CESTAT: License Fee in Brewery Contract Not Taxable as Part of Immovable Property Rent [Read Order]

The New Delhi Principal Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) ruled that consideration received under a license agreement for the transfer of a brewery license cannot be clubbed with lease rent and taxed as part of “renting of immovable property” service.

Tripti Alcobrew Pvt. Ltd., the appellant, entered into two separate agreements with SKOL Breweries Ltd., one was a Lease Deed for land, building, and machinery, and the other was a License Agreement for the transfer of rights to use its brewery license and production capacity.

For the period from June 2016 to June 2017, the department issued a show cause notice demanding service tax on the entire consideration received under both agreements, treating the transaction as a composite service under the category of renting of immovable property. The adjudicating authority confirmed the demand, and the Commissioner (Appeals) upheld the order. Aggrieved by this decision, the appellant approached the CESTAT.

The appellant’s counsel argued that the License Agreement and Lease Deed were independent contracts and must be treated separately. They argued that the license to use the brewery and operate under the manufacturing license was granted to SKOL exclusively, without any interference, for a fixed term.

This, they claimed, amounted to a transfer of the right to use goods under Article 366(29A)(d) of the Constitution and thus qualified as a deemed sale, which falls outside the scope of service tax. They relied on the Tribunal’s earlier ruling in their own case for the previous period, where the same issue had been decided in their favour.

The department argued that the license endorsement was mentioned in the Lease Deed and that both the license and the lease were part of a single transaction. Therefore, the entire consideration, including the license fee, should be taxed under the category of renting of immovable property.

The two-member bench comprising Binu Tamta (Judicial Member) and Hemambika R. Priya (Technical Member) examined the agreements and found that the license to use the brewery was transferred exclusively, leaving no control or right with the appellant during the agreement period.

The tribunal observed that this fulfilled the legal requirement of a transfer of right to use goods and therefore amounted to a deemed sale under constitutional provisions. The tribunal held that the license agreement could not be combined with the lease deed for service tax purposes and that the consideration received under it was not liable to service tax.

The tribunal allowed the appeal and set aside the order of the lower authorities. It held that the transfer of rights under the license agreement constituted a deemed sale and was not taxable under the category of renting of immovable property service.

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