2018 (11) TMI 283 – APPELLATE AUTHORITY FOR ADVANCE RULING, KARNATAKA – 2018 (18) G. S. T. L. 855 (App. A. A. R. – GST) – Levy of GST on profit earned – supply or not – beer bearing brand/s owned by the Appellant manufactured by Contract Brewing Units out of the raw materials, packaging materials, and other input materials procured by it and accounted by it and thereafter selling such beer to various parties under its invoicing – liability of GST on Brand Owner on the “Surplus Profit” transferred by the CBU to Brand Owner our of such manufacturing activity.
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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? – Held that:- 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
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y 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.
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For providing the brewer the representational right to make and supply beer under their brand, the Appellant receives from the brewer a Brand fee of ₹ 5 per case. In addition, the Appellant also receives an amount which in terms of clause 8 of the Agreement, is termed as “reimbursement of expenses incurred 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 cos
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service has been rendered by the Appellant in the course of his business. As per the terms of the Agreement, the Brewer pays a consideration to the Appellant in return for the latter granting the representational right to use its Trademarks and labels in the manufacture and supply of beer by the Brewer. Hence, the activity rendered by the Appellant to the Brewer is a service which has been undertaken by the Appellant in the course of his business under an agreement and for which, in terms of the agreement, he gets a consideration. As such, the activity performed by the Appellant in terms of the agreement can be termed as a ‘supply’ under Section 7 of the CGST Act.
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In the GST law, by virtue of clause 5(c) of Schedule II, the act of temporarily 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 trademar
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component ‘W’ therefore, is also liable to GST being a consideration for the supply oftaxable service. The grant of representational right to the Brewer and the receipt of the consideration in the form Of Brand Fee and reimbursed expenses, are all undertaken in the course of the business of the Appellant. Therefore, all the parameters of ‘supply’ as defined in Section 7 of the CGST Act are duly satisfied and therefore, the entire amount 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.
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Classification of the service – Held that:- 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%.
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Ruling:- The activity en
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he 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 Act, 2017 by M/s. United Breweries Limited (hereinafter referred to as Appellant ) against Advance Ruling No. KAR ADRG 09/2018 dated 28.06.2018 = 2018 (7) TMI 835 – AUTHORITY FOR ADVANCE RULINGS, KARNATAKA pronounced by the Karnataka Authority for Advance Ruling. Brief facts of the case:- 1. The appellant is registered under GST with GSTIN No. 29AAACU6053CIZH and is engaged in manufacture and supply of beer under various -brand names.
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h 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 procured by it and accounted by it and thereafter selling such beer to various parties under its invoicing would be considered as supply of services and whether GST is payable by the CBUs on the profit earned out of such manufacturing activity? b. Whether. GST is payable by the Brand Owner on the Surplus Profit transferred by the CBU to Brand Owner our of such manufacturing activity? 4. The appellant made elaborate submissions before the Authority that th
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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 production of or process amounting to manufacture was covered under Section 66D (Negative List), implying that the activity undertaken by the CBU went out of the purview of Service Tax. The statute was yet again amended and the process undertaken by the CBUs once again came under the purview of Service Tax w.e.f. 01.06.2015. 8. During the alternating periods when this arrangement of manufacturing at the hands of CBUs was taxable, the then CBEC issued clarificat
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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 by permitting use of brand name, the field formation of service tax administrations held that the activity amounted to provision of Intellectual Property Service and charged service tax thereon. The brand owner contested the issue and the Tribunal, relying on the aforementioned CBEC Circular dated 30.10.2009 held that the said activity was not liable to Service Tax. 11. The appellant also discussed before the Authority, an adjudication order passed in their own Ca
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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 inputs(goods) owned by others (Sl.No.26 of the Notf). In their case, since the CBUs manufacture beer out of raw materials physically procured by them, the activity of manufacture of beer of Appellant s brand does not amount to supply of service by the CBUs to the Appellant and therefore GST is not payable in respect of the amount retained in the hands of the CBUs. 14. Further, in respect of question-2, Appellant has argued its case by citing several case laws in favour o
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e 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 Brand Owner(UBL) On Surplus Profit transferred by the CBC to brand owner out of the manufacturing activity and the supply of service to the CBUs is classified under Service Code (Tariff) 999799 and liable to GST at 18% (CGST-9%, SGST-9%) on the amount received from the CBU s. 16. Being aggrieved by the above mentioned Ruling of the Authority (hereinafter referred to as Impugned Order ), an appeal was preferred before Appellate Authority for Advance Ruling on 26.07.2018 on follow
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n 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 transaction between the Appellant and the CBU by way of transfer of apportioned profit from supply of beer, which is excluded from the ambit of charge under provision of the said Act. vi. The Authority erred in not appreciating the fact that the arrangement between the Appellant and the CBU was in the nature of consortium for earning profit from operation of beer manufacture and supply, necessitated by the regulations governing the supply of beer; that the Authority erred in not following
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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 that there is a supply by the Appellant to the CBUs but the said supply is part of the negative list or exemption notification and therefore not chargeable to GST. The Appellant made written submissions during the time of the personal hearing and also submitted additional written submissions on 28.09.2018. 18. In the written submissions, they Submitted that for anything to constitute a supply in terms of Section 7 or the CGST Act, it must necessarily be demonstrated that there has been a su
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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 submitted that one of the mandatory pre-requisites of supply is consideration which in itself covers two aspects viz., that there ought to be payment by the recipient to the supplier and that such payment ought to be in respect of, in response to or for the inducement of the supply in question; that in their case, the arrangement between the CBU and the Appellant is such that all proceeds from the sale of beer by CBUs would be deposited in a bank account jointly operated by the Appellant and
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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 on this ground. 21. In order to clarify certain queries raised by the Members during the personal hearing, the Appellant made additional written submissions vide letter dated 28.09.2018 wherein they inter alia stated that the following activities are performed by the Company in terms of the agreement with the CBUs, viz: a) Allow the CBUs the representational right for manufacture and supply of beer under labels specified in the Agreement. b) Prescribe process parameters and specifications thro
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e 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 between a payment and any supply of goods or service, the payment will not assume the character of consideration; that in the present case, surplus profit by no stretch of imagination Can be said to be fitting within the definition of consideration for the reason that the surplus reimbursed to the Company varies from month to month and is also NIL in certain months, even though the activities performed remain constant; that when the activities remain constant but the surplus paid to the Company varies or
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3. 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 manufacturing beer on its own, and for different commercial and economic considerations, the Appellant enters into agreements with other brewing units (called Contract Brewing Units, CBUs), who have their own bottling plants and the necessary licences to manufacture and supply beer. In terms of the agreement with the CBUs, the Appellant permits its brands to be used by Contract Brewing Units who manufacture and sell beer under the Appellant s brands directly to Government corporations/or in wholesale depending on State ma
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rough 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 ₹ 5/- per case to the Appellant in consideration of the representational right to make and supply the beer to the market under labels granted by the Appellant. The beer so manufactured by the CBUs are disposed off to State Beverages Corporation/State regulated depots or to the Wholesalers / Indenters holding necessary permits / licences under the relevant Excise laws of the State. All proceeds from sale of the beer are to be deposited in a bank account, jointly operated by the two parties. This jointly operated bank account exclusively holds the proceeds of such sale as are had from the sale of beer produc
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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 challenged in this appeal. On the second question. the Authority ruled that GST is payable by the Brand Owner (UBL) on what has been termed as the surplus profit transferred by the CBU to the brand owner out of the manufacturing activity since the said amount is received as a Consideration for rendering a service. The Authority has classified the service rendered by the Appellant under S A Code 999799 as Other services nowhere else classified and held that the rate of GST payable on such amount transferred from the CBUs is 18%. It is on this latter issu
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n 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 existed at the boundary layers of the objects of taxation in each individual law, by bringing comprehensiveness and clarity to the object of taxation in GST. Each of these concepts that existed earlier, plays a part in understanding the concept of what is meant by supply, but as is obvious, neither is sufficient alone to understand supply , In order to construe what is supply one starts with the layman s understanding of the expression as meaning to make something available to another or to fulfill the want of another . 30. Under the GST law, the word supply has not been
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ities, 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; or (b) a supply of services and not as a supply of goods. The word includes in Section 7 (1) of the CGST Act, gives a wider meaning to the words or phrases in the Statute. The word includes is usually used in the interpretation clause in order to enlarge the meaning of the words in the statute, When the Word includes is used in the main Statute, it must be construed as comprehending not only such things as they signify according to their nature and impact but also those things which the interpretation clause declares they shall include. [[para 23] – Commercial Taxation Officer, Udaipur Vs. Raja
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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 fulfilled: (i) The activity has to involve a transaction in either goods or services or both; (ii) The activity should be undertaken for a consideration (iii) There should be agreement to engage in the transactions of the nature specified; (iv) The activity should be in course or furtherance of business Broadly speaking, when the above circumstances are accomplished by (at least) the two persons involved in the transactions, then it can be inferred that the activity is a supply under GST law and thereby chargeable to GST. There are however, certain exceptions to the above principles viz. (i) Certain activities have been termed
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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 goods or services or both, the tax on which shall be paid on reverse charge basis by the recipient of such goods or services or both and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the supply of such goods or services or both. (4) The central tax in respect of the supply of taxable goods or services or both by a supplier, who is not registered, to a registered person shall be paid by such person on reverse charge basis as the recipient and all the provisions of this Act shall apply to such recipient as if he is the person liable for paying the tax in relation to the
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x 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, and was published for general information On the same day. 14. In article 366 of the Constitution,- (i) after clause (12), the following clause shall be inserted, namely:- (12A) goods and services tax means any tax oh supply of goods, or services or both except taxes on the supply of the alcoholic liquor for human consumption; ; (ii) after clause (26), the following clauses shall be inserted, namely:- (26A) Services means anything other than goods, (26B) Stare With reference to articles 246A, 268, 269, 269A and article 279A includes a Union territory with Legislature; ; 32. We also take note of the decision in Gursahai Saigal vs. CIT 48 ITR (SC) 1
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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 reproduced hereunder: 2.1 Brewer and UBL confirm that there are no legal or contractual impediments to enter into this Contract for: (a) manufacture of beer by Brewer (b) providing process parameters from time to time by UBL to Brewer and Brewer availing of the Sam for manufacture of UBL Beer (c) Brewer to use the trademarks owned by UBL and use such trademarks by Brewer, and dispose off UBL beer upon order being received by it. 2.2 UBL hereby grants to Brewer a non-assignable, non-transferable and non-exclusive right during the term: 2.2.1 use the process for manufacture of UBL s Beer in the territory under the supervision and control of UBL; 2.2.2 manufacture, bottle, package
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rcial 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 production and packaging of UBL s beer shall remain the sole property of UBL and shall be used by Brewer only in accordance with the provisions of this agreement. 5. Production 5.1 Brewer shall brew, bottle, package and Store UBL beer. 5.1.1 In conformity with the brew specifications provided by the Process Executive of UBL from time to time, including usage if all ingredients, raw materials, brew specifications, methods and quality parameters laid down by the Process Executive under the supervision of UBI UBL will provide it s own yeast, if necessary, and the brewer will propagate and store this yeast separately, solely for the use of UBL brands. 5.4. The Process Executive deputed by UBL may ta
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of beer under labels mentioned in Annexure I having been granted by UBL, Brewer shall pay a Brand Fee of ₹ 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 expenses incurred by the brand owner is arrived at as under: Amount (Rs/case) Turnover of the Brewer (X) Less: Variable cost incurred (raw 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) All proceeds from sale of product Will be deposited in a bank account, jointly operated by the two parties, exclusively for beer produced for the company. The operational costs (including variable costs, bottle cost and retention fee) will be serviced from this account. The surplus will then be transferred into UBs account, 11. Representational Rights UBL has
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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 on account of energy consumption and his profit. The CBUs clearly make and supply alcoholic liquor (beer, in this case) for human consumption, and the same is excluded from the purview of GST. It is also clear that the CBUs collect a consideration/ payment for the supply of the product (beer) made by them to the Beverages Corporation/State regulated depots or to the Wholesalers / Indenters holding necessary permits / licences under the relevant Excise laws of the State concerned. The beer is made by the CBUs under a contractual agreement with the Appellant, the terms of which have been detailed above. 34. The sale proceeds for the supply of branded alcoholic liquor for human consumption which is made in terms of the contractual agreement, acc
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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 process for manufacture of their branded beer under their supervision and control. To ensure that the beer made at the brewery meets their specified standards, the Appellant, at their cost, deputes Process Executives and Commercial Executives to the brewer, who will provide the specifications, methods and quality parameters; guide the brewer in procurement of raw materials, packing materials and such other materials; give directions for carrying out quality control of the beer manufactured by the brewer; take samples for analytical and quality tests and advise changes in the brew from time to time and advise the brewer on the brewing, fermentation and lagering time of the UBL beer. 36. For providing the brewer the representational right to make and
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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 ₹ 5/- per case and on the Component W . The ruling held in the affirmative in respect of both the amounts treating both of them as Surplus Profit . The reasoning adopted by the Authority is that the amounts received by UBL is for an act which is either a supply of goods or a supply of service; that evidently no goods have been supplied by UBL to the Brewer and hence the only act for which the amounts could have been received is for the Supply of service . In this connection, it is essential to clearly distinguish the nature of the receipts by the Appellant as Brand Fee and Reimbursed surplus since the two amounts are clearly received for activities performed by the Appellant for the CBUs. Activity has not been defined in the GST law. In terms of the common understanding of the word, activity would include an act done, a work
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ansferred 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 granted by UBL, Brewer shall pay a Brand Fee of ₹ 5 per case. Such payment shall be made on a monthly basis and not later than 10th day of the following month. A plain reading of this clause makes it evident that the Brand Fee paid by the Brewer to the Appellant is in return for the grant of right to manufacture and supply branded beer of UBL The Agreement itself recognises that this payment of Brand Fee is a consideration for the act of granting the right to manufacture and sell branded beer. We proceed to examine whether the act of granting the representational right to manufacture and sell branded beer is ä supply by the Appellant, in terms of Section 7 of the CGST Act. As already stated in Para 31 above, for an activity to qualify as
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ategorised 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 deputed its personnel at the brewer s distillery, to guide, supervise and monitor the manufacture of beer bearing its brand name. As seen from the agreement, the procurement of raw materials, packing materials and consumables are made by the brewer under the guidance of the Commercial Executive deputed by the Appellant. The brewing, fermentation and lagering time for the UBL beer is done by strictly adhering to the advise of the Process Executive deputed by UBL. The beer specifications; methods and quality parameters are laid down by the Process Executive. In some case, UBL, provides its own yeast. Quality control of the UBL beer manufactured is done from time to time, as per the directions of the Process Executive and the data is submitted to UBL. The Proce
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ch 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 manufacturing facility in other States. Therefore, it is evident that, the Appellant has provided a service to the Brewer by way of granting him the know-how to manufacture the beer according to their specified standards and has also provided the Brewer with adequate personnel to supervise its manufacture, packing and sale. This service has been rendered by the Appellant in the course of his business. As per the terms of the Agreement, the Brewer pays a consideration to the Appellant in return for the latter granting the representational right to use its Trademarks and labels in the manufacture and supply of beer by the Brewer. Hence, the activity rendered by the Appellant to the Brewer is a service which has been undertaken by the Appellant in the course of his bu
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ntangible 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 permitting someone to use intangibles and a divestment of the right to use such intangibles. In the case of S.P.S. Jayam and Co. vs Registrar, Tamil Nadu Taxation Special Tribunal and others (2004) 137 STC 117 (MAD) = 2004 (4) TMI 539 – MADRAS HIGH COURT, the High Court held that the Royalty received as consideration of use of trade mark is consideration of transfer of right to use a movable asset and upheld its taxation under the sales tax laws. The court observed that For transferring the right to use the trademark, it is not necessary to hand over the trademark to the transferee or give control or possession of trademark to him. The Court further observed that Simply because the assessee retained the right for himself to use the trademark and reserved the right to grant permi
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.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 contracting units in terms of the Agreements are in the nature of permitting the use of intellectual property right and hence is squarely covered under clause 5(c) of Schedule II of the Act. 42. In return for rendering the service of providing the right to manufacture and supply branded beer to the Brewer along with the right to use the Trademarks and Labels, the Appellant gets a consideration which comprises of a Brand Fee of ₹ 5 per case as well as a reimbursement of expenses, The quantum of reimbursement (denoted as W in the Agreement) is dependent on the surplus profit available at the hands of the Brewer. Section 2(31) of the CGST Act defines consideration in relation to the supply of goods or services as any payment made or to be made, whether in money or otherwise, in respect of,
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rom 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 the manufacture of beer to its specifications and standards. These expenses are being reimbursed by the CBU out of the profit arising from the sale of beer by the CBUs. It is important to note that the amount transferred to the Appellant (M/s UBL) is out of the surplus profit earned by the CBUs from the sale of beer. It is not a profit earned by the Appellant. As per the agreed terms, the surplus profit earned by the CBU is transferred to the Appellant as a reimbursement of the expenses incurred by the Appellant. Clearly, the amount transferred under the nomenclature reimbursement of expenses is a payment made by the CBU out of its surplus profit and the payment made is in return for an activity performed by the Appellant. The question is whether the activity so performed is in connecti
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penditure 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 with a service of permitting the CBUs to use the intellectual property rights as well as providing other services as laid out in their agreement. The total consideration given to the Appellant by the Brewer in terms of the Agreement, for this service rendered by the Appellant, is- comprised of two components and quantified as a fixed amount of ₹ 5 per case (Brand Fee) and any surplus remaining with the Brewer. Therefore, we are of the view that the component W also forms a part of the consideration received by the Appellant for supply of service. This component W therefore, is also liable to GST being a consideration for the supply oftaxable service. The grant of representational right to the Brewer and the receipt of the consideration in the form Of Brand Fee and reimbursed expenses, are
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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 proved, since the generality of the expressions which may be found there are not intended to be expositions of the whole law, but governed and qualified by the particular facts of the case in which such expressions are found and a case is only an authority for what it actually decides. A study of the decisions cited by the Appellant reveals that the facts in the cases before the Tribunal and Court are not similar to the instant case as is indicated hereunder: a) Skol Breweries Ltd vs Commissioner of C.Ex & ST, Aurangabad reported in 2014 (35) STR 570 (Tri-Mumbai) = 2014 (4) TMI 1040 – CESTAT MUMBAI : In this case, the facts are patently different in as much as the CBU (FIPL) is only responsible for bottling, packing and dispatch as per the specification, terms, formula, etc laid down by the
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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 held that since the CBU received a consideration for manufacture on job work basis, the appellant is not required to pay service tax. In terms of the CGST Act 2017, Section 2 (68) defines job work to mean any treatment or process undertaken by a person on goods belonging to another registered person and the expression job worker shall be construed accordingly. It has been brought out before us that in the present matter this is not the situation where there is a treatment or process undertaken on any goods the ownership of which lays with the Appellant and given this fact which are completely different from the case law cited, we rule that this particular decision is not relevant in the present set of facts and circumstances and therefore also cannot be relied upon. c) State of Karnataka vs UB
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ng 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 the manufactured products; the sale and distribution of the manufactured product is in control of the appellants; full sale proceeds are received by the appellants and the CBUs are paid amount as per the pre-fixed rates; that the CBUs are paying the service tax under Business Auxiliary Service and hence the appellant is not required to pay any service tax. These facts are different from the terms of the agreement in the instant ease and hence cannot be relied upon. e) The Court and the Tribunals in the above mentioned cases relied on the Circulars dated 27.10.2008 and 30.10.2009 issued by the CBEC to hold that no ser-vice tax was to be paid by the brand owner. In the two Circulars mentioned above, the factual matrix was that the CBUs were job workers for the brand owners and rendering service to t
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f 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 service rendered by the Appellant under Tariff Code 999799 as Other services nowhere else classified . The scheme of classification of services adopted for the purposes of GST is a modified version of the United Nations Central Product Classification. This code is merely an accounting code and is primarily an instrument for assembling and tabulating statistical data on different services. Although it does, at the end of the day, decide the rate of tax to be imposed, it does not appear to have any other statutory ramification in terms of determining exigibility. The roots of this practise can be understood by looking at the erstwhile Service Tax regime wherein the CBEC vide Circular No. 165/16/2012 ST dated 20.1 1.2012 has restored service specific old accounting codes. These codes had been restored sole
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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 difficult to determine the predominancy in terms of characterisation since the consideration for some elements of the supply is being received in terms of a variable amount We do acknowledge and recognise that in each tax period, the manner of determination of W as it has been laid down in the Contract with CBUs would likely make it a variable for each tax period. Since, the activity which the Appellant engages in with respect to contract does not essentially change, but the volume of consideration can change in each tax period, it does pose a challenge in terms of giving one particular nomenclature to the activities of the Appellant that would remain unchanged over all tax periods, However, this aspect is limited the issue of the SAC alone and that too when one proposes to generalise the classification across all
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