IN RE: M/s. UNITED BREWERIES LIMITED
GST
2018 (11) TMI 283 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – 2018 (18) G. S. T. L. 855 (App. A. A. R. – GST)
APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – AAAR
Dated:- 23-10-2018
KAR/AAAR/03/2018-19
GST
SHRI. A.K. JYOTISHI, AND SHRI. M.S. SRIKAR, MEMBER
Represented by: Sri. Shivadass Advocate.
PROCEEDINGS
(Under section 101 of the CGST Act, 2017 and the KGST Act, 2017)
At the outset, we would like to make it clear that the provisions of both the Central Goods and Service Tax Act,2017 and the Karnataka Goods and Service Tax (hereinafter referred to as CGST Act, 2017 and KGST Act,2017) are identical, except in certain provisions, As such, unless a mention is made specifically to any such dissimilar provision, a reference to the CGST Act would also mean a reference to the corresponding similar provision under the KGST Act.
The present appeal has been filed under Section 100 of CGST Act, 2017 and the KGST
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BUs, upon the sale of such goods, pay the statutory levies and taxes. The CBUs further account for all the manufacturing cost and distribution overheads in their books of account since it is they who procured all resources for the manufacture -of the beer. Further, CBUs retain a certain amount of profit. After accounting all these revenues and deducting the part of their share from the total turnover that is had from the sale of such beer in each period, the CBUs transfer the balance of amount from the total turnover to the Appellant.
3. The appellant filed an application on 10.01.2018 before the Karnataka Authority for Advance Ruling (hereinafter referred to as 'Authority”) under Section 97 of CGST/KGST Act; 2017 read with Rule 104 of CGST/KGST Rules, 2017 in form GST ARA-01, seeking a ruling on the following:
a. Whether, beer bearing brand/s owned by the Appellant manufactured by Contract Brewing Units out of the raw materials, packaging materials, and other input materials procure
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ds from the sale of beer made So, the CBUs pay all the statutory levies and taxes. Besides this the CBUs retain the manufacturing Cost, the manufacturing and distribution overheads and its portion of net profit. The balance of the sale proceeds, after the CBUs have apportioned part of the proceeds as enumerated above, is transferred to the Appellant as surplus/profit earned by the brand owner.
6. The contract manufacturing arrangement empowers the CBUs to use the brand name of the Appellant for the limited purpose of facilitating manufacture of Appellant's own brands of beer and this usage is in accordance with Section 48(2) of Trademark Act.
7. The Appellants submitted that the Ievy of service tax in relation to the activity of production/process of alcoholic liquor for or on behalf of the brand owners like the Appellant commenced on 01.09.2009 under Business Auxiliary Service and continued up to 30.06.2012, They further state that thereafter, w.e.f 01.07.2012 the activity of produc
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ther, such amount is paid by BO or by CBU, they have no nexus with the provisions of service. As such these levies will not be included for charging service tax.
4. Similarly, the surplus/profit earned by the BO being in the name of Business Profit (which falls within the purview of direct taxes) will not be chargeable to service tax.
9. Further, the Appellant submitted before the Authority that during the period from 23.09.2009 to 30.06.2012 and 01.06.2015 to 30.06.2017, the CBUs have discharged Service Tax on the agreed bottling charges (comprising of manufacturing overheads and margin of profit) and the amounts reimbursed by the Appellant towards agreed expenses.
10. Further, the appellant had cited past litigations (pre-GST period) before the Authority, in respect of the matter regarding taxability at the hands -of the BO in respect of the amount received by them from the CBUs; that even though CBEC had clarified that there was no service provided by the brand owner to the CBUs
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e Appellant presented that in the GST regime, post 01.07.2017, alcoholic liquor for human consumptions has been kept out of the levy of GST. With respect to the manufacturing activity carried out by the CBUs the levy of GST would arise only on the activity of 'treatment or process which is applied to another persons' goods as per Schedule II to the CGST Act, 2017. They further submitted that since the CBUs procure the materials on their own account and are not applying any treatment or process on the goods belonging to the Appellant, GST would not be applicable on the activity. In respect of the income earned by the brand owner, they submitted that the CBEC had already clarified that there is no service from the brand owner.
13. Before the Authority, the Appellant also drew attention to Notification No. 11/2017-Central Tax (Rate) dated 28.06.2017 to drive home the point that the activity of manufacture would amount to supply of service only if manufacturing is carried out on physical
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ty of permitting the CBU to manufacture alcoholic beverages on behalf of the principal does not amount to rendering of taxable service under the category of IPR service. The appellant has further stated that there has been no change in the law during the GST regime as compared to the law existing during the prior period for which the issue was decided by the Supreme Court. Consequently, the ratio of the judgments applies to the present law and therefore they are not liable to pay GST on the surplus profit earned by Appellant.
15. On a detailed examination of the issue, the Authority, vide Advance Ruling No. KAR ADRG 09/2018, dated 28.06.2018 = 2018 (7) TMI 835 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA (hereinafter referred to as 'Impugned Order) made the following observations:
a. The CBUs are not engaged in supply of Service to the applicant and therefore there does not arise any liability to pay GST on the amount retained by the CBC's as their profit.
b. GST is payable by the Bra
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ff) 999799 would apply to the amount of Surplus Profit transferred by the CBUs to the Appellant when there is no rendition of service by the Appellant to the CBC's in the first place.
iii. The appellant submitted that the activity of supply of alcoholic liquor for human consumption is outside the purview of GST and the sale proceeds from the supply of alcoholic liquor for human consumption or any part thereof would not become exigible to GST for the reason that it is shared between CBUs and the Appellant as per agreement.
iv. The appellant submitted that the Authority erred in holding that GST is leviable on surplus profit without following the already settled principles in the Appellant's own case under the erstwhile Service Tax regime wherein it was held that Appellant's share of surplus profit is not liable to Service Tax.
v. The Authority erred in holding that there was a supply of service under Central/State Goods and Service Tax Act,2017, whereas there is only a monetary trans
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AR. Another hearing was fixed on 25.09.2018 and the Appellant was represented by Mr. Shivadass, Advocate who made detailed submissions before the Appellate Authority. It was made clear that the clarification given by the Authority pertaining to the levy of GST on the activities of the CBU was accepted by the Appellant and is not a subject matter of challenge in the present appeal. The Advocate for the Appellant explained in detail the business model of the Appellant and took the Members through the various clauses of the agreements entered into with the CBUs to drive home the point that the amount which comes to the Appellant (UBL) is a sharing of profit and not a consideration for rendering any service. It was submitted that in order to levy GST there has to be a conscious supply of service by the Appellant and not a default Supply of Service as held by the Authority; that in their case there is no 'supply' per se as defined under Section 7 of the CGST Act; that it is not there case t
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llants branded beer, it is in the Appellant's own interest to ensure that the quality standards of the raw material procured by the CBUs and the manufacturing process followed by the CBUs are within standards commensurate with the brand image of the Appellant. For this purpose, the Appellant deputes a process executive, commercial executive and other key personnel as may be required by it to the CBU's brewery to guide the procurement of raw material, supervise the manufacturing process and packaging of finished goods; that the true intent of such supervision is only in the interest of the Appellant's own business and not an activity for the CBUs; that therefore, the question of supply of service does not arise.
19. They further submitted that the Appellant does not provide any right on the trademark/brands owned by it to the CBUs either and the impugned order itself holds that the Appellant is not providing any services relating to intellectual property owned by it to the CBUs. They s
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e character of consideration; that this was clearly clarified by the CBIC vide Circular dated 30.10.2009 in relation to service tax wherein it was clarified that the surplus profit earned by the brand owner being in the nature of business profit (which falls within the purview of direct taxes) Will not be chargeable to service tax.
20. They reiterated that for any payment of money to amount to consideration, it should be directly relatable to the supply of service or goods; that in the present case, the Authority has held that there is no supply of goods from the Appellant to the CBUs then it is logical to assume that there might be a service which is provided by the Appellant to the CBUs; that the line of reasoning by the Authority that, even though the present arrangement is not covered under Section 7(1)(a) to Section 7(1)(d) of the CGST Act, even activities which do not fit within the aforesaid clauses would be in the nature of supply is erroneous and the ruling is to be set aside
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ertaken by the Company to ensure that the manufacturing undertaken by the CBUs is of the desired quality of beer so as to ensure the business of the Company and its brand image is not compromised; that the cost incurred in appointing these executives is borne by the Company and is not recovered from the CBUs; that the representational right for manufacture and supply merely enables the CBU to affix the brand logo of the Company on the bottles of beer manufactured by the CBU; that it does not authorize the CBU to exploit the brand for its own business or interest. Therefore, there is no supply in relation to the brand either.
22. They submitted that 'consideration' has been defined under the CGST Act as any -payment made or to be made, whether in money or otherwise, in respect of, in response to, or for the inducement of, the supply of goods or services or both; that there must be a conceivable correlation between the supply and the payment; that unless an actual link is established be
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ntal Consultants and Technocrats Pvt Ltd reported at 2018 (10) GSTL 401 (SC) =2018 (3) TMI 357 – SUPREME COURT OF INDIA and Commissioner of Service Tax vs Bhyana Builders (P) Ltd reported at 2018 (10) GSTL 118 (SC) = 2018 (2) TMI 1325 – SUPREME COURT OF INDIA. In view of the above, they submitted that the surplus profit received by the Company can in no way be said to be 'consideration' received by the Company and therefore the question of levy of GST on the said amount does not arise.
DISCUSSION AND FINDINGS:
23. We have gone through the records in detail and have taken into consideration the submissions made by the Appellant in writing as well as the detailed arguments made by their Advocate during the personal hearing.
24. To frame the matters that lie for a decision before us, the facts are briefly summarized hereunder:
The Appellant, M/s. United Breweries Ltd has held itself out as being engaged in the manufacture and supply of beer under various brand names. Apart from manufa
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nd the process of making beer followed by the CBUs are within the standards commensurate with the brand image of the Appellant, the Appellant deputes a Process Executive, Commercial Executive and other key personnel to the CBU's brewery to guide the procurement of raw material, supervise the manufacturing process and packaging of finished goods. As per the agreement, the CBU makes a specified quantity of beer per annum that it has been mutually agreed to and which it then causes to be sold in the market ultimately, through the Government corporations/or in wholesale depending on State market regulations. The Appellant has permitted the CBUs to use its labels for branding of its beer for sale pursuant to the terms of the agreement and such representational right is granted only for making and supply of beer but for no other purpose.
26. As per the agreement, the CBUs shall pay a brand fee of Rs. 5/- per case to the Appellant in consideration of the representational right to make and su
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w material, PM and other consumables)
(Y)
Less: Bottle cost (at prevailing market rates)
(Z)
Less: Retention for energy and fixed cost by the brewer
73
Balance payable to UBL
Brand fee
5
Remaining as reimbursement to UBL
(W)
27. In the background of the above facts, two questions were raised before the Karnataka Authority for Advance Ruling (AAR) viz:
a) Whether manufacture of beer (bearing brand owned by the Appellant) by the CBUs under its invoicing would be considered as a supply of service and whether GST is payable by the CBUs on the profit earned out of such manufacturing and supply of beer?
b) Whether GST is payable by the brand owner on the 'surplus profit' transferred by the CBU to the Brand Owner out of such manufacturing activity?
28. On the first question, the Authority ruled that the activity undertaken by the CBUs is not in the nature of job-work, and hence no GST is payable. The ruling on this aspect has been accepted by the Appellant and is not cha
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o tax under the existing laws were the events of manufacture, sale and the provision of a taxable service. Under the GST regime of taxation, the taxable event which attracts the levy of GST is the 'supply' of goods or services, in terms of Section 9 of the CGST (and SGST) Act or Section 5 of the IGST Act, depending on whether the transaction of 'supply' is intrastate or interstate.
It thus appears that the object of tax in GST is clear and far more comprehensive and is certainly broader than any single earlier law that has been subsumed in it. The object of tax in GST is 'supply' as understood in Section 7 of the Act. It is a concept which, going purely by what has been written down in the GST law, is wider than the concepts of 'manufacture', 'Sale of goods', 'provision of services' etc. which were the objects of taxation in respective laws Concerning Central Excise, VAT or Service Tax. The broader object of taxation in GST, in effect, also integrates and irons out the disputes that e
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ness;
(b) import of services for a consideration whether or not in the course or furtherance of business;
(c) the activities specified in Schedule I, made or agreed to be made without a consideration; and
(d) the activities to be treated as supply of goods or supply of services as referred to in Schedule II.
(2) Notwithstanding anything contained in sub-section (1),
(a) activities or transactions specified in Schedule III; or
(b) such activities or transactions undertaken by the Central Government, a State Government or any local authority in which they are engaged as public authorities, as may be notified by the Government on the recommendations of the Council, shall be treated neither as a supply of goods nor a supply of services.
(3) Subject to the provisions of sub-sections (1), and (2), the Government may, on the recommendations of the Council, specify, by notification, the transactions that are to be treated as-
(a) a supply of goods and not as a supply of services;
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se. Clause (b) recognizes imports of services for a consideration to an activity that would be construed as a 'supply' even if it is not made in course of furtherance of business. Clause (c) lays down that the activities that are classed in Schedule I would be deemed to be falling within the meaning of 'supply' even when such a transaction is made or agreed to be made without a 'Consideration' or recompense. Clause (d) refers to Schedule II which lays down the activities to be treated as supply of goods or supply of services.
Sub-section (2) of Section 7 indicate which are the activities which will be interpreted to not be a supply, and Subsection (3), enables the the Government to on the recommendations of the Council, specify, by notification, the transactions that are to be treated as a supply of goods and not as a supply of services and vice- versa.
31. Therefore, for an activity to qualify as “supply” in terms of Section 7 of the CGST Act, the following conditions are to be fulf
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CGST Act.
The CGST Act 2017 in CHAPTER III dealing with LEVY AND COLLECFION OF TAX lays down in Section 9:
9. (1) Subject to the provisions of sub-section (2), there shall be levied a tax called the central goods and services tax on all intra-State supplies of goods or services or both, except on the supply of alcoholic liquor for human consumption, on the value determined under section 15 and at such rates, not exceeding twenty per cent., as may be notified by the Government on the recommendations of the Council and collected in such manner as may be prescribed and shall be paid by the taxable person.
(2) The central tax on the supply of petroleum crude, high speed diesel, motor spirit (commonly known as petrol), natural gas and aviation turbine fuel shall be levied with effect from such date as may be notified by the Government on the recommendations of the Council.
(3) The Government may, on the recommendations of the Council, by notification, specify categories of supply of goo
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onic commerce operator as if he is the supplier liable for paying the tax in relation to the supply of such services:
Provided that where an electronic commerce operator does not have a physical presence in the taxable territory, any person representing such electronic commerce operator for any purpose in the taxable territory shall be liable to pay tax:
Provided further that where an electronic commerce operator does not have a physical presence in the taxable territory and also he does not have a representative in the said territory, such electronic commerce operator shall appoint a person in the taxable territory for the purpose of paying tax and such person shall be liable to pay tax.
The levy clearly excludes the supply of alcoholic liquor for human consumption.
This is in line with the Amendment of the following clause of Article 366 effected vide The Constitution (One Hundred And First Amendment) Act, 2016 that received the assent of the President on the 8th September, 2016,
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workable. In proceeding to apply the above principles to the instant case to determine whether the activity undertaken by the Appellant qualifies as a 'supply' within the Scope of Section 7 of the CGST Act, we have gone through the actual Brewing and Distribution Agreement entered into by the Appellant with M/s. Master (India) Brewing Company. The Appellant has also submitted copies of the agreement entered into with M/s. Denzong Albrew Private Ltd that is identical to the agreement with Master Brewing Company and hence at this moment it appears to be a reasonable presupposition with regard to the consideration or the matters that lie before us, we can generalise to state that any reference to 'Agreement' in our discussion will mean the agreement with Masters (India) but the conclusions will apply to all the agreements entered into by the Appellant with different brewers as they are in essence the same.
The clauses of the agreement which are relevant to the issue at hand are reproduce
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UBL shall, at its own cost throughout the duration of this Agreement, arrange for its Process Executive to be deputed to the Brewery, and UBL will inform Brewer about the deputation of such Process Executive and his replacements from time to time. Such Process Executive shall be responsible for the brew as per specifications provided from time to time, inspection of brewery, laboratory and other departments and advice on processing and quality control of beer produced for and on behalf of UBL
3.2 UBL Shall depute other key personnel, as may be required by UBL to the brewery for supervising the production, processing and quality control of the beer manufactured. UBL may also depute a Commercial Executive who shall guide the procurement of raw materials, packaging and such other materials used in the manufacture of beer.
4. Confidentiality
4.6 All know-how acquired by Brewer under the terms of this Agreement and any improvement in the specifications made by Brewer relating to the pro
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e used including crown corks, lables and materials, shape and text of exterior cartons and cases shall be procured by Brewer as per UBL directions and / or specifications and Brewer shall adopt and comply with any requests made by UBL in such matter which shall not infringe any relevant laws or Statutory regulations. Procurement and payment for raw materials, packing materials and such other materials shall be under the guidance of the Commercial Executive deputed by UBL.
5.8. Brewer shall adhere strictly to the Process Executive's advice on the brewing, fermentation and lagering time for UBL's beer.
7. Brand Fee
Brewer agrees that in consideration of the representational right for manufacture and supply of beer under labels mentioned in Annexure I having been granted by UBL, Brewer shall pay a Brand Fee of Rs. 5 per case.
Such payment shall be made on a monthly basis and not later than 10th day of the following month.
8: Reimbursement
Balance due towards reimbursement of expense
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eps taken by Brewer or UBL for recordal under the relevant provisions of the Trade Marks Act shall be to the benefit of UBL alone.
33. The terms of the Agreement as mentioned above make it is evident that the parties to the Agreement have clearly defined roles. The Brewer shall make beer bearing the brand of UBL and shall dispose off the beer under the concerned States' Excise laws, to those who are authorised to purchase ideal in beer in terms of the relevant regulations. The brewer will make the beer in strict conformity to the brew specifications and quality parameters laid down by the Appellant. In order to make the UBL beer, the brewer procurers the raw material, packaging material and other materials, at their own cost. The UBL beer is made by the brewer in his own distillery using his own equipment. The proceeds from the sale of the UBL beer are used by the brewer to cover his Operational costs like purchase of raw materials, packaging materials, consumables, bottle cost, cost
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ST is not leviable on these sales. The CBUs incur expenses in making the beer which among other things include the expenditures in procurement of different goods (example hops, yeast, bottles, cans etc.) and services (for example, transport, banking etc.). Out of these goods and services that the CBUs spend on, many are exigible to GST levies as they may apply – there being no general exemption being available under GST, to such raw materials/ services that are used in making the alcoholic liquor for human consumption. The income so had from CBU operations are then partially disposed of by being charged as the expenses and the profit for CBU and as the payments for use of brand name etc. The remaining amounts which represent the sales turnover or income from the sale of beer (termed as surplus profits by the Appellant) are transferred to the Appellant.
35. As regards the role of the Appellant in the contractual agreement, they, on their part, give the brewer the right to use their pro
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ed by the brand owner”. This amount is not fixed but is variable depending on the sales in a particular month, the adjustment from the sale proceeds towards the variable costs incurred by the brewer, the brewer's profit and the brand fee paid by the Brewer to the Appellant. The surplus remaining after this, if any (denoted as W in the Agreement), is transferred to the Appellant's account. Therefore. it is evident that the Appellant receives two kinds of amount from the Brewer in terms of the Agreement.
a) One is the Brand Fee which is fixed at Rs. 5 per case, and
b) The other is the variable component 'W' which is the surplus amount remaining in balance after the sale proceeds have been apportioned towards the brewer's operational costs and brand fee.
37. The question on which a ruling was sought from the Authority was whether, GST is payable on both the amounts received by UBL i.e Brand Fee of Rs. 5/- per case and on the Component 'W'. The ruling held in the affirmative in respect
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doing an activity does so at the desire of the person for whom the activity is done in exchange for a consideration. There is no dispute that the amount transferred to the Appellant's account is a Brand Fee which is fixed at Rs. 5 per case as per the agreement. This Brand Fee being a fixed rate is paid to the Appellant every month based on the volume of sales of beer. As regards, the amount denoting a reimbursement of expenses, this amount which is denoted as 'W' in the Agreement, is variable and depends on the balance remaining if any, after adjusting components 'Y', 'Z', Rs. 73 per case, and Rs. 5 per case from the turnover of UBL brand beer sales. The Appellant in his submission has stated that in some months no amount as surplus is transferred to the Appellant.
38. As regards Brand Fee, clause 7 of the Agreement states that ''Brewer agrees that in consideration of the representational right for manufacture and supply of beer under labels mentioned in Annexure I having been grante
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The term 'Goods' has been defined in Section 2 (52) of the CGST Act, to mean every kind of movable property other than money and securities but includes actionable claim, growing crops, grass and things attached to or forming part of the land which are agreed to be severed before supply or under a contract of supply”. The term 'Services' has been defined in Section 2(102) of the said Act to mean “anything other than goods, money and securities but includes activities relating to the use of money or its conversion by cash or by any other mode, from one form, currency or denomination, to another form, currency or denomination for which a Separate consideration is charged.” Given the above definitions, in the instant case, the Brand Fee will clearly not be categorised as 'goods'. It is important to note that the arrangement with the CBUs is for contract manufacturing of beer but under the strict supervisions and as per the guidance and specifications of the Appellant. The Appellant has d
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by UBL in such matter. Therefore, it is seen that at every stage in the manufacture, starting from the procurement of raw materials to the methods of brewing, fermentation, lagering, bottling, packing and labelling, the Brewer is provided with technical know-how and supervision by the Appellant and is also using the right vested on him to use the Trademarks and labels of the Appellant on the UBL branded beer manufactured and sold by him. The entire know-how regarding the manufacture of Beer, such as nature of raw materials to be procured, the ratio and proportion of mixing the raw materials, the manner of packing the beer, etc being the sole intellectual property of the Appellant is shared with the Brewer under an agreement. The purpose of entering into such an arrangement with other breweries is purely for economic and commercial reasons taking into consideration the restrictions in availability of Excise licences in other States and the huge investment in setting up its own manufact
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In terms of Section 7(1) of the CGST Act, 'supply' also includes within its scope, the activities referred to in Schedule II of the Act which have been categorised as either a supply of goods or a supply of service. Clause 5(c) of the said Schedule II, refers to “temporary transfer or permitting the use or enjoyment of any intellectual property right” as a supply of service. The phrase “intellectual property right” has not been defined under the GST law. In a general sense, the term intellectual property right would include the following:
(i) Copyright
(ii) Patents
(iii) Trademarks
(iv) Designs
(v) Any other similar right to an intangible property
In the erstwhile Service Tax law, the Finance Act, 1994, had defined 'intellectual property right” to mean “any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright”. There is a clear difference between per
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rarily transferring any intellectual property right or permitting the use of or enjoyment of any intellectual property right has been categorised as a supply of service. In the instant case, the Appellant has permitted the CBUs to use the trademarks Owned by it, permitted the Brewer to acquire the know-how relating to the production and packaging of UBL's beer, which is the sole property of UBL and has permitted the Brewer to use the Labels for branding of beer for sale by the Brewer. All these amount to permitting the Brewer to use intellectual property rights. Therefore, by virtue of clause 5(c) of Schedule II of the CGST Act, the said activity amounts to a supply of service. To this extent we differ with the findings of the Authority, wherein, in Para 14.6 of the Order dated 28.06.2018, they stated that, “it becomes evident that the applicant is engaged in supply of service which is not covered under Schedule ll.” We hold that the activity of the Appellant undertaken with contractin
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e Government”. In this case, the 'Brand Fee' is the consideration for grant of the representational right to manufacture and sell beer bearing the UBL brand name. The Agreement also, in clause 7, recognises that the Brand Fee is a consideration for the representational right for manufacture and supply of beer.
43. As regards the reimbursed expenses received by the Appellant, clause 8 of the Agreement provides for the reimbursement of the expenses incurred by the brand owner which is arrived at after servicing all the operational costs, retention cost and brand fee from the sale proceeds of the beer. The surplus if any, will be transferred to the Appellant's account. This surplus, as the agreement denotes, is a reimbursement for the 'expenses incurred' by the brand owner. It is evident from the agreement that the Appellant incurs expenses towards deputing his personnel to the CBU's distillery; expenses are incurred by the Appellant in ensuring that its business interests are secured by
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t 'UBL…'. shall, at its own cost throughout the duration of this Agreement, arrange for its Process Executives to be deputed to the Brewery.” Further, clause 6.3 of the Agreement states that 'Registration of labels and payment of fees thereof shall be the responsibility of UBL..', This indicates that the Appellant has on its part incurred some expenditure to enable the Brewer to manufacture and sell its branded beer. This expenditure incurred is in connection with according the representational rights for the manufacture and sale of branded beer to the CBUs. We have already held in the preceeding paras, that the Appellants have rendered a service to the Brewer which is categorised as a 'supply' taxable to GST. In connection with rendering the taxable service, the Appellants have incurred expenditure which is being reimbursed by the Brewer out of his surplus profit. In other words, the reimbursement of expenses by the Brewer to the Appellant is a form of payment made in connection wit
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i.e Brand Fee as well as the reimbursed expenses, received by the Appellant as a consideration for the supply of service is chargeable to GST.
44. We observe that in the pre-GST regime, this Brand Fee of Rs. 5 per case was charged to service tax under the category of Intellectual Property Service. The Appellant has disputed this levy of service tax and their appeals are pending in various fora. In the course of these proceedings, to determine whether GST is leviable on the said amount, the Appellant has heavily relied on the decisions given by the CESTAT and the Courts on the subject matter of levy of service tax on the Brand Fee. We have taken note of the said case laws. We note that the Bombay HC quoted the following observations of Earl of Halsbury in the case of Qumin vs. Leathem (1901) AC 495 (HL) in Blue star Ltd. vs, CIT (1996) 217 ITR 514 520. = 1994 (12) TMI 7 – BOMBAY HIGH COURT –
“Every judgment must be read, as applicable to the particular facts proved or assumed to be p
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the price from the notified Indenter of the appellant as fixed by the appellant. Taking these facts into consideration, the Tribunal held that no services have been provided by the appellant to FIPL. The facts in the instant case are not identical and hence this case cannot be relied upon.
b) BDA Pvt Ltd vs Commissioner of C.Ex, Meerut reported in 2015 (40) STR 352 (Tri-Dei) = 2015 (6) TMI 586 – CESTAT NEW DELHI : The facts in this case are that the appellant (BDA) gets IMFL manufactured by M/s. Pilkhani (CBU) on job work basis; as per the agreement, the cost of raw material and other expenses were either paid by the appellant or reimbursed by the appellant; the State levies such as excise levy or taxes were also reimbursed to M/s. Pilkhani by the appellant; the IMFL was sold by or as per the directions of the appellant ; profit/loss on account of the manufacturing and sale of IMFL is entirely on account of appellant who holds the property risk and reward of the product. The Tribunal
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supplied only to the assessee or to its indentors; no right was given to the CBUs to directly sell the beer to its own customers; the CBUs neither had any right over the product nor did they have any right to sell or exploit the beer so produced, nor fix any price of the product. The High Court concluded that the CBU was only the captive manufacturer of the assessee and hence the brand franchise fee of Rs. 10 per case is not subjected to KST. This case again is on a different footing on basic facts and hence Cannot be Considered for the present issue at hand.
d) Radico Khaitan Ltd vs Commissioner Of Service Tax, Delhi reported in 2016 (44) STR 133 (Tri-Del) = 2016 (6) TMI 366 – CESTAT NEW DELHI: In this case too the Tribunal held that, in terms of the agreement, the CBUs are actually manufacturing the branded liquor as job workers for the appellant (Radico) for which they are getting fixed amount as per the rate approved in terms of the agreement; the CBU has no freedom of marketing t
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is whether the brand owner (the Appellant in this case) has rendered any service to the CBU and whether GST is required to be paid by the brand owner.
45. Thus, the different cases cited by the Appellant in support of its contentions may be applicable to the definitions, to what were the objects of taxation in the existing laws – each of such objects of taxation in the existing laws, covers only partially, at best, the idea of what is sought to be taxed as supply in GST. In view of the above, the reliance placed by the Appellant on the decisions taken by the High Court and the Tribunals in the pre-GST scenario will not come to their assistance in deciding their liability under GST. The concept of GST is based on the taxable event of 'supply'. We have already observed that there has been a supply of service by the Appellants to the CBUs for which a consideration is received from the CBUs in the form of Brand Fee and a reimbursement of expenses
46. The Authority had classified the ser
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tivities performed by the Appellant, it may be difficult to arrive at any nomenclature for the services delivered by the Appellant to the CBU. While the Brand fee end the reimbursed expenses, are received by the Appellant in (direct) consideration for permitting the CBUs the use of the representational right to make and sell their branded beer, the service supplied can at times have the colour and character of being an erstwhile “franchise' service or/ and “IPR service' in terms of the Finance Act 1994. On the other hand, the so termed 'surplus profit' amounts received have the characteristics of being a consideration received for a 'mixed supply'.
While in overall terms, at times the service supplied assumes the character of permitting the use of intellectual property rights, or of being a franchise service, at other times it takes on the colour and character of being secondment of personnel. The varied nature in the character of the services supplied by the Appellant, makes it diffi
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te that there is a standard rate of which applies across the whole range of services that are taxed under GST. However, this fact of having one predominant supply that may be constant across tax periods, does not do anything to negate exigibility of the service supplied. The framework of the Service Tariff Codes under GST still provides a possible solution by categorising such services under Service Code 99979 as “Other Miscellaneous Services'. The sub-heading under this service code is 999799 which is “other services nowhere else classified'. The GST applicable under this category of service is 18%.
48. In view of the above discussions, the Ruling dated 28.06.2018 passed by the Karnataka Authority for Advance Ruling is modified as under:
a) The activity engaged in by the Appellant by way of granting the contracting brewing units the representational right to manufacture and supply beer bearing its brand name, in return for a consideration, is a supply of service as mandated in Secti
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