TaxTMI 
TaxTMI 
2015 (10) TMI 2412
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....e appellant, it was seen that there was a difference between the amount realised on account of sales of the products to its customers and the purchase price actually paid by the appellant to these manufacturing units which manufactured the goods. The adjudicating authority held that this difference reflected the value of the franchise service and confirmed the demand of Rs. 4,65,42,505/- under franchise service along with interest and penalties. 3. The appellant has contended that: (a) The agreements with various manufacturing units to manufacture the said products on its behalf as per the specifications, designs and quality as directed by it were entered into several years before franchise service became taxable and that while the word franchise or franchisee have been used in the agreement, in substance it is not a franchise agreement and there was no franchise fee prescribed therein, (b) As per the agreement it gave orders for manufacture (and supply) of firebricks to these manufacturing units which manufactured firebricks as per the specification, design, quality directed by it and consigned them to its customers as per its directions, (c) The fire....
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....nd these manufacturers were not free to sell the goods got manufactured by it to anybody else except to the appellant and these manufacturers were not allowed to consign these goods to any other person except to those they were directed by it to consign them to. (j) The manufacturers were selling the manufactured goods to the appellant for which the manufacturers raised invoices on the appellant. In the said invoices, the appellant was shown as buyer and the customer of the appellant whom the goods were ultimately sold by it was shown as consignee. Thus it was sale of the goods by the manufacturers to the appellant for which payment of sale proceed was made by the appellant to the manufacturers. The appellant thereafter raised sale bills on its buyer-customers to whom the goods were consigned and it received payment directly from the customers. In these transactions, there was neither any payment on account of any franchise fees nor of any commission. Whenever manufacturers cleared the goods consigned to its customers, they customers, it paid excise duty on full value of the goods which included the trading profit of the appellant. Once excise duty was paid on this amount,....
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....ch of symbol, as the case may be, is involved. (ii) The franchisor provide concept of business operation to franchisee, including know-how, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee; (iii) The franchisee is required to pay to the franchisor, directly to indirectly, a fee; and (iv) The franchisee is under an obligation not to engage in selling or providing similar goods or services for process, identified with any other person." The finance Act 2005 has substituted the following definition for expression "franchise" w.e.f. 16.6.2005. "Franchise" means an agreement by which franchisee is granted representational right to sell for manufacture, good or to provide service or undertake any process identified with franchisor, whether or not a trademark, service mark, trade name or logo or any such of symbol, as the case may be, is involved." A careful perusal of the aforesaid definitions makes it clear that one of the non-derogable conditions to cover any agreement under the scope of franchise is that the fran....
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.... the Party No.1 a copy of the dispatch Advice-cum-Invoice-cum-Gate Pass in duplicate against the supplies made to the customers of Party No.1 and on the advise and directions of Party No.1. (d) That the Party No.2 shall not demand, receive or collect any amount towards the supplies from the customers directly. Such amount shall be collected by Party No.2 from party no.1 on production of the dispatch Advice-cum-Invoice-cum-Gate Pass along with a credit note issued in favour of Party No.1 representing the incremental cost to be reimbursed to Party No.1 on account opportunity cost. (e) That the party no.1, on receipt of the documents mentioned in clause (d) shall deduct the amount of incremental cost as per the credit note and shall pay the balance amount to party no.2 (f) That the party no.1 shall have an absolute right in their discretion to terminate this agreement at any time without assigning any reason and the party no.2 shall have no legal right to dispute/challenge such right and authority of Party no.1. (g) That in the event of termination of this agreement, the franchisee rights shall automatically stand terminated. (h) That in th....
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....uld reasonably have been available to the parties in the situation in which they were at the time of the contract. (ii) The background was famously referred to by Lord Wilberforce as the 'matrix of fact', but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the documents would have been understood by a reasonable man. (iii) The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them. (iv) The meaning which a document (or any other utterance) would convey to a reasonab....
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....ns of the parties. Surely the parties are reasonably entitled to expect that the courts will strive to ascertain their true intention or, certainly, not to arrive at a meaning of their contract which is at variance with their actual intention. They cannot expect that the judicial exercise of constructing their contract will be buried under a stockpile of excessive formalism. Lewison [Kim Levison - The Interpretation of Contracts, Sweet and Maxwell, (1989)] refers to a lucid summary of the relevant principles set out in the judgment of Saville, J. in Vitol B.V. v. Compagnie Europeene des Petroles - (1988) 1 Lloyd's Rep 574. The approach of the English law to questions of the true construction of contracts of this kind is to seek objectively to ascertain the intentions of the parties from the words which they have chosen to use. xxxxxx 8. It is evident from the agreement reproduced earlier that: (i) The manufacturers did not have any right to manufacture the goods identified with the appellant except in compliance of the purchase orders of the appellant, (ii) They also did not have any right to sell those goods to any person except the appel....
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....appellant in turn sent the invoice to the consignee- customer in which the total value shown was the aggregate of the value of the goods plus various taxes shown in the invoice of the manufacturer raised on the appellant. From this it is evident that as far as the manufacturer is concerned the goods were sold to the appellant and were consigned only to those persons whom the appellant directed the manufacturer to consign them to. The manufacturer did not have any right to sell these goods directly to any customer in the market. The goods were manufactured and consigned by these manufacturers as per the purchase orders placed by the appellant in which it indicated the name of the consignee but there was no direct contact between the manufacturers and the consignee either with regard to placing of orders or with regard to payment for the goods. The payment for the goods by the consignee- customers was made to the appellant and appellant, in effect, paid to the manufacturers the amount agreed upon for manufacturing those goods. It was only a financial mechanism that because the manufacturer's invoices raised on the appellant showed the value of the goods at which the appellant sol....