The Mumbai CESTAT, in a significant ruling, held that sharing of marketing expense with manufacturer by distributor would not amount to Business Auxiliary Services for the purpose of Finance Act, 1994.
The appellants, M/s. SMV Beverages Pvt. Ltd. is engaged in the manufacturing of Pepsi range of products such as Pepsi, Mirinda, Mountain Dew, 7-up, Slice, Aquafina and fruit juices and is a franchisee of M/s. Pepsi Foods Pvt. Ltd. and is also engaged in trading of Pepsi brand products like Slice, Nimboo, bottle and cans of Pepsi, Mirinda Orange, 7-up and Mountain Dew. The traded items are purchased from M/s. Pepsico India Holdings Pvt. Ltd.
The appellant purchased concentrate i.e. basic raw material from M/s. Pepsi Foods Pvt. Ltd. (PFL), and later converts it into aearated water. In order to enhance the sales of aerated waters, the appellant undertakes marketing and advertising of the products. As per the agreement entered into with PFL, the said expenses are shared in a particular manner and the appellant has received an amount during the relevant period from PFL which was shown in the books under the head Net Incentive and Support of other receipts. According to the AO, the said amount is subject to service tax under the head business auxiliary service.
It was contended on behalf of the assessee that the relationship between the main appellant and PFL will not fall under the scope and ambit of Section 65(19)(i) or (ii) of the Finance Act, 1994. They claimed that the amounts which were received from PFL were sharing of marketing and other expenses, which mutually benefits the main appellant as well as PFL. It was therefore, claimed that the expenses incurred by the appellant for promoting and marketing is in respect of the products sold by them and not on behalf of PFL and therefore, this do not constitute “Business Auxiliary Services.”After perusing the agreement entered between the appellant and PFL, the bench found that the entire agreement talks about the sale of concentrate to the main appellant and the conditions for bottling the said trade mark like Pepsi, Mirinda, 7-up etc. The said agreement also provides for rights of PFL to sell and distribute beverages in other areas by appointing various bottlers. It was also noted that as per the agreement, the appellant is not required to promote or market or sale of goods produced or provided or belonging to PFL. “In the case in hand, PFL is only producing and selling concentrate to the main appellant for converting into aerated water. The adjudicating authority’s findings that the concentrates are belonging to PFL, also does not cut the ice, inasmuch the said concentrate is sold on payment of excise duty to the main appellant, which would indicate that once the sale takes place, the concentrate does not remain the property of PFL.”
“The definition of business auxiliary service may not cover the transaction in this case, as the main appellant is not promoting or marketing of services provided by PFL as there is no service which has been provided by PFL in the case in hand. The findings of the adjudicating authority that the agreement requires the main appellant to promote the trademarks, which in term is nothing but the goods, seems to be farfetched as in the case in hand there is no mention of trade marks in the definition of BAS (as reproduced herein above). In short, we conclude that the main appellant is not promoting or marketing or selling the concentrates which are produced or provided by PFL to them for manufacturing of aerated waters.”
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