the Appellant was not working on behalf of anyone. Accordingly, the aforesaid activities amounted to ‘manufacture’ and ‘outright sale’ of beer and thus, cannot be considered to fall within the scope of the expression “in relation to production and processing of goods for or on behalf of the client” i.e. under amended definition of ‘Business Auxiliary Service’ under Section 65(105) (zzb) read with Section 65(19) of the Finance Act, 1994. The Appellant also argued that it is entitled to benefit of Notification No. 39/2009-ST dated 23.9.2009 (Exemption to value of inputs used for providing taxable service during manufacture/processing of alcoholic beverages) read with Circular No. 332/17/09-TRU dated 30.10.2009. The Appellant, while relying upon various judgments including Marshal & Sons & Co India Ltd. vs. ITO, (1997) 2SCC 302, argued that the Appellant had since merged with SKOL during the relevant period, therefore services rendered by the Appellant to self cannot be chargeable to service tax. In this regard, the Appellant submitted that when the court does not alter the ‘Appointed Date’ i.e. 31.3.2009 in the present case, agreed upon by the parties then the same should be considered for all purposes.
Judgment: The Hon’ble Appellate Tribunal decided against the Appellant on merits on the count that the aforesaid activity undertaken by the Appellant is covered within the ambit of “in relation to production and processing of goods for or on behalf of the client” i.e. under amended definition of ‘Business Auxiliary Service’ under Section 65(105) (zzb) read with Section 65(19) of the Finance Act, 1994. According to the Hon’ble Appellate Tribunal the Appellant is producing and manufacturing beer on behalf of SKOL and the activity of manufacture of alcoholic beverages is non-excisable, hence, covered within the scope of Business Auxiliary Service. However, Hon’ble Appellate Tribunal accepted the submission of Appellant that it is eligible for exemption under Notification No. 39/2009-ST dated 23.9.2009. Further, the Hon’ble Appellate Tribunal relied on the case of Marshal & Sons & Co India Ltd Vs ITO, (1997) 2 SCC 302 to held that when the Court does not alter the ‘Appointed Date’ in the sanction order, the ‘Appointed Date’ in the scheme should be considered as the date when the scheme becomes effective. Hence, the Hon’ble Appellate Tribunal held that in absence of any date given by the Court in the present case, the ‘Appointed Date’ i.e. 31.03.2009 should be taken into as the date when the merger/amalgamation of the undertaking of the Appellant with SKOL became effective. Consequentially, according to the Hon’ble Appellate Tribunal, the undertaking of the Appellant and SKOL have merged during the relevant period and the said services rendered after 31.03.2009 would be services to self and hence, not be liable to service tax.
M/s. SAB iller Breweries Pvt. Ltd. vs. Commissioner of Service Tax, Aurangabad, Appeal No. ST/85828/2014 ST/ CO/91102/2014, Decided on 11.07.2019, Final Order No. A/86242/2019.