Tribunal rules in favor of appellant, clarifies payments as licensing services, not franchisee. Waiver granted for appeal admission.

The Tribunal found in favor of the appellant, ruling that the payments made were for licensing and support services, not franchisee services as claimed by the Revenue. The Tribunal noted the lack of clarity in the impugned order and applied the principle that selling or licensing a product does not make one a franchisee. It granted a waiver for appeal admission and stayed the collection of dues during the appeal process, indicating that the appellant was not required to make a pre-deposit of dues at that stage.

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Issues:
Classification of services received by the appellant as 'franchisee service' and the demand for payment, interest, and penalties imposed by the impugned order.

Analysis:
The appellant received services from their principals abroad, classified as 'franchisee service' by the impugned order, leading to a demand of Rs.79,07,67,027 for the period April 2006 to March 2008. The appellants are engaged in marketing and licensing software and have an agreement with their principal, SAP AG, Germany, for licensing, maintenance, consulting, and training services. The Revenue seeks to tax payments made to SAP AG, Germany under Section 66A of the Finance Act, 1994, claiming the appellant acted as a franchisee of SAP AG, Germany when dealing with clients in India using SAP software.

The counsel for the appellant argues that the payments made are for licensing software and continuous upgradation, not 'franchisee services'. They highlight that a new taxable entry was introduced in the Finance Act, 1994, from 16/05/2008, indicating a presumption that the service was not taxable before that date. The appellant contends they are not selling the software but granting a license, acting as agents, not franchisees of SAP AG, Germany. They assert that payments made do not relate to franchise charges.

The Revenue representative argues that the appellant represents SAP, Germany in India, marketing and customizing software, remitting a part of the consideration as royalty to SAP, Germany. They claim the appellant acts as a franchisee of SAP, Germany, justifying the service tax demand.

The Tribunal finds clarity lacking in the impugned order regarding the articles under which payments were made. Prima facie, it agrees with the appellant that payments relate to licensing and support services, not franchisee services. It notes the introduction of a new taxable entry from 16/05/2008 and applies the principle that a person merely selling or licensing a product cannot be considered a franchisee.

The Tribunal observes that the appellant provides consultation and advisory services for business process re-engineering and customization, paying service tax on such activities without remitting any part to the principal in Germany. At this stage, it finds no reason to demand pre-deposit of dues, granting a waiver for appeal admission and staying the collection of dues during the appeal's pendency.

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