AAAR upholds Order confirming GST Levy on Brand Fee and Reimbursement Expenses [Read Order]

The Appellate Authority of Advance Ruling (AAAR) has upheld an order of the AAR and held that the Brand owner is liable to pay 18 percent Goods and Services Tax ( GST ) on brand fee and reimbursement expenses.

The applicant is the owner of brands of beer, permits the CBUs to manufacture beer according to their specifications, label them with the brands of the applicant and then sell them as per the State excise laws. As per the agreement between the applicant and the CBUs, the applicant gets a brand fee in lieu of the permission granted to the CBU to utilize their brand.

Further, the surplus amount over and above the brand fee is taken as a reimbursement or business surplus by the applicant.

Before the AAR, the applicant sought for an advance ruling on the tax liability on this amount in the hands of the applicant received from the CBU after the deduction of all costs related to CBU wherein the AAR held that the applicant is engaged in the supply of service classified under Service Code (Tariff) 999799 and are liable to pay GST at the rate of 18 percent on the amount received from the CBUs.

Aggrieved by the AAR order, the appellants approached the Appellate Authority.

After considering the entire gamut of activities performed by the Appellant, the Appellate Authority held that it may be difficult to arrive at any nomenclature for the services delivered by the Appellant to the CBU.

“While the Brand fee and the reimbursed expenses, are received by the Appellant in (direct) consideration for permitting the CBUs the use of the representational right to make and sell their branded beer, the service supplied can at times have the colour and character of being an erstwhile “franchise’ service or/ and IPR service’ in terms of the Finance Act 1994. On the other hand, the so-termed ‘surplus profit’ amounts received have the characteristics of being a consideration received for a ‘mixed supply’. While in overall terms, at times the service supplied assumes the character of permitting the use of intellectual property rights, or of being a franchise service, at other times it takes on the color 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 predominance in terms of characterization since the consideration for some elements of the supply is being received in terms of a variable amount “W”, We do acknowledge and recognize that in each tax period,” the authority said.