Promotional Activities by Coca Cola Franchisee not covered under ‘BAS’, No Service Tax: CESTAT [Read Order]

The Chandigarh bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has recently held that service tax cannot be imposed on Coca Cola Franchisee for the promotional activities carried out under the Bottler’s Agreement since these activities are not covered under the ambit of “Business Auxiliary Services.”

The appellant, Kandhari Beverages P Ltd, is the manufacture of nonalcoholic beverages and fruit pulp-based products like Maaza under the brand name of The Coca-Cola Company (USA). As per the ‘Bottlers Agreement’ with CCI, the Company has been authorized to use the trademarks in connection with the preparation, packing, distribution, and sale of beverages in and throughout a specified territory.

The Service Tax department held that the Company is engaged in promotional activities such as advertising, marketing, and promoting the sale of beverages by creating its own funds, and CCI agreed to contribute financially to the marketing program. Further, the Appellant is promoting the sale of concentrate of CCI for which, the latter is paying a consideration in the form of support price. Considering all these facts, the department came to the conclusion that the activities would fall into the ambit of “Business Auxiliary Services”.

Citing a catena of decisions, the Tribunal relied on the decision in the case of Wave Beverages Pvt Ltd wherein it was observed that“the main question which is, therefore, required to be considered, in the present Appeal, is whether the Appellants, who are manufacturers of non-alcoholic beverage bases (concentrates) are eligible to avail credit of the service tax paid on advertising services, sales promotion, market research and the like availed by them and utilize such credit towards payment of excise duty on the concentrate. As now judicially recognized, Service tax is VAT which in turn is a destination-based consumption tax in the sense that it is on commercial activities and is not a charge on the business but on the consumer. Just as excise duty is a tax on value addition on goods. Service tax is on the value-added by rendition of service.”

Relying on the above decision, the Tribunal allowed the appeal.