t . r-==---

co I ~f§1 ~ 3i I~Cffi (311frc;r) ~;{l~ l1T(Pf -qct ~cHcox 3l1~CffiI()1~, :qO~~I~

~;{l~ xl\i1tcl ~, ~ 'ti'&:I1-19,\'lCfcx-1fflT, :qO~JI~ tfil.~.:li/ JT / ~LCHD- ~ ___, ~- '1\ )q'{ (r

.1~~ -- !L1-~ 3 ~ ~ ~ ~, 1944 q5T tmT 351Z/fcim ~,1994 q5T tmT 85 cfi 3Ml1ffl

if. ~~, ~ (3l1fu;r), ~ 'l1TC1 ~ f1ClI4Jx 3l1~CKiICYJ~, :quJ1ll<$ mr 11'Tftl. ~

tmm CHD-EXCUS- 001-APP- (1_g - 19-20 ~ 1:3 I? I ( ( \._.--A

3fCR ~ / • ~ / \3 q I;;;Cttl / fli51 ~ 4J ~ / 3ltlTarQ) (Ci 4J'il cCI) ~ ~ ~ 31~ICYJ~/ ~ c._leA 8RT LITffir 1CYJ' ~ x=ffim o~IST}JC J eN;) 1 \r-I~ _~ Ol} r' l~ ~~I 1

0I41<'lq,ffi 'PT 'fill 'Z'i 1f<1T- jl4)s..pe~ lndill ~sJd .pl~ l±f1/ t'J:ail>1e,(} L~l( Q.1 Ai!lelhl&ll ~ t" H j gWO~~; ~ ;;~Oi ~;:ilR 1&~~~Ot ~ t~~ ~'1 ~ ::[: ( ~

l"lJI k ~f'i en ttm fVquft- Cfi) ~ ~ cil fu% ~ ~ ~ ~('(l'J~cj flqlCb'< ~ ~ if ~ ~ wcP ~,1944 em mxT 3s(-m)/fclro ~,1994 em mxT 86 cil ~ em \iff ~ t I ~ ~ ~, ~ ~,1944 em 't:lffi 3s(-m)/fclro ~,1994 em tmT 86 em \jqtffi'T(3) cil ~ \NT ~ ~ ~ ~ c#r \JfAI ~ cil ~ ~ c#r c=rRror cil cfrrr l1T5 cil ~ fcpm \iff mr t I fGru' ~ cil ~ ~ c#r fl t \NT 31~ if ~mmr ~/\(iqICb'< 'CbT 10 ~ 31~ <:rR ~ ~ wrmT 'l'!IT t m ~ Tf<) ~ em 10 ~ ~ ~ \3C'C1lG ~ ~, 1944 c#r 't:lffi 35~ cil ~ \Jj7ff Cj?~ 311 q tSl1Cb t I 3:px:f 6flC'IT cil 'ffi~ 'ffi~ ~ ~ / fl q I Cb '< c#r ~ <:IT ~ttRur cil \j e;; ~ tSl1 ~ 11TC1 cB ~ cB ~'Cl if fctJm ~ em f.itrffur 'm cB ~ ~ .-m Rom <:IT ~ xfr:rr ~ ~ wcP -c:ct fl q I cD'< ~ ~, ~ Lfrc;" >1'~- ~ 'ClC'f, l01.x:fr.3TI. ~ 147-148, ~ 17-W, 'ClO\tjll~ BWr\JfAI~1 ... ~) ~ ~ ~ ~ ~ {~.-3/l01.it.-s it LJtq -mcnn if ~ c#r \JfRI ~ 3fR ~ X1T~ fGru' ~ cil ~ ~ c#r TTt m \ffic#r LJtq ~ (~ 'Cb11 ~ 'Cb11 ~ !>lli I fill (1 m-ir ~) X1T!2T C'f'fr ~ ~ I 3,~ '\Jf6T ~ ~ ~ ~efUT if 1:1lfu; fctil -rra -gr, '"'l11;Q f.1 OT;Q 'i ~ cil ~ cil LJtq ~ (~ 'Cb11 'fl' 'Cb11 ~ !>lli I fill (1 ~ ~)+fI C1'fr 1?Rr ~I Tf) ~ Cfi x-n~ ~ ~ ~ ~,1944 em mxT 3srfr(6)/fcffi ~,1994 c#r t::I'NT 86(6) cB ~ ~ cB ~ if Xii. ~ 6\i'lR lIT Xii. LJtq 6\i'lR <:IT ~ 6\JfT'<' ~ \JlT \NT ~ if ~ ~ 31lfu;r cBT TTt t, if ~ ~ ~ if 'liPT Tf<) erR q fcRfi ~ ~ ~~ ~ &T'<T c;pn<) l']'<) ~ c#r ~ lR ~ ~ fcp erg Lff'=q ~ ~ <:IT \Nffi 'Cb11, LJtq m 'fl' ~ ~ ~ 31~ .~ m ~ 'fl' ~ t ~ '~ ~ m,X1T2.i' c;pn 1:Frr ~ I % ~ ~ ~'(:sjIFcht1 ~ ~ i:(RT ·ttI \:i1"R'r ~ vIT ~ ci; ~. ~ ~"l61,",.-.n ,!R,"~I'( cil 'Tal if ~ ~ 'ff2.TT \i'l5i ~ ft~ t Cffit fcp ~. ~ -i=t 'TfTIR ~ 6T'1T 'q ~ I ~ ~ ~ ~ G'T'{T ~ ~ m ~ ~ltJdIi~~ 'd'r ~ ~ ~ 'tR ~

1?rr1I1

Appellant Mis Pepsico India Sales Pvt. Ltd. (formerly known Aradhana drinks & Beverages Pvt. Ltd.) Plot No. 28, ,

Floor, Industrial area, Phase-I, Chandiqarh. Order-in-Original Order-in-Original No. 02/ST/JCICHD/18-19 dated O'I.05.? Adjudicating Authority The Joint Commissioner, Central Goods & Service T:

and Central Excise, Commissionerate, Chandigarh. --_. Amount Rs.1 ,01,73,674/- . __ ---- Penalty Rs.1 ,01 ,73,674/- under section 78(1) of the Finance /v

1994 Rs. 10,0001- under Section 77 of the Finance ~~~!~_9S1~..:.__

83 _ .. _--_ ... _._--,

!

File No.APPL·COMMOST/1168/2019·GST - APL·CHD

OFFICE OF THE COMMISSIONER (APPI;:ALS), CENTRAL GOODS & SERVICE TAX COMMISSIONERATE, C. R. BUILDING, PLOT

NO. 19, SECTOR 17·C, CHANDIGARH, PH. 0172-2720240.

C.NO. 22/A/ST/CHD/18·19 Dated: Appeal No. 22/A/ST/CHD/2018-19 ~:>-10

~~~/

ORDER-IN·APPEAL ).!t3

Order-In-Appeal No. : CHO-EXCUS-001-APP- -18-19 Dated:

Ire' .r

., vl,

Mis Pepsico India Sales Pvt. Ltd. (formerly known as Aradhana orinks (, Beverages Pvt. Ltd.) Plot No. 28, 3rd Floor, Industrial area, Phase-f. Cbandiqarr, (tor brevity 'the appellants') have filed the subject appeal against the Order-ln-OrifJ'(ls! i';\.-,. 02/ST/JC/CHO/18-19 dated 01.05.2018 (for brevity 'the impugned order') passed hy l:',;:: Joint Commissioner,_ Central Goods & Service Tax and Central Excise, Comrnissionera!e, Chandigarh (hereinafter called 'the adjudicating authority')

2. Brief facts of the case are that the appellants were registered with the c!ep:_!""trnu,~ vide Registration NO.AAECA4452HST001 under the service category of 'Goods -: .anspcrr Operator' and 'Transportation of goods by Road',

2.1 The appellants were a subsidiary of Mis Pepsico India Holdinqs Pvt. l.to. ,:PIH i(1

short) for trading of Aerated Water and other beverages of PIH in the state of Punjab ar.ci Union Territory of Chandigarh and that appellants were tile authorized clsrributor tor lh? State of Punjab (excluding Ludhiana city) and Union Territory of Chandiqarn fOi distribution of beverages of PIH; that as per business model and sales and distribution set­ up, each bottler was assigned a specific area or territory within which, fie COl:Jd manufacture/distribute the goods manufactured by such bottler; that at times, products ~Jf some other bottlers were found in the territory assigned to some other bottler; that in the;:­ trade parlance, it is known as infiltration'; that the independent third party auditor '::hn:>:,:; and identifies if any products from one territory were infiltrated into the area of another unit/bottler; that the bottler, whose goods were found infiltrating, paid darnaqes/peualty ~c the other bottler as per the pre-agreed rate which was booked as "infiltration income"; (', account of any goods of any other bottler found in Punjab or Chandigarh invited damages to be paid to appellants by such infringing bottler; that the computation of i.·iFj!tr~Jt::);1 charges were made on the basis of report submitted by an independent third party ;:l~erK::.'.

1

File NO.APPL-COMMOST/1168/2019-GST- APL-CHD

2.2 Further the appellants have provided refrigerators known as Visi Coolers to retailers to enable them provide the goods to consumers in chilled condition; Approximately 75% of the purchase value of the Visi Coolers was borne by the appellants and about 25% of the purchase value of Visi Coolers was funded by PIH non-returnable in nature; that the Visi-coolers were not further sold by the appellants and they were supplied free of cost to individual shop-keepers to keep the beverages of PIH to be sold chilled as preferred by the ultimate customers. The appellants are 100% subsidiary of PIH and the VISI coolers were supplied to the vendors/shopkeepers to store and dispense only the PIH products. The entire amount of the purchase value of the coolers was capitalized by the appellants.

2.3 As per the department the amount earned as Visi Support by the appellants were covered under the 'Business Auxiliary Service' I 'Business Support Services' and was not covered under the negative list and was thus taxable service as per 660 of the Finance Act. 1994.

2.4 As it appeared that the appellants had provided taxable services amounting to Rs.1 0,43,11,697/-, on which service tax amounting to Rs. 1,12,80,5761- has not been paid by them, as per details given below:

I I

I

'- Period Income Amount Service tax involved ._j head received Service tax E. Cess SAH E. Total I

Cess I 01.04.2009 Visi 97246622/- 10104207 I 2020841 1010421 104073331 I to Support I - - - - I 31.01.2014 Incentive I

.j 01.07.2012 Infiltration 7065075/- 8478091- 169561- 8478/- 1873243/- I to income 31.01.2014 Total 1043116971 109520161 2190401 109520/~805761

- - - - i -

3. Accordingly, the appellants were issued show cause notice C. No. IV(HQRS)Prev/CHO-I/05/138/2013/1157 dated 04.07.2014 for recovery of service tax amounting to Rs.1, 12,80.,576/- alongwith interest under Sections 73(1) and 75 of the Act, respectively, were demanded and penal action under Sections 76, 77 and 78 of the Act was also proposed.

4. The adjudicating authority after following the due procedure issued the impugned order and confirmed the demand of Service Tax amounting to Rs. 1,01,73,6741- (Rupees One Crore One Lakh Seventy Three Thousand Six Hundred Seventy Four only) under the proviso to Section 73(1) of the Act read with Section 174(2) of the CGST Act, 2017 after allowing the cum-tax benefit to the appellants; vacated the demand of service tax amounting to Rs. 11,06,9021- (Rupees Eleven Lakh Six Thousand Nine Hundred Two only); ordered recovery of appropriate interest under Section 75 of the Act read with Section 174(2) of the CGST Act, 2017; imposed penalty of Rs. 10,0001- (Rs. Ten thousand only) under Section 77 of the Act read with Section 174(2) of the CGST Act, 2017; imposed penalty of Rs. 1,01,73,6741- (Rupees One Crore One Lakh Seventy Three Thousand Six Hundred Seventy Four only) under Section 78(1) of the Act read with Section 174(2) of the CGST Act, 2017 with the option for reduced penalty of 25% of the Service Tax so determined if .the appellant paid outstanding service tax and interest within a period of thirty days from the date of receipt of the impugned order provided that the

2

File NO.APPL-COMMOST/1168/2019-GST - APL-CHD

.~ reduced penalty is also paid within the said period in terms of clause (ii) of the second proviso to Section 78(1) of the Act read with third proviso thereto.

5. Being aggrieved by the impugned order the appellants have filed the present appeal on the following amongst other grounds which are independent and without prejudice to each other.

5.1 That PIH authorized the appellants as well as other manufacturers, distributors and retailers to manufacture and sell PepsiCo branded beverages in their respective territories. Mis Dhillon Kool Drinks & Beverages Private Limited (for short' DKOBL') was engaged in the business of manufacture and distrjbution of soft drinks beverages and syrup mix solei. under the trade mark LEHAR in a specified region; that DKDBL was authorized by PIH to undertake the said business in terms of Supply Agreement dated 16.07.2009, as amended from time to time and that in terms of the said supply agreement, DKDBL was authorized to manufacture and distribute beverages under the trade mark of LEHAR, either to PIH or a third party nominated by PIH; that by and under a 'Distribution Business Transfer Agreement' dated 05.08.2003, PIH acquired the distribution business from DKDBL for the State of Punjab. Copy of the said Distribution Business Transfer Agreement dated 05.08.2003; that the business of distribution of PepsiCo branded beverages so acquired by PIH from DKDBL was assigned to the appellants, along with all rights, interests, privileges, assets and liabilities in relation thereto, for a lump-sum consideration agreed between PIH and the appellants.

5.2 That the appellants had not provided any service to PIH w.r.t. Visi Cooler Support and that PIH only shared the cost of Visi-Cooler.

5.2.1 That the Adjudicating Authority has confirmed the demand of service tax in respect of Visi support charqes accounted for as 'sales promotion incentive income,' on the assumption that the said income had been received in lieu of 'Business Auxiliary Services' provided by the appellants to PIH by 'promoting or marketing or sale of goods produced or provided by or belonging to the client' which fell under the scope of section 65(19)(i) of the Act; that the Adjudicating Authority had failed to establish the presence of a service against the receipt of incentives by treating such incentive as consideration in iieu of service; that the Adjudicating Authority had merely relied on the allegations made by the department in the SCN to conclude that the amount had been recorded in the books of the appellants as a receipt, which evidenced the presence of a service rendered towards promotion of the brand name of PIH I sale of goods belonging to PIH and accordingly was a befitting case to be chargeable to service tax as 'Business Auxiliary Services' under Section 65(1 05)(zzb).

5.2.2 That, in order to determine liability of service tax under the Act, it is essential to determine the presence of (i) a taxable service; and (ii) valid consideration. Mere presence of a receipt of amount cannot be the basis of arbitrarily assuming a reciprocating service from the appellants, in order to bring the impugned transaction within the ambit of the Act.

5.3 That mere sharing of expenses does not tantamount to provision of any taxable service

5.3.1 That by supplying the visi coolers to the retailers and sharing the part cost thereof with PIH, the appellants were not providing any kind of service, lest business auxiliary servicel business support service, to PIH; that by incurring such expense, both PIH and the appellants acted for the benefit of their respective interest of promoting the brand

3

File NO.APPL-COMMOST/1168/2019-GS1·- APL-CHD

name of PepsiCo and maximizing sale of the beverages supplied by the appellants, and it shall be unreasonable to extend the argument to state that in the process of undertaking this activity, the appellants also rendered a service to PIH and that appellants did not provide any service of promotion of sale of goods belonging to PIH nor undertook any activity on behalf of PIH.

5.3.2 That the share of PIH was received towards purchase of visi coolers, which was in the nature of pass through expenses, incurred for the respective benefit of PIH as well as the appellants. The fact of rendering of a taxable service necessitated the existence of a service provider-service recipient relationship i.e. the service recipient approaches the service provider asking him to render a particular service which he agrees to provide for a specified consideration, it is this contractual understanding, whether written or oral, which attracts the levy of Service Tax on such consideration, provided such service falls within the four corners of taxable service and that in the absence of a contractual understanding to provide/ receive service, mere sharing of expenses cannot be considered to have been made towards provision of a service. The appellant placed reliance on the decision of the Hon'ble Supreme Court in Philips India Limited v. Collector of Central Excise, 1997 (91) EL T 540 (SC).

5.3.3 That CBEC vide Circular No. 120(9)/2/2010-ST dated 16.04.2010 had also clarified on the issue as to whether sharing of expenses between the insurance company and re-insurance company amounts to BAS. The circular clarifies as follows:

"The issue has been examined. As explained in para 2 above, the arrangement between the insurance company and the reinsurer is only sharing of expenses and there is no service provided by the insurance company to the re-insurer for a consideration. Since the policy holder may not even be aware of the operations of the re-insurer, it cannot be said that the payment made by the re­ insurer to the insurance company is for its business promotion or a service on behalf of the re-insuring company (i.e. Business Auxiliary Service). In fact, it is the reinsurer which provides insurance service to the insurance company. As both the insurance company and reinsurer pay service tax on the entire amount of premium charged by them, the question of charging service tax under any other taxable service does not arise. JJ

5.3.4 The appellant placed reliance on the following decisions:

• JM Financial Services Private Limited v. CST, 2013- TIOL-757-CESTAT-MUM, • CITv. Dunlop Rubber Co Limited, (1983) 142 ITR 493 (Cal). • . Hon'ble Delhi High Court in CIT v. Industrial Engineering Projects (P) Limited,

1993 (202) ITR 1014. • CIT v. Tejaji Farasram Kharawalla Ltd, (1968) 67 ITR 95 (SC).

5.3.5 That such recovery of expenses is not in the nature of 'gross amount charged' for services and that sharing of expenditure for particular activity by way of recovery of proportionate expenditure cannot be considered as consideration towards any services rendered and hence not chargeable to service tax. The appellant placed reliance on the following decisions

• Hon'ble Tribunal in Malabar Management Services Private Limited v. CST, 2007- TIOL-1949-CESTAT-MAO;

4

File NO.APPL-COMMOST/1168/2019-GST- APL~CHD

• S Jayashree v. Commissioner of Central Excise, 2007 (6) STR 389 (Tri-Bang), • UM Tharaith& Company v. Commissioner of Central Excise, 2007 (8) STR 161 (Tri­

Bang), • Sangamitra Services Agency v. Commissioner of Central Excise, 2007 (8) STR 233

(Tri-Chennai), • Ruchi Strips & Alloys Ltd. v. CCE, Indore vide final order No. 53506 of 2017, dated

19-5-2017,

5.3.6 Further, that visi coolers were given to the retailers for the purposes of serving the products sold by the appellants in chilled condition. The products, which are kept in the visi cooler, were the ones which were sold by the appellants to the retailer; that the products sold by the appellants to the retailers did not belong to PIH nor were they provided by PIH. That in such a case, it could not be said that the promotion of goods, if any, undertaken by the appellants was in respect of goods provided by or belonging to PIH but the promotion of goods, if at all, could be said to have taken place in respect of the goods provided by and belonging to the appellants itself. The appellant placed reliance on the following decisions:

• Charanjeet Singh Khanuja and Ors. vs. CST & Ors. 2016 [41] S. T.R. 213 (Tri. - DeI);

• Narmada Drinks Pvt. Ltd. vs. CCE & ST - Final Order No. 52245/2018 dated 18.06.2018,

• SMV Beverages Pvt. Ltd. vs. CCE, Nagpur - 2017-TIOL-1150-CESTAT-Mum., • Kera/a State Beverages (Mfrg. & Mktg.) Corp vs. Commissioner of Central Excise,

2011 (23) STR 640 (Tri-Bang)' • Pratap Singh & Sons vs. CCE, 2007 (5) STR 389 (Tri-Mum), • Rohan Motors Ltd. vs. CCE, Meerut-I, Final Order No. 52355-5235612018 in

Service Tax Appeal No.ST/51412 / 2014 CU [DB]

5.3.7 That the requirement contemplated in section 65(19)(i) of the Act did not get satisfied in the instant case as the appellants were promoting/ marketing/ selling its own goods, beverages and that in such a case, there was no question of provision of any business auxiliary service to PIH. That in any case, the appellants were engaged in trading (purchase and sale) of beverages and were not rendering any service to anybody.

5.3.8 That to understand the existence of a contractual understanding, whether written or oral, it is necessary to dwell into certain principles of contractual interpretation. The appellant placed reliance on Lewison's Interpretation of Contract and also reliance on the following decisions:

(a) Income Tax Officer vs. Sriram Bearings Limited, (1997) 224 ITR 724 (SC) (b) Ishikawajma-Harima Heavy Industries Limited vs.Director of Income Tax, (2007)

288 ITR 408 (SC) (c) Delhi Development Authority vs. Durga Chand Kaushik, AIR 1973 SC 2609

5.4 That promotion of Brand in general does not get covored within the Scope of Business Auxiliary Service.

5.4.1 That without prejudice to the above and assuming without admitting that visi coolers given by the appellants to the retailers resulted in promotion of anything, that the same might be of PIH brand in general, though not intended to be undertaken by the appellants.

5

... ~ r

File No.APPL-COMMOST/1168/2019-GST- APL-CHD

However, such promotion of brand, though incidental, could not result in the appellants .. rendering business auxiliary service under section 65(19)(i) of the Act, to PIH.

5.4.2 That the service of promotion of brand was specifically covered under the scope of another taxable service as defined in Section 65(105)(zzzzq) of the Act, popularly known as brand promotion services. The levy of service tax on the brand promotion service has been introduced with effect from 01.07.2010. That without prejudice to the submissions made in forgoing grounds, if it is assumed without admitting that the appellants promoted the brand of PIH, it could not be said that the appellants were rendering business auxiliary service covered under Section 65(19)(i) of the Act and that the service of promotion of brand is a separate service taxable under Section 65(1 05)(zzzzq) of the Act and has been made taxable w.e.f. 01.07.2010.

5.4.3 That the introduction of a new entry without amendment in the existing tax entries implies that the service covered under the new entry was not taxable earlier. Reliance has been placed on the judgment of Hon'ble Tribunal in the case of Jetlite (India) Limited v. CCE, 2011 (21) STR 119 (Tri-Del).

5.4.4 That the appellants were not providing any infrastructural support services to PiH; that the provision of visi coolers to the distributors / retailers was provided pursuant to an understanding between PIH and the appellants for provision of the same jointly and the same was not being provided as a service to PIH. That moreover, purchase and provision of visi coolers to the distributors/retails was, if at all, a service to self as the same was meant for the benefit of maximizing sale of the appellants'own goods and not goods of PIH and that mere promotion of the brand name of PIH, if any, is a consequential outcome which cannot be treated as a service to PIH.

5.4.5 Further, that the Department had issued Circular No. 109103/2009 dated 23.02.2009 wherein it was clarified that, an independent activity will not fall within the scope of BSS; that "the very purpose of introducing BSS as a taxable service was to cover the transactions wherein a business was outsourcing the activities which they were required to do, however, for availing the benefit of economies of scale or professional expertise, the same was outsourced to another party.

5.4.6 That in the instant case, PIH did not outsource any activity to the appellants whatsoever.; that the appellants were supplying the visi coolers to its retailers on its own, without being asked for it by PIH; that PIH was only reimbursing the cost thereof to the appellants; that there was no outsourcing of any activity by PIH to the appellants and that hence, as the impugned transaction did not fulfill the basic criteria of being in nature of an outsourced activity it did not fall under the scope of BSS.·

5.4.7 That the demand proposed in the SCN on visi support charges for the period from 01.07.2012 to 31.01.2014 was based on the erstwhile provisions of the Act which were indeed inapplicable during the said period and hence, demand for the said period was not tenable in law. That, the Adjudicating Authority without giving any cogent finding in respect thereto, confirmed the demand of service tax on visi support charges by simply stating that w.e.f. 01.07.2012, service provided by the appellants continued to be taxable as it was not covered under negative list of services or under any exemption notification.That this finding has been passed by going beyond the allegation levelled in the SCN, which is not permissible in law. The appellant placed reliance on the following decisions

• Hon'ble Tribunal in the matter of FICCI v. CST, 2014-TIOL-701-CESTAT -DEL; • CST v. The Peoples Choice, 2014-TIOL-431-HC-KAR-ST;

6

File No.APPL-COMMOST/1168/2019-GST- APL-CHD

5.4.8 Further the appellants contested that they were not liable to pay service tax on penalty collected on account of infringement caused by other bottlers / distributors in the exclusive territory assigned to the appellants and refrained from stopping the other bottlers / distributors to infringe the exclusive territory assigned to the appellants, which were covered under Section 66E(e) of the Act.

5.4.9 That the following conditions needed to be fulfilled cumulatively, in order to fall under Section 66E(e) of the Act:

• A person must have performed any of the following activities i.e. (a) agrees to the obligation to refrain from an act; (b) agrees to the obligation to tolerate an act or situation; (c) agrees to the obligation to do an act.

• Above stated activity must be performed in return for consideration.

5.4.10 That the present case does not satisfy either of the two conditions specified above, and hence is not liable to service tax. Before dwelling into the tax implications on infiltration charges, it is necessary to understand the nature of these charges; the appellants had the exclusive right to sell PIH brand beverages in the specific region / territory. No other distributor was authorized to sell those beverages in that area. However, at times, the products of other distributors were found in the territory assigned to another distributor; that this was known as 'infiltration'; that the distributor, whose territory was being infiltrated, engaged a third-party auditor who checked and identified the fact of products of other distributors being found in one's territory. That the distributor, whose goods were found in another's territory, was liable to pay damages to another as per pre­ agreed rate. These damages were booked by the Appellant as infiltration income in its books of account.

5.4.11 That' the damages recovered by the appellants could not be covered under the scope of the above entry; that scope of the aforesaid entry under the declared service has not been enumerated in the Act or the Rules/clarifications issued there under and that the Education Guide also does not throw any light on the said clause.

5.4.12 That the expression 'to tolerate an act' included under declared services should be understood to cover instances where the consideration is being charged in order to allow a person under obligation to undertake any particular activity; that in such cases, it is clear that the intention of one party is to undertake an activity and the other party shall allow the same without any hindrance; that even if such act is repeated in future, there is no intention to deter the happening of the same or to penalize the other party for such act so that it is not repeated in future; that when the purpose to charge compensation (or idle time cost/opportunity cost) is to ensure that the defaulting act is not undertaken on a continuous basis, the same cannot be said to be towards any toleration of the defaulting act. That the Expression 'agreeing to tolerate an act' cannot be construed to include situations wherein liquidated damages/ penalty is charged by a party for defaults/ breach committed by other party under the contract.

5.4.13 That the word 'obligation' used in Section 66E(e) of the Act indicates the need for the existence of the desire in the person for whom the activity is done i.e when the service receiver requests the service provider to tolerate an act/situation and the service provider obliges to tolerate provided a consideration is paid, then such a contractual relationship will get covered by Section 66E(e) of the Finance Act. That charging of damages / penalty are for making good the loss suffered by a contracting party

7

File No.APPL-COMMOST/1168/2019-GST- APL-CHD

due to breach of terms of the contract by other contracting party and that there is no additional benefit given under the main contract of supply of service, in return for such damages I penalty.

5.4.14 That the appellants by charging damages in the name of infringement income for defaultsl breach of the terms of the contract, has not agreed to the obligation to tolerate an act of the other bottlers I distributors, but had charged such damages only as a fair estimate of the actual loss suffered by the appellants on account of breachl default of other bottlers I distributors, without giving any additional rights.

5.4.15 That consideration, would necessarily mean "quid pro quo" i.e. something in return; that it is a benefit which must be bargained for between the parties, and is essential reason for a party entering into a contract. That liquidated damages charged in the name of infiltration income are not recovered by the appellants in lieu of or in return for any activity performed by the appellants and that these charges were merely compensation for the loss suffered by the appellants due to default! breach of the terms by other bottlers I distributors under the contract. The appellants have placed reliance in the case of;

• ONGC Ltd.Order in Original No. KKO-EXCUS-JC-52/16-17 dated 15.09.2016; • Glaxo Smithkline Consumer Healthcare Ltd. Order-in-original

47/AOC/SOT/GZB/233015-16 dated 30.03.2016; • ONGC Ltd., Order-in-Origina/ No.KKo/EXCUS/JC/66/2016-17 dated

30.11.2016 issued by Joint Commissioner, Visakhapatnam. The appel/ant placed reliance on the fol/owing decisions;

• Cricket Club of India Ltd Vs CST, Mumbai 2015 (40) STR 973 (Tri. - Mum.); • Mormugao Port Trust v. Commissioner of Customs, Central Excise and

Service Tax, Goa 2016 SCC Online CESTAT 5095; • Commissioner of Service Tax, Mumbai-II v. Indian Performing Rights

Society Limited 2017 SCC Online CESTAT 175 and • Air India Charters Ltd. v. Commissioner of Service Tax, Mumbai 2017 (6)

G.S. TL. 468 (Tri. - Mumbai). • Scott Wilson Kirkpatrick (I) Private Limited v. Commissioner of Service Tax,

2007 (5) STR 118 (Tri-Bang); • Commissioner v. Scott Wilson Kirkpatrick (I) Pvt. Ltd. - 2017 (50) S. TR.

J153 (S. C.); • Reliance ADA Group Pvt. Ltd. v. Commissioner of S. T, Mumbai-IV 2016

(43) S. T.R. 372 (Tri. - Mumbai); • HT Media Ltd. v. CST, New Delhi 2017 (7) G.S. TL. 364 (Tri. - Del.); • Historic Resort Hotels (Pvt.) Ltd. v. Commissioner of C. Ex., Jaipur-II 2018

(9) G.S. TL. 422 (Tri. - Del.); • Gujarat State Fertilizers and Chemicals Ltd. and Anr. v. CCE - 2016- nOL-

98-SC-ST; • Intercontinental Consultants & Technocrats Pvt. Ltd. v. UOI - 2013 (29)·

S.T.R. 9 (Del.) and • UOI v. Intercontinental Consultants and Technocrats Pvt. Ltd. 2018 (10)

G.S. TL. 401 (S.C.)

5.5 Infiltration charges

5.5.1 That these charges were not received in lieu of or in return for any activity or service performed by the appellants but as liquidated damages charged towards compensation for

8

File No.APPL-COMMOST/1168/2019-GST- APL·CHD

loss suffered by the appellants due to default/breach of the terms by other bottlers/distributors under the contract. Thus, there was no consideration involved in the impugned transactions. In this regard, reliance is placed on the following decisions:

• ONGC Ltd. - Order in Original No. KKD-EXCUS-JC-52/16-17 dated 15.09.2016 passed by the Joint Commissioner, Visakhapatnam

• Glaxo Smithkline Consumer Healthcare Ltd. - Order in Original No. 47/ADC/ST/GZB/2015-16 dated 30.03.2016passed by Additional Commissioner.

• ONGC Ltd., Order-in-Original NO.KKD/EXCUS/JC/66/2016-17 dated 30.11.2016passed by Joint Commissioner, Visakhapatnam.

• The Executive Engineer, Urban Division, Tamil Nadu Water Supply and Drainage Board, Madurai issued vide Order dated 01.05.2018,'

• Vimlachal Print & Pack Pvt. Ltd. v. Commr. of C.Ex., Ahmedabad-II 2017 (6) G.S. TL. 496 (Tri. - Ahmd.)and

• Employee Provident Fund Organization v. Commr. of S. T, Delhi 2017 (4) G.S.TL. 294 (Tri. - DeI.).

5.5.2 That impugned order is a non-speaking order issued in complete violation of the principles of natural justice.

The appellants have placed reliance on the following decisions:

• CST v. Qua/comm India Private Limited, 2011 (22) STR 437 (Tri-Benq); • Anil Products Limited vs. CCE, Ahmedabad-1I2010 (257) FL. T. 523 (Guj.); • Nitesh Kumar Kedia v. CCE 2012 (284) EL T 321 (Del), Rathi Bars Ltd. v.

CCE, Jaipur-l, 2012 (283) E.L.T. 565 (Tri. - Del.); • Tata Engineering & Locomotive Company Limited v. CCE, 2006 (203) EL T

360 "(SC)CCE, Thane-I V; • Technocraft Industries (I) Ltd. - 2015 (40) S.T.R. 637 (Bom.); • Rungta Projects Ltd. V CCE, All. - 2011 (24) S.T.R. 495 (Tri. - Dei.) and CCE

V. Essar Oil Limited - 2011 (21) STR 465 (Guj.); • Commissioner of Customs (/mport), Chennai vs. 00 Best Infoway2016 (336)

E. L. T. 156 (Tri. - Chennai)

5.5.3 That on the guidelines of the Apex Court the CBEC issued guidelines vide Instruction F. No. 390lCESTA T12412016-JC, dated 13-4-2016 categorically mentioning that the quasi-judicial orders have to be necessari.ly be the speaking orders recording every fact and reason leading to the final decision in the matter.

5.6 Extended period of limitation not invokable.

5.6.1 That as per Section 73(1) of the Act, in a normal case, the SCN can be issued at any time within eighteen months from the relevant date. That proviso to Section 73(1) of the Act provides that SCN can be issued at any time within 5 years from the relevant date, if Service Tax was not paid or levied by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Act or Rules with intent to evade payment of Service Tax and that, the extended period of limitation is applicable only if any of the ingredients specified above exist.

9

File No.APPL-CQMMOST/1168/2019-GST - APL-CHD

5.6.2 That activities of the appellants were not in the nature of taxable services and thus, the appellants was not required by law to inform the Department about the same; that when being investigated, the appellants had fully cooperated and furnished all information and that the Department has taken information from the annual report of PIH, which is available in public domain.

5.6.3 That the grounds for invoking extended period of limitation have to be first established from the totality of facts and circumstances of a particular case in light of the relevant legal provisions; that in the instant case, the allegations in the SCN as well as the findings in the impugned order w.r.t. suppression of facts is without any merit as the appellants had always co-operated with the Department and provided them all the details as and when required and that it was only on the basis of the information furnished by the appellants to the investigating authority that the proceedings were initiated against the appellants.

5.6.4 That the appellants were and still are of a bonafide view that the subject activities are not chargeable to Service Tax and that this bonafide belief cannot be said to result in attributing intent to evade payment of tax on part of the appellants. Reliance has been placed on the decision in the case of GGE, 8algaum v. Mysore Kirloskar Ltd. 2008 (226) E.L. T. 161 (SG).

5.7. That the Appellants cooperated with the Department and furnished all required informationldocuments and thus, had not suppressed any facts from the Department.

5.7.1 The appellants have placed reliance on the following judgments: .

• CST v. Gowri Computers (P) Limited, 2012 (25) STR 380 (Tri-Bang); • Cosmic Dye-Chemical v. Commissioner of Central Excise, 1995 (75) EL T 721 (SC); • Commissioner of Central Excise v. HMM Limited, 1995 (76) EL T 497 (SC); • Kaur & Singh v. Commissioner of Central Excise, 1997 (94) EL T 289 (SC); • Nizam Sugar Factory v. Commissioner of Central Excise, 2006 (197) EL T 465 (SC)

and • Elite Detectives Private Limited v. CCE, 2006 (4) STR 583 (Tri-Bang)

5.7.2 That attributing malafide intent to evade payment of service tax, as alleged are serious charges but the impugned order did not mention or discuss the material facts or grounds or evidence based on which such intention is attributed to the appellants and reliance has been placed on;

• Uniworth Textiles Limited v. CCE, 2013 (288) EL T 161 (SC); • Union of India v. Ashok Kumar and Others, 2005 (8) sec 760; • E P Royappa v. State of Tamilnadu, AIR 1974 SC 555; • Gulam Mustafa v. State of Maharashtra, AIR 1977 SC 448; • Commissioner of Central Excise v. ITC Limited, 2010 (257) ELT 514 (Kar) ,

approved by the Supreme Court at 2013 (295) EL T A64 (SC); • Commissioner of Central Excise v. Bajaj Auto Limited, 2010 (260) EL T 17 (SC); • New Decent Footwear Industries v. Union of India, 2002 (150) EL T 71 (Del)

10

r- , File NO.APPL-COMMOST/1168/2019-GST- APL-CHD

5.7.3 That when non-payment of service tax is found out by the Department, the same "does not mean it was with the intention to evade service tax In this regard, the appellants have relied on;

• Sands Hotel Pvt. Ltd. v. CST-2009 (16) STR 329; • CCE v. HMM Ltd. - 1995 (76) EL T 497; • (SC)DD Industries Ltd. v. CCE - 2002 (142) EL T 256 (T); • Singareni Collieries Co. Ltd. v. CCE - 1988 (37) EL T 361 (T); • Rapicut Carbides Ltd. v. CCE - 2015 (317) EL T 312 (Tri. - Ahmd)

5.8 That appellants were under a bona-fide belief that they were not liable to pay Service Tax.

In this regard, the Appellants have placed reliance on the following cases:

• Deco Tubes v. CCE & ce., Thane-II, 2008 (227) EL T 67 (Tri.-Mum.),· • Gopal ZardaUdyog v. CCE, New Delhi (supra); • CCE, Surat v. Surat Textile Mills Ltd., 2004 (167) EL T 379 (SC) and • CCE, Banga/ore-II v. ITC Limited, 2010 (257) EL T 514 (Kar.).

5.9 That department had failed to show any positive act on the part of the Appellants to suppress information and that provisions relating to invocation of extended period to be construed strictly .•.

• Padmini Productsv. CCE, 1989 (43) EL T 195 (SC); • Gopal Zarda Udyog v. CCE, 2005 (188) EL T 251 (SC); • Lubri-Chem Industries Ltd. v. CCE, 1994 (73) EL T 257 (SC),' • Cosmic Dye Chemical v. CCE, 1995 (75) EL T 721 (SC),' • Pushpam Pharmaceuticals Company v. CCE, Bombay, 1995 (78) EL T 401 (SC)

andAbanLoyd Offshore Ltd. v. Commissioner of Customs, 2006 (200) EL T 370 (SC),

5.9.1 The appellants contested that the appellants were under a bona-fide belief that they were not liable to pay Service Tax on the subject activities and that even tile Impugned Order recorded that the activities of the Appellant can be classified under both business auxiliary services and business support services, which shows the ambiguity and confusion regarding classification on part of the Department also. That, therefore, in such a situation, the finding of suppression with an intent to evade payment of service tax was not justified. The appellants relied on the following judgments in support of the contention that suppression cannot be alleged when the matter involves interpretation of legal provisions:

• Chemicals &Fibres of India Limited v. Commissioner of Central Excise, 1988 (33) EL T 551 (Tri-Del);

• Ispat Industries Limited v. Commissioner of Central Excise, 2006 (199) EL T 509 (Tri-Mum);

• NIRC Limited v. Commissioner of Central Excise, 2007 (209) EL T 22 (Tri-Del) • Speedways Rubber Factory v. CCE, Jallandhar 2018 (359) E.L. T. 519 (Tri. -

Chan.),

5.10 The appellants contested that no interest is payable under section 75 and no penalty is imposable under section 77 and 78 of the Act.

11

.---'

File NO.APPL-COMMOST/1168/2019-GST - APL-CHD

5.11 The appellants contested that Section 80 will apply in the present case and placed. reliance on the following judgments;

• Bajaj Travels Limited v. CST, 2012 (25) STR 417 (Del); • ETA Engineering Ltd v. CCE, Chennai, 2004 (174) EL. T. 19 (Tri. - LB); • Star Neon Singh v. Commissioner of Central Excise, 2002 (141) EL T 770 (Tri-Del); • Flyingman Air Courier Private Limited v. Commissioner of Central Excise, 2004

(170) EL T 417 (Tri-Del) and • Medpro Pharma Private Limited v. Commissioner of Central Excise, 2006 (4) STR

322 (Tri-De/).

6 Personal hearing in the case was conducted on 26.04 2019, Sh. Tarun Sharma, CA authorized representative on behalf of the appellants, appeared and reiterated the submissions as made in their grounds of appeal dated 04.07.2018 and additional written submissions made during personal hearing and requested to decide the case in the light of these. '

7. I have carefully gone through the impugned order, grounds of appeal and submissions made at the time of personal hearing as well as documents placed on record and observe that the issues to be decided are:

i) As to whether 'visi Support/Sales Promotion Incentive' received by the appellants from PIH for supplying VISI coolers to various vendors/shopkeepers to keep the Pepsi products was payment in lieu of Business Auxiliary Services/Business Support Services or is it sharing of expenses of visi coolers by the appellants and PIH for the benefit of their respective interest of promoting the brand name of PepsiCo and maximizing sale 'cf the beverages supplied by the appellants?

ii) As to whether the appellants received infiltration income as consideration in lieu of (i) tolerating the infringement caused by other bottlers/distributors in the exclusive territory assigned to the Appellant; and (ii) refraining from stopping the other bottlers/distributors to infringe the exclusive territory assigned to them and hence, taxable as "declared services" under Section 66E(e) of the Act?

7.1 In this regard I would like to visit the relevant provisions of law. Business Auxiliary Services was declared taxable under Service Tax w.e.f. 01.07.2003 vide Notification No. 7/2003-ST dated 20.06.2003 as defined under section 65(19)3 as taxable service. The business auxiliary service was defined as under;

"Business Auxiliary Service" meant any service in relation to ,-

(i) Promotion of marketing or sale of goods produced or provided by or belonging to the client.

(ii) Promotion or marketing of service provided by the client or ; and the following explanation was omitted by the Finance Act, 2010 w.e.f. 1.7.2010; "Explanation; For the purpose of this sub-clause,"service in relation to promotion or marketing of service provided by the client" includes any service provided in relation to any promotion or marketing of games of chance,

12

Fi.le NO.APPL-COMMOST/1168/2019-GST- APL·CHD

organised, conducted or promoted by the client, in whatsoever form or by whatever name called, whether or not conducted online, including lottery: lotto, bingo;"

(iii) Any customer care service provided on behalf of the client; or

(iv) Procurement of goods or services, which are inputs for the client; or [Explanation.- For the purpose of this sub clause, "inputs" means all goods ro services intended for use by the client;]

7.2 Further "Business Support Service" was declared taxable under Service Tax w.e.f. 01.05.2006 vide Notification No. 15/2006-ST dated 25.04.2006 as defined under section 65(1 04c) as taxable service. The Business Support Service was defined as under;

"Support services of business or commerce" means services provided in relation to business or commerce and includes evaluation of prospective customers, telemarketing, processing of purchase orders and fulfilment services, information and tracking of delivery schedules, managing distribution and logistics, customer relationship management services, accounting and processing of transactions, inserted w.e.f. 1.5.2011 [operational or administrative assistance in any manner], formulation of customer service and pricing policies, infrastructural support service and other transaction processing. Explanation:- For the purpose of this clause, the expression "Infrastructural support services" includes providing office along with office utilities, lounge, reception with competent personnel to handle messages, services. internet and telecom facilities, pantry and security. "

7.2.1 In order to determine liability of service tax under the Act, it is essential to determine the presence of;

(i) a taxable service; (ii) valid consideration

7.2.2 In the instant appeal the appellants received financial support on the expenditure incurred for the purchase of 'visi coolers' the appellants were engaged in the trading of Pepsi beverages. The appellants bought the same from (OKDBL) and sold it to its distributors/ retailers. To ensure that the ultimate consumer of the beverages received the same in a chilled condition, the appellants provided visi coolers to the retailers to ensure product quality to the ultimate consumers. The visi coolers were capitalized by the appellants being the subsidiary of PIH but were placed at the retailers premises. The appellants were not charging anything for usage of the visi coolers by the retailers. The product stored in the visi cooler was chargeable to Central Excise duty as per section 4 (a) of the Central Excise Act. 1944 . The department has failed to establish the presence of a service against the receipt of incentives by treating such incentive as consideration in lieu of service. In the absence of any service being provided the amount received 3S visi support for the purchase of visi coolers which was capitalized by the appellants could not be considered as receipt in lieu of any service provided.

7.2.3 Therefore, I hold that sharing of expenses does not amount to provision of any service.

13

File NO.APPL-COMMOST/1168/2019-GST - APL-CHD

.~ 7.3 Further, take up the issue of infiltration income as consideration in Ii'eu of i) tolerating the infringement caused by other bottlers/distributors in the exclusive territory assigned to the appellants; and (ii) refraining from stopping the other bottlers/distributors to infringe the exclusive territory assigned to them and hence, taxable as "declared services" under Section 66E(e) of the Act. Section 66E(e) of the Finance Act, 1994 specifically includes agreeing to the obligation to refrain from an act or to tolerate an act or a situation or to do an act as a declared service.The entry was inserted w.e.f. 01.07.2012. This entry will be applicable in case the appellant is:-

(i) tolerating the infringement caused by other bottlers/distributors in the exclusive territory assigned to the Appellant;

(ii) refraining from stopping the other bottlers/distributors to infringe the exclusive territory assigned to them and hence, taxable as "declared services" under Section 66E(e) of the Act?

7.3.1 The demand of service tax on infiltration income earned by the appellants was confirmed vide impugned 010 on the groundS that the appellants tolerated the infringement caused by other bottlers/distributors in the exclusive territory assigned to the appellants and had refrained from stopping the other bottlers/distributors to infringe the exclusive territory assigned to the appellants, which were covered under the said clause of 'Declared Service".

7.3.2 As per definition of term "service" is given in Section 65B(44) of Finance Act, 1944 which included "Declared Services". According to Section 65B(22) of the Act, "declared service" means any activity carried out by a person for another person for consideration and declared as such under Section 66E. Further, as per Section G6E(e) of tne Act, "agreeing to the oblig-ation to refrain from an act, or to tolerate .an act or a situation, or to do an act" has also been included in "Declared services". Thus, any act, refrainment from an act or to tolerate an act or a situation, by a person for consideration from another person, is taxable under Service Tax w.e.f. 01.07.2012.

7.3.3 First of all I would like to look into the nature of this income.

7.3.4 The appellants sold the beverages in Punjab. No other distributor was authorized to sell the beverages in other than the specified area .. However, at times, the produ •. ~ts of other distributors were found in the territory assigned to another distributor. On the basis of audit conducted by the third party the distributor, whose territory was infiltrated, the distributor, whose goods were found in another's territory, was liable to pay damages to another as per pre-agreed rate with an intention to penalize for carrying infiltration of stocks. As per legal provisions the activity would fall under Section 66E only in the following cases:

I

• agreeing to the obligation to refrain from an act; • agreeing to the obligation to tolerate an act or a situation; and • agreeing to the obligation to do an act.

7.3.5 The expression 'to tolerate an act' included under declared services should be understood to cover instances where the consideration is being charged in order to allow a person to undertake any particular activity. In such cases, it is clear at the very inception that the intention of one party was to undertake an activity and the other party

14

1 :

_o'

File NQ.APPL-COMMOST/1168/2019-GST - APL-CHD

shall allow the same without any hindrance. Even if such act is repeated in future, there is no intention to deter the happening of the same. There is no intention to penalize the other party for such act so that it is not repeated in future. In such cases, such consideration shall not be even termed as penalty in the normal course.

7.3.6 However, when the purpose to charge compensation (or idle time cost/ opportunity cost) is to ensure that the defaulting act is not undertaken on a continuous basis, the same cannot be said to be towards any toleration of the defaulting act.

7.3.7 In the instant case the distributor who caused infringement was penalised. The purpose of this penalty was to restrict the distributor's stock to their specified area and not to generate income by intruding into the unspecified area. This penalty was charged to neutralize the profit generated by the intruder so that the same act was not repeated. This was also clarified by the "Taxation of Services: an Education Guide" issued by the TRU. The relevant portion reads as under:

"The concept 'activity for a consideration' involves an element of contractual relationship wherein the person doing an activity does so at the desire of the person for whom the activity is done in exchange for a consideration. An activity done without such a relationship i. e. without the express or implied contractual reciprocity of a consideration would not be an 'activity for consideration' even though such an activity may lead to accrual of gains to the person carrying out the activity. "

7.3.8 In the instant case there was no contract between the distributors to tolerate/allowing the act of infringement of goods into the other's territory but the agreement was to restrict the goods of one distributor's found in the other's territory and the income wa_s generated by penalizing the distributor whose goods were found in someone other's territory. The amount collected as penalty for infringement could not be defined as declared service as discussed above. Therefore, I hold that income booked by the appellants as infringement income was not taxable.

7.4 As the appellants succeeds on the issue that their activities do not cover under "Business Auxiliary Service, "Business Support Service" or "agreeing to the obligation to refrain from an act, or to tolerate an act or a situation, or to do an act" I am not going into other issues. Accordingly, I pass the following order.

Order

8. In view of the factual and legal position stated here-in-before the imp set-aside and the appeal of the appellants is allowed with consequential reli

~;':-''''JI::'1~= appeal stands disposed of, accordingly. Digitally signe Date:Fri Aug 23 15.35:39 1ST 2019 Reason:APP(BY~Suman Bala

Commissioner (Appeals)

REGD. A.D.

M/s Pepsico India Sales Pvt. Ltd. (formerly known as Aradhana drinks & Beverages Pvt. Ltd.) Plot No. 28, 3rd Floor, Industrial area, Phase-I, Chandigarh

15

File No.APPL-COMMOST/1168/2019-GST - APL-CHD

COpy to: i. The Chief Commissioner, Goods and Service Tax Zone, Chandigarh. II. The Commissioner, Central Excise & CGST Commissionerate, Chandigarh. iii. The Assistant Commissioner, Central Excise & CGST Division-II, Chandigarh. iv. / The Superintendent, Central Excise & CGST Range-II, Chandigarh. v.,.) Guard file.

~&}}r>3\g( I ~ Superintendent (Appeals)

16