CESTAT Exonerates SMV Beverages from Service Tax Demand on Brand Promotion

Tribunal affirms that promotion of Pepsi brand does not fall under Business Auxiliary Services, overturning lower authority's orders.

In a significant ruling, the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) in Mumbai has set aside the service tax demand against SMV Beverages Private Limited, ruling that the promotion of the Pepsi brand does not constitute Business Auxiliary Services (BAS) under the Finance Act, 1994. The Tribunal's decision came in response to an appeal filed by SMV Beverages against the Order-in-Appeal passed by the Commissioner of Central Excise and Customs, Nagpur.

SMV Beverages, engaged in the bottling and marketing of beverages under the Pepsi brand, was earlier subjected to service tax demands for the period from April 2011 to January 2012. The department had interpreted the incentives received by SMV Beverages for promoting Pepsi products as taxable under BAS, as per Section 65(19) of the Finance Act, 1994.

However, the Tribunal, comprising Mr. S.K. Mohanty, Member (Judicial), and Mr. M.M. Parthiban, Member (Technical), found that the promotion of a brand name or trademark does not fall under the ambit of BAS as defined in the Act. The Tribunal highlighted that the specific clause for brand promotion was only introduced later, under Section 65(105)(zzzzq), effective from July 1, 2010, indicating that such services were not previously covered under BAS.

The Tribunal also examined the applicability of the Bombay High Court's decision in the Coca Cola case, which dealt with the eligibility for CENVAT credit on advertising services. It distinguished the current case from Coca Cola, emphasizing that the service tax credit discussions in Coca Cola were not relevant to the BAS interpretation in this case.

Ultimately, the CESTAT upheld its previous decisions, including the notable 2017 ruling favoring SMV Beverages, and clarified that the inclusion of brand promotion under BAS was not tenable. Consequently, the Tribunal annulled the prior orders demanding service tax from SMV Beverages, delivering a decisive victory to the beverage company.

Bottom Line:

Service Tax - Business Auxiliary Services (BAS) - Appellant promoting trademark/brand name of Pepsi Foods and receiving incentives under "net incentive" and "support and other receipts" - Held, promotion of brand name or trademark does not fall under BAS as defined under Section 65(19) of the Finance Act, 1994 - Demand of service tax under BAS not sustainable.

Statutory provision(s):

• - Finance Act, 1994 Sections 65(19), 65(105)(zzzzq)
• - Service Tax CENVAT Credit Rules, 2004 Rule 2(l)
• - Service Tax Rules, 1994 Rule 7C

SMV Beverages Private Limited v. Commissioner of Central Excise & Customs, (CESTAT)(Mumbai)(Regional Bench) : Law Finder Doc Id # 2820988