2019 (6) TMI 166 - AT - Service Tax

Tribunal Rules Transaction as Slump Sale, Not Franchise. Demand for Service Tax Deemed Unsustainable. Appeal Allowed.

M/s Universal Medicare Pvt. Ltd. Versus C.C.E. & S.T., Daman

The tribunal concluded that the transaction between the parties constituted a slump sale of a going concern, not the provision of franchise services. The ... Classification of services - Franchise services or not - slump sale - demand on the ground that the purchaser has placed several restrictions on Appellants under the agreement and therefore the transaction was in nature of providing “Franchise services” as defined under Section 65 (105) (zze) of Finance Act, 1994 - Board Circular No. B1/6/2005 – TRU DT. 27.07.2005 - extended period of limitation - HELD THAT:- The Appellant decided to exit the business of marketing the nutraceuticial products and they sold the marketing business of nutraceutical as a slump sale on going concern basis - the consideration of sale of marketing business was valued on the basis of value of assets and liabilities. In pursuance of such agreement the trademarks related to all products developed by Appellant were transferred legally and absolutely to M/s Aventis permanently. None of the ingredients of franchisee service or the Board Circular are present in the BPA between the Appellant and M/s Aventis. The transaction is of sale of business marketing division. The Appellants do not qualify as Franchisor as the trademarks have been permanently assigned to M/s Aventis and they have become absolute owner with no control of the Appellant - The trademarks and the IPR sold by the Appellant stands transferred to M/s Aventis. The consideration received by the Appellant is not towards any service. In Franchisee agreement, the Franchisee charges are computed with reference to quantum of sale and the charges are not collected before hand. The franchisee pays the amount for a pre-determined period or on the basis of quantum of service as per the terms and it is never a one time payment. M/s Avantis are not representing themselves as part of Appellant whereas in the franchisee agreement, the franchise represents himself associated with the Franchisor which is not the case here. Assuming it to be franchisee agreement it would be illogical to conclude that the huge amount has been paid by M/s Avantis to the Appellant as one time alleged franchise fee. Thus the whole notion of terming such sale of brand name as franchisee fee is illogical and perverse. No such agreement for ranting a mere franchisee has been ever entered into Commerce or Industry. It is wholly natural and logical in commercial terms that amount of ₹ 567 Crores is given by M/s Avantis only for sale/ transfer of brand name in Indian Market - There has been plethora of judgments of the Tribunal and the Hon’ble Court wherein the brand name purchased by an Indian company from a foreign concern only for use in India has been held to be transfer of ownership of brand name to Indian company. There is no representational right with M/s Aventis but they are absolute owner of the trademark. The Adjudicating authority has contended that no VAT has been paid. We find that it is not a sale of goods but a business slump and hence in absence of any such goods the same is not liable for VAT. None of the employee has stated that there is a franchise agreement. Even if the statements are to be interpreted in the way the adjudicating authority has interpreted, the same has to be corroborated with the nature and intention of the BPA which is not the case here. Even the statements only state the fact that marketing business have been transferred. Thus the interpretation advanced by the adjudicating authority is not sustainable. It is also a fact that except interpreting the clause of the agreement, the revenue has not brought any evidence to show that the BPA was not followed or the transaction were executed otherwise. Extended period of Limitation - HELD THAT:- There is no instance which can show that there has been suppression or mis-statement of facts by the Appellant with intention to evade service tax, if otherwise would have been payable. Such transaction first of all is not liable for service tax and was publicized in media. The transactions were reported to various regulatory authorities viz. FDA, Ministry of Corporate Affairs, SEBI etc. and also disclosed in books of accounts and balance sheet. In such case when there is no evidence of suppression or intention to evade service tax, the demand cannot be made by invoking extended period of limitation - apart from merits the demand is not sustainable as being hit by limitation of time. Appeal allowed - decided in favor of appellant. Issues Involved:1. Nature of the transaction: Whether it constitutes a 'slump sale' or 'franchise services.'2. Applicability of service tax on the transaction.3. Interpretation of the Business Purchase Agreement (BPA).4. Extended period of limitation for raising demands.5. Penalty imposition.Issue-wise Analysis:1. Nature of the Transaction:The primary issue was whether the transaction between the Appellant and M/s Aventis Pharma (Sanofi India Ltd) constituted a 'slump sale' of a going concern or the provision of 'franchise services.' The Appellants argued that the transaction was a slump sale, transferring all assets and liabilities to Aventis, with the consideration determined after independent valuation. The ownership of the trademark was permanently assigned to Aventis, making them the absolute owner, not a franchisee. The adjudicating authority, however, held that the transaction was in the nature of providing franchise services since the know-how of the manufacturing of the product and the overseas business remained with the Appellant.2. Applicability of Service Tax:The adjudicating authority confirmed the demand for service tax, interest, and penalties, contending that the transaction was for granting representational rights to Aventis, thus falling under 'franchise services' as defined under Section 65 (105) (zze) of the Finance Act, 1994. The Appellants countered this by stating that the transaction was a slump sale of a going concern and not a franchise agreement, as all assets and liabilities were transferred, and the ownership of the trademark was permanently assigned to Aventis.3. Interpretation of the Business Purchase Agreement (BPA):The BPA contained several clauses that were scrutinized to determine the nature of the transaction. The clauses related to the right of first offer, non-compete restrictions, and the seller's obligations in relation to the conduct of business were examined. The tribunal found that the BPA did not grant representational rights to Aventis but was an outright sale of the marketing business. The trademarks and intellectual property rights were permanently transferred to Aventis, who became the absolute owner with no control retained by the Appellant. The tribunal emphasized that the transaction was a sale of business marketing division, not a franchise agreement.4. Extended Period of Limitation for Raising Demands:The tribunal found no evidence of suppression or misstatement of facts by the Appellant with the intention to evade service tax. The transaction was publicized, reported to various regulatory authorities, and disclosed in the books of accounts and balance sheets. Therefore, the demand raised by invoking the extended period of limitation was not sustainable.5. Penalty Imposition:Since the tribunal held that the demand was not sustainable on merits and was hit by the limitation of time, the penalty, being consequential to the demand, was also not applicable.Conclusion:The tribunal set aside the impugned order, concluding that the transaction was a slump sale of a going concern, not the provision of franchise services. The demand for service tax, interest, and penalties was found unsustainable on merits and due to the limitation period. The appeal was allowed with consequential reliefs.