TaxTMI 
TaxTMI 
2019 (6) TMI 166
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....gwith interest and penalty 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. That the Appellants has merely provided representational rights to the franchisee to sell or manufacture goods or provide service. It also placed reliance on Board Circular No. B1/6/2005 - TRU DT. 27.07.2005. The show cause notice mainly relied upon Para 15, 2.2.10, Para 6.1 of schedule 21 Part 1A, Clause 12.1 and Para 14 of the agreement which stated as under : "15 Right of First Offer for the sale of the Business by the Purchaser 15.1.1 If, during the term of the Supply Agreements wherein the Purchaser continues to source a majority of the Products from the Seller and/or Geltec on an exclusive basis, the Purchaser or an Affiliate of the Purchaser (the Business Seller") intends to sell the whole or a majority of the Business, the Business Seller shall, before making any approach or entering into discussions with any other person, send a written notice to the Seller Intimating the Seller of its intentio....
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....usiness Seller) intends to sell the Overseas Nutraceutical Business in part or in who, the Overseas Nutraceutical Business Seller shall, and the Promoters shall procure that the Overseas Nutraceutical Business Seller shall, before making any approach or entering into discussions with any other person, send a writer notice to the Purchaser intimating the Purchaser of its intention to do so (the "Overseas Nutraceutical Business Sale Notice"). Subject to the confidentiality undertaking (in a form acceptable to the Seller) provided by the Purchaser to the Seller, the Overseas Nutraceutical Business Sale Notice shall set out the territory covered under the Overseas Nutraceutical Business, identification and details of the products forming part of the Overseas Nutraceutical Business, financial details of the preceding three financial years in respect of the Overseas Nutraceutical Business Sale Notice and the details of the key supply, distribution and other relevant agreements in relation to the Overseas Nutraceutical Business Sale Notice. 14.2.2 If the purchaser is interested in acquiring the Overseas Nutraceutical Business in accordance with the terms set out in the Overseas N....
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....h any entity controlled by the promoters or any current or former employee, current or former director or any current or former consultant of any entity controlled by the promoters, or any person connected with any of such persons or in which any such person is interested (whether directly or indirectly), which in each case are not on an arm's length basis; (iii) sell to C&F Agents, deliver to consignment agents and instruct consignment agents to sell in any month to the market quantities of products in excess of the total sales of the products for the previous month plus 7.5% of such sales; (iv) enter into, or exercise an option in relation to, any agreement or incur any commitment involved in any capital expenditure relating to the business in excess of Rs. 1,500,000 (Rupees One Million Five Hundred Thousand) in the agreement; (v) enter into any transactions or agreements which amends or terminates or has the effect of amending or terminating any of the contracts, except in the ordinary course of business consistent with past practice; (vi) enter into or exercise an option in relation to, or amend or terminate, any material contract and/or acqu....
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....rse of business consistent with past practices and for the purposes set out in clause 6.3.1 (ii); (xix) commence or take any steps in relation to the discontinuance in any form of the business or any part thereof unless required by laws, or any merger, amalgamation or acquisition, demerger, reorganization or disposal of substantial assets (including both acquisition and disposal) involving the business or any part thereof; (xx) make any changes in the commercial policies related to the sale of the products in the territory except in the ordinary course (other than increase or decrease in the selling price except as required by law); (xxi) appoint any new distributors and/ or agent for distribution or the products: or; (xxii) cease to continue or fund the development of pipeline products in compliance with their respective forecasted development plans." 1.2 The demands was confirmed by the adjudicating authority holding that the know-how of the manufacturing of the product and the overseas business rests with the Appellant and therefore the sale of brand cannot be regarded as having taken place. It is only marketing rights transferred to the pu....
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....isee services involved. 3. On the other side Shri Amit Mishra, Ld.Deputy Commissioner (AR) appearing for the revenue supports the findings of the impugned order to state that the transaction is of representational rights and hence liable for service tax. 4. Heard both the sides and perused the records. We find 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 relevant clause of such Business Purchase agreement are as under : "Business" means the business of distributing and selling pharmaceutical and/ or nutraceutical products in the Territory, more particularly described in Clause 2.1.2, carried on by the Seller as the Closing Date and being sold to the Purchaser under this Agreement as a going concern, on a slump sale basis; "Business IPR" means the Intellectual Property Rights, which are used by the Seller exclusively in relation to the Business and shall consist of the interest, if any, of the seller and/or Geltec in the Third Party Products Manufacturing Dossier, the Domain Names, the trademarks and the Business know-h....
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....cient to ensure the continuity of the Business by the Purchaser, as from the Closing Date, as a going concern. 2.3.1 On the Closing Date, the Seller and the Purchaser shall execute the Deed of Assignment (as defined in Clause 3.8) of the Indian Trademarks whereby the Seller shall assign to the purchaser all rights, title and interest in and to the Indian Trademarks together with the goodwill of the business in respect of which the said Indian Trademarks are registered / pending registrations TO HOLD unto the Purchaser absolutely. The Deed of Assignment shall set out the value of the Indian trademarks for the purpose of calculation of stamp duty only, pursuant to Explanation 2 to Section 2(42C) of the Income Tax Act, 1961. 2.3.2 (i)On the Closing Date the Seller and Purchaser shall enter into the Overseas IP Assignment Agreement, which is referred to in Clause 3.6 pursuant to which the Trademarks, other than the Indian Trademarks, and the Domain Names, shall be transferred to the Purchaser by means of the Overseas IP Assignment Agreement. "12 Restrictions on the Seller 12.1 Non-complete restrictions Each of the Seller and the Promoter und....
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....d a written notice to the seller intimating the Seller or its intention to do so (the "Business Sale Notice). Subject to the confidentiality undertaking (in form acceptable to the Business Seller to be substantially undertaking (in a form acceptable to the Business Seller to be substantially similar to the Confidentiality Agreement) provided by the Seller to the Business Seller, the Business Sale Notice shall include information relating to the identity and details of the products forming part of the Business, financial details of the preceding three financial years in respect of the Business and the details of the key supply, distribution and other relevant agreements in relation to the Business." 5. From the extract of the terms of above sales agreement we find that 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. In terms of Section 65 (105) (zze) the taxable service in relation to 'Franchisee service' has been defined as "Taxable service means any service pro....
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....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 Rs. 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 co....
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.... more specifically the balance sheet at 31-7-2007, Mr. Alan Van Niekerk has signed the balance sheet of the appellant as director on behalf of the board of directors. In our considered view, Shri Alan Van Niekerk was a director in the appellant's company and the amount which is paid to him during the period 18-4-2006 to 31-10-2006 was a remuneration as per agreement between the appellant and the said individual. We also fortified in our view, by the demand issued by Income Tax department for this amount paid to Mr. Alan Van Niekerk to be considered as salary paid. The Income Tax Department has considered this amount paid to the appellant to Mr. Alan Van Niekerk as a salary in adjudication proceedings. The adjudicating authority in the case in hand has summarily dismissed the submissions. If an amount paid by the appellant to Shri Alan Van Niekerk is considered as a salary by the Income Tax Department, a branch of Ministry of Finance, Department of Revenue, it cannot be held by the Service Tax Department, another branch of Ministry of Finance, Department of Revenue, as amount paid for consultancy charges and taxable under Finance Act. The same department of Government of India canno....
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....' ownership of the marketing business. Further as far as reliance upon clause 12.1 on non - compete clause and restriction on transfer of trademarks are concerned, the same are to safeguard the interest of M/s Aventis which is a standard clause in every business transfer. When M/s Aventis is buying marketing division of Appellant alongwith assets and liabilities by paying huge amount, it is just obvious that if such non compete clause in not present, the seller i.e the Appellant would immediately be free to start the same business which would jeopardize the profitability of business purchased. Such non - compete clause is almost present in each and every business purchase transaction. Similarly the retention of know-how of the product for 5 years as per Para 2.2.10 of agreement cannot be interpreted to term the same as franchise agreement. The Appellants have contended that M/s Aventis could not start production immediately of the products itself or through other job worker in view of various regulatory approvals required. Therefore the Appellant and Aventis agreed that the Appellant will exclusively manufacture and supply the products to M/s Aventis for a period of 5 years. Furthe....