The Delhi Bench of Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that no service tax payable on consideration received on execution of licence agreement.
The bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that a deemed sale had taken place when the appellant transferred the right to use the brewery licence issued to the appellant in favour of Skol/Sab Miller on execution of the Licence Agreement. The consideration received by the appellant on the execution of the Licence Agreement cannot, therefore, be subjected to service tax nor can such consideration be clubbed with the consideration received by the appellant under the Lease Deed so as to be subjected to service tax under “renting of immovable property” service.
Table of Contents
Background – Execution of Licence Agreement
A Lease Deed was executed between the appellant and Skol Breweries Limited3 for renting of land, building, plant and machinery by the appellant to Skol. The appellant discharged service tax liability on the consideration received under the head “renting of immovable property” services.
A License Agreement was also executed between the appellant/assessee and Skol on 30.01.2008 by which the appellant endorsed the brewery license in favour of Skol.
This License Agreement was renewed from time to time and a License Agreement dated 01.03.2014 was executed between the appellant and Sab Miller India Limited5 (earlier known as Skol). The appellant treated the execution of the License Agreement to be a “deemed sale” under article 366(29A)(d) of the Constitution and paid VAT.
The department believed that the amount paid to the appellant under the License Agreements dated 30.01.2008 and 01.03.2014 should be included in the assessable value of “renting of immovable property service” because without the license endorsement the plant and machinery leased to the appellant could not have been put to use by Skol for brewing beer.
A show cause notice was issued to the appellant. The appellant has been referred to as “TAL” in the show cause notice.
Arguments
The assessee argued that the License Agreements dated 30.01.2008 and 01.03.2014, by which the appellant endorsed the brewery license issued in its name to Skol/Sab Miller, is a deemed sale under article 366(29A)(d) of the Constitution and, therefore, service tax could not have been demanded on the amount received by the appellant.
The appellant contended that a deemed sale had taken place has also been repelled by the Commissioner for the reason that leasing of brewery license was subject to certain restrictions. Only a bald statement had been made. In fact, the terms of the License Agreement give complete freedom to Skol/Sab Miller to operate the brewery and the License Agreement does not cause any hindrance.
The department contended that the License Agreement is an integral part of the “Lease Agreement” and has been bifurcated with the sole intention of evading payment of service tax. Merely because VAT was paid by the appellant does not mean that service tax cannot be levied, if in law, the appellant had rendered service
The department argued that the transfer of license does not amount to a “deemed sale” under article 366(29A)(d) of the Constitution.
The Commissioner placed much emphasis on the Lease Deed executed between the appellant and Skol for renting of land, building, plant and machinery and in particular to clause 3 which provides that the appellant shall procure a valid endorsement/sub-license of the brewery license in favour of Skol. According to the Commissioner, the License Agreement that was subsequently executed was only to complete or validate the Lease Deed and, therefore, renting of the factory along with the brewery license is an integral part of the “renting of immovable property” services.
The two documents, namely, the Lease Deed and the License Agreement have to be separately examined and merely because there is a recital in the Lease Deed that the appellant shall procure a valid endorsement/sub-license of the brewery license in favour of Skol does not mean that the subsequently executed License Agreement becomes an integral part of the Lease Deed.
Conclusion – Execution of Licence Agreement
The tribunal held that the consideration received by the appellant on the execution of the License Agreement cannot, therefore, be subjected to service tax nor can such consideration be clubbed with the consideration received by the appellant under the Lease Deed so as to be subjected to service tax under “renting of immovable property” service.
The tribunal quashed the order passed by the Commissioner adjudicating the three show cause notices, therefore, deserves to be set aside.
Case Details
Case Title: M/s Tripti Alcobrew Pvt. Ltd. Versus Commissioner of Central Excise & CGST
Case No.: Service Tax Appeal No. 52898 Of 2018
Date: 12.11.2024
Counsel For Appellant: Kamal Sawhaney
Counsel For Respondent: Manoj Kumar
