Availability of SSI exemption under Notification No. 6/2005-ST, Dated: 01.03.2005

PJ/CASE STUDY/2010-11/10

02 July 2010

PJ/Case Study/2010-11/10

Case Study

Prepared By:

CA Pradeep Jain

Megha Jain and

Sukhvinder Kaur LLB [FYIC]

Introduction: -

Small service providers who had provided the services having aggregate value of services less than Rs. 10 lakhs have been given exemption from payment of service tax under Notification No. 6/2005-ST dated 01.03.2005. But the grant of exemption has been made subject to fulfillment of certain conditions. One such condition prescribed is that exemption will not be available to services provided by a person under a brand name or trade name of another person. In the case under study herein, the Noticee was engaged in marketing for sales promotion service of Ice cream manufactured by M/s Vadilal Ice Cream. The Department contended that since the noticee was using the brand name of M/s Vadilal Ice Cream they were not eligible for claiming SSI exemption in view of the prescribed condition.

Relevant Legal Provisions: -

- Definition of “Franchise” under Section 65 (47) of the Finance Act, 1994:

(47) "franchise" means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved;'

- Definition of “Clearing and Forwarding Agent” under Section 65 (25) of the Finance Act, 1994:

(25) "clearing and forwarding agent' means any person who is engaged in providing any service, either directly or indirectly, connected with the clearing and forwarding operations in any manner to any other person and includes a consignment agent;

- Definition of “Brand name” in Explanation A to Notification No. 6/2005-ST dated 01.03.2005:

(A) "brand name" or "trade name" means a brand name or a trade name, whether registered or not, that is to say, a name or a mark, such as symbol, monogram, logo, label, signature, or invented word or writing which is used in relation to such specified services for the purpose of indicating, or so as to indicate a connection in the course of trade between such specified services and some person using such name or mark with or without any indication of the identity of that person;

- Para 1 of Notification No. 6/2005-ST, dated 01.03.2005:

In exercise of the powers conferred by sub-section (1) of section 93 of the Finance Act, 1994 (32 of 1994) (hereinafter referred to as the said Finance Act), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby exempts taxable services of aggregate value not exceeding ten lakh rupees in any financial year from the whole of the service tax leviable thereon under section 66 of the said Finance Act:

Provided that nothing contained in this notification shall apply to,-

(i) taxable services provided by a person under a brand name or trade name, whether registered or not, of another person; or

(ii) such value of taxable services in respect of which service tax shall be paid by such person and in such manner as specified under sub-section (2) of section 68 of the said Finance Act read with Service Tax Rules,1994.

In the case of M/s Mehta Marketing

[Order in Original No. 439/ST/2009-10 dated 14.06.2010]

Brief Facts of the Case: -

- The Noticee was registered under the Service Tax Department and was providing the services for the products bearing the brand name ‘Vadilal’ Ice cream. They were claiming benefit of exemption from payment of service tax by claiming to be small service provider under Notification No. 6/2005-ST dated 01.03.2005.

- Department alleged that since the noticee were using the logo of ‘Vadilal’ Ice cream therefore they were hit by proviso (i) of Para (1) of the Notification No. 6/2005-ST dated 01.03.2005 and therefore, they were not entitled to small scale exemption for the half year ending September, 2005. It was alleged that the noticee where liable to pay service tax leviable on the service provided during the half year ending September, 2005. It was alleged that they had contravened the provisions of Rule 6 of Service Tax Rules, 1994 read with Section 68 of the Finance Act, 1994.

- Accordingly show cause notice was issued to the noticee proposing to recover the service tax alongwith interest and also sought imposition of penalty.

Noticee’s Contentions: -

¨ The Noticee contended that proviso 1 to para 1 of the said Notification provided that the said Notification will not apply to a person who provides taxable service under the brand name/trade name of another person. It was submitted that they were not providing the services under the brand name of another person, rather they were providing the taxable services to the brand owner, i.e. Vadilal Enterprises Ltd.

¨ Reference was made to the definition of “franchise” under clause 47 to Section 65 of the Finance Act, 1994 and contended that it is clearly provided that the Franchise services refers to an agreement wherein the franchisee gets right to “sell, manufacture goods or to provide service or to undertake any process identified with Franchisor”. Accordingly, it was submitted that they were not franchisee of Vadilal Enterprises Ltd. as there was no agreement which gave representational rights to them. They were merely selling the goods of M/s Vadilal Enterprises Ltd but no representational right were given to them through which they could represent themselves as franchisee of the Vadilal Enterprises Ltd. If this would have been the case, then they would have gotten themselves registered under the category of “Franchise Services”.

¨ It was contended that no evidence or record has been brought forward in the show cause notice to prove that why and how they were franchisee of M/s Vadilal Enterprises Ltd. In this regard reliance was placed on the judgment given in Shree Shew Sakti Oil Mills Ltd v/s Collector of Customs, Calcutta [1983 (14) ELT 1790 (CEGAT)] wherein it was held that the allegation cannot take the place of proof.

¨ Further, it was contended that the noticee were clearing and forwarding agents of M/s Vadilal Enterprises Ltd. They were merely buying or selling the goods that were manufactured by or belonged to some other person. These services were in nature of services provided by a consignment agent. The consignment agent merely sells the goods belonging to/manufactured by some other person. Referring to the definition of clearing and forwarding agent it was contended that the same indicated that in these types of services, the goods were always manufactured by some other person or they can say that the goods always bear the brand name/trade name of some other person since no clearing and forwarding agent manufactures goods on their own account. If the intention of the legislature was to deny the benefit of Notification no. 6/2005-ST dated 1.3.2005 to the clearing and forwarding agents, it would have specifically provided for the same. But since this has not been done, looking to the intention of the lawmakers the benefit of exemption Notification no. 6/2005-ST dated 1.3.2005 should not be denied to them.

¨ It was further submit that the definition of ‘brand name’ as given in Explanation A to Notification no. 6/2005-ST dated 1.3.2005 also makes it clear that the said restriction does not apply in the case of noticee. Reliance was placed on the definition of ‘brand name’ and was contended that the analysis of the same made it clear that the definition of brand name is given in relation to ‘services’; whereas the impugned show cause notice is contending that we are using the brand name/trade name of ‘Vadilal ice cream’ which is a goods. It is further submitted that the definition of brand name itself makes it clear that the “Brand name” should pertain to the services. In case of noticee, they were providing the services of “Clearing and Forwarding Agents”. If they would have used the brand name of some big “Clearing and Forwarding Agents” then the above condition would have been fulfilled and the department would have been correct in denying the benefit of Notification no. 6/2005-ST dated 1.3.2005 to the noticee.

Question for Consideration: -

The issue involved was that:

”Whether use of brand name ‘Vadilal Ice cream’ was use of brand for service?” Whether it will disentitle the assessee to claim SSI exemption under Notification No. 6/2005-ST?

Reasoning of the Judgement: -

The learned Deputy Commissioner held that

Ø ‘Vadilal Ice cream’ is a brand of goods and not a brand name of service so the noticee is correctly entitled to avail SSI exemption granted under Notification No. 6/2005-ST, dated: 01.03.2005.

Ø The noticee is a C & F agent of ‘Vadilal Ice Cream’ and during the half year ending September, 2005 it had received a commission of Rs. 160846/- which was much below the exemption limit prescribed under Notification No. 6/2005-ST.

Ø The Noticee is entitled to avail benefit of Notification No. 6/2005-ST.

Decision of the Deputy Commissioner: -

Accordingly, proceedings initiated against the Noticee were dropped.

Comments & Conclusion: -

The learned Deputy Commissioner rightly held that the noticee was not providing the service under the brand name of services but was engaged in providing the service as Clearing and Forwarding agent of brand of goods i.e. ‘Vadilal Ice Cream’. Accordingly, no condition was violated and the noticee was extended the benefit of SSI exemption under Notification No. 6/2005-ST. Thus, whenever, the service provider is providing the service for brand of goods and not under brand name of another service provider, he cannot denied the benefit of small scale exemption.

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PJ/CASE STUDY/2010-11/10
02 July 2010

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