License Agreement Granting Exclusive Right to Use with Control Considered Deemed Sale Under Article 366(29A)(d): CESTAT Sets Aside Service Tax Demand

The New Delhi Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) set aside the service tax demand ruling that the License Agreement granting exclusive rights and control to the transferee constitutes a "deemed sale" under Article 366(29A)(d) of the Constitution of India.

Tripti Alcobrew Pvt. Ltd., the appellant leased its land, buildings, and equipment to Skol Breweries agreeing to procure an endorsement of its brewery license. The brewery license was endorsed to Skol/Sab Miller who paid consideration under the agreement.

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The Commissioner of Central Excise & CGST claimed that the license endorsement was integral to the Lease Deed and part of the "renting of immovable property services" and alleged tax evasion by not including license endorsement fees in the taxable value.

The appellant claimed it was a "deemed sale" under Article 366(29A)(d) of the Constitution and paid Value Added Tax (VAT) so no service tax was applicable. The main issue revolves around whether a “deemed sale” under article 366(29A)(d) of the Constitution had taken place under the License Agreement.

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Before the CESTAT, the appellant’s counsel argued that the right to use the brewery license was transferred exclusively meeting the criteria for a "deemed sale" and already paid VAT on the transaction. The appellant’s counsel argued that the License Agreement and Lease Deed were separate transactions and should not be clubbed.

On the other hand, the department argued the License Agreement was inseparable from the Lease Deed and part of the same service transaction. The counsel claimed the license transfer did not meet the requirements of a "deemed sale" as possession and control of the license were not fully transferred.

The two-member bench comprising Dilip Gupta (President) and P.V. Subba Rao (Technical Member) analyzed the terms of the Lease Deed and License Agreement and concluded that the agreements were independent.

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The tribunal confirmed that the License Agreement met the criteria for a "deemed sale" citing exclusive transfer of the right to use the brewery license and free from any encumbrances or interference (Exclusive control).

The tribunal criticized the commissioner for erroneously conflating the agreements ignoring the distinct nature of the transactions. So, the tribunal set aside the impugned order citing no service tax liability on the license endorsement fees. The appeal was allowed with consequential relief to the appellant.

To Read the full text of the Order CLICK HERE

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