Transfer Of License Is “Deemed Sale,” Consideration Received Cannot Be Subjected To Service Tax: CESTAT

The Bench of Justice Dilip Gupta (President) and P.V. Subba Rao (Technical Member) has observed that “…..The consideration received by the assessee on the execution of the License Agreement cannot, therefore, be subjected to service tax nor can such consideration be clubbed with the consideration received by the assessee under the Lease Deed so as to be subjected to service tax under “renting of immovable property” service,”……..

Article 366(29A)(d) of the Constitution of India states that a tax on the sale or purchase of goods includes a tax on the transfer of the right to use any goods for any purpose. This transfer can be for cash, deferred payment, or other valuable consideration.

A Lease Deed was executed between the assessee and Skol Breweries Ltd., under which the assessee rented land, building, plant, and machinery to Skol. Additionally, a License Agreement allowed the assessee to endorse a brewery license to Skol. This License Agreement was renewed, and a new one was executed with Sab Miller India Ltd. (formerly Skol), which the assessee treated as a “deemed sale” under Article 366(29A)(d) of the Constitution and accordingly paid VAT.

The department believed that the amount paid to the assessee under the License Agreements should be included in the assessable value of “renting of immovable property service” because, without the license endorsement, the plant and machinery leased to the assessee could not have been used by Skol for brewing beer. Consequently, a show cause notice was issued to the assessee, to which a reply was submitted.

The Commissioner confirmed the demand proposed in the show cause notice. The assessee has challenged the order passed by the Commissioner before the Tribunal.

The assessee submitted that the License Agreements by which the assessee endorsed the brewery license issued in its name to Skol/Sab Miller, is a deemed sale under article 366(29A)(d) of the Constitution and, therefore, service tax could not have been demanded on the amount received by the assessee.

The department submitted that the License Agreement is an integral part of the “Lease Agreement” and has been bifurcated with the sole intention of evading payment of service tax. Merely because VAT was paid by the assessee does not mean that service tax cannot be levied, if in law, the assessee had rendered service. The transfer of license does not amount to a “deemed sale” under article 366(29A)(d) of the Constitution.

The Tribunal noted that if with the transfer of the right to use, possession and effective control is also transferred, the transaction falls outside the preview of service tax liability. However, when the effective control and possession is not transferred and it continues to remain with the person who has transferred the right, it would not be open to the authority to levy service tax.

The bench looked into License Agreement and observed that it is not merely the use of the License that has been transferred to Skol/Sab Miller by the assessee. What has been transferred by the assessee is the right to use the License. The assessee does not, with the transfer of the right to use by Skol/Sab Miller, have any right to itself use the brewery license. There is, therefore, no manner of doubt that a “deemed sale” under article 366(29A)(d) of the Constitution had taken place when the assessee granted the right to use the License to Skol/Sab Miller.

“A deemed sale had taken place when the assessee transferred the right to use the brewery license issued to the assessee in favour of Skol/Sab Miller on execution of the License Agreement. The consideration received by the assessee on the execution of the License Agreement cannot, therefore, be subjected to service tax nor can such consideration be clubbed with the consideration received by the assessee under the Lease Deed so as to be subjected to service tax under “renting of immovable property” service,” added the bench.

In view of the above, the Tribunal allowed the appeal.

Counsel for Appellant/ Assessee: Kamal Sawhaney

Counsel for Respondent/ Department: Manoj Kumar

Case Title: M/s Tripti Alcobrew Pvt. Ltd. v. Commissioner of Central Excise & CGST

Case Number: SERVICE TAX APPEAL NO. 52898 OF 2018

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