Bottling Operations Do Not Amount to Promoting Pepsi’s Goods: CESTAT Quashes BAS Service Tax Demand
Pranav B Prem
The Mumbai Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has set aside a service tax demand raised against SMV Beverages Pvt. Ltd., holding that amounts received from Pepsi Foods towards advertising, marketing and promotional activities cannot be taxed under “Business Auxiliary Service” (BAS). The Tribunal reiterated that bottling and marketing beverages under the Pepsi brand does not amount to promoting the goods of Pepsi Foods, as the latter manufactures only “concentrate”, whereas the bottled aerated beverages are manufactured by the assessee itself. The ruling follows the Larger Bench decision which conclusively held that Section 65(19) of the Finance Act, 1994 does not cover promotion of brand name or trademark of a client and therefore does not encompass such activities.
The assessee, SMV Beverages, operates a licensed bottling unit in Nagpur where it manufactures aerated beverages, packaged drinking water and fruit-based beverages using concentrates supplied by Pepsi Foods. During scrutiny of records, the Department observed that the assessee had received amounts termed “net incentive” and “support and other receipts” from Pepsi Foods. According to the Department, these payments were in the nature of consideration for promoting sales of Pepsi-branded products and were therefore taxable as BAS under Section 65(105)(zzb) of the Finance Act. A show-cause notice was issued demanding service tax for the period April 2011 to January 2012, culminating in an order confirming the demand along with interest and penalties.
On appeal, the Commissioner (Appeals) upheld the demand, prompting the assessee to approach the Tribunal. When the matter initially came up in 2022, a Coordinate Bench noted that the issue for an earlier period had already been decided in favour of SMV Beverages in 2017. However, because reference had been made to the Bombay High Court’s decision in Coca Cola India Pvt. Ltd., the matter was referred to a Larger Bench for authoritative determination.
The Larger Bench examined whether incentives received by a bottler from Pepsi Foods for advertising and marketing could be treated as BAS. It clarified that the Coca Cola judgment, which concerned eligibility to CENVAT credit on input services, had “no application” to the question of whether BAS was attracted. The Larger Bench explained that the statutory definition of BAS requires that a service provider must promote or market “the goods produced or provided by or belonging to the client.” In Pepsi’s case, the only goods produced by the client were “concentrates,” whereas SMV Beverages manufactured aerated waters and related beverages in its own right. Promotional schemes related only to the finished beverages and not to the concentrates owned by Pepsi Foods. Thus, even if promotional activity indirectly increased the purchase of concentrate, such linkage was insufficient to establish BAS because the statute does not employ the broader “directly or indirectly” formulation present in the CENVAT credit rules.
The Larger Bench also observed that “brand promotion” became a taxable activity only from 01.07.2010 under Section 65(105)(zzzzq), an inclusion which presupposes that no prior BAS entry covered such services. It reiterated that incentives received for enhancing visibility of the Pepsi brand could not be construed as BAS for promoting goods belonging to Pepsi Foods. Consequently, the Larger Bench held that the earlier 2017 decision in favour of SMV Beverages required no reconsideration.
Applying the Larger Bench ruling, the present Division Bench held that the controversy is no longer open for debate. It emphasised that the assessee undertook sales promotion on its own account and not on behalf of Pepsi Foods. The amounts received were merely financial support and could not be treated as consideration for any taxable service. The Tribunal agreed that the impugned order suffered from legal infirmity and could not survive scrutiny. It therefore set aside the order confirming service tax, interest and penalties, and allowed SMV Beverages’ appeal in full.
Appearance
Appearance for Appellants/Assessee: Ms. Surabhi Sinha
Appearance for Respondent/Revenue: Shri Aditya Singh Parihar
Cause Title: SMV Beverages Private Limited Vs. Commissioner of Central Excise & Customs
Case No: Service Tax Appeal No. 86054 of 2015
Coram: Mr. S.K. Mohanty (Judicial Member), Mr. M.M. Parthiban (Technical Member)
