TaxTMI 
TaxTMI 
2020 (8) TMI 79
X X X X Extracts X X X X
X X X X Extracts X X X X
....and of Rs. 42,79,870/- towards service tax for the period July1, 2003 upto June 15, 2005 as also penalty under section 78 of the Finance Act. 2. This grant of partial relief to the assessee by the Principal Commissioner has resulted in the filing of two appeals. 3. Service Tax Appeal No. 50223 of 2016 has been filed by M/s. Siti Cable Network Ltd. [Siti Cable] for setting aside that part of the order dated July 30, 2015 passed by the Principal Commissioner that confirms the service tax demand of Rs. 89,99,528/- and also demands interest under section 75 of the Finance Act and penalty amount under section 76 of the Finance Act. 4. Service Tax Appeal No. 54514 of 2015 has been filed by the Department with a prayer that penalty under section 78 of the Finance Act should also be imposed upon Siti Cable. Cross-Objection No. 50424 of 2016 has been filed by Siti Cable in this Service Tax Appeal No. 54514 of 2015 with a prayer that the demand confirmed by the Principal Commissioner against Siti Cable to the extent of Rs. 89,99,528/- may set aside and neither should interest be charged under section 75 nor penalty should be imposed under section 76 of the Finance Act. 5. The amendment m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he definition of "franchise", as it stood prior to June 16, 2005, and the other three conditions have been omitted. 11. The Principal Commissioner realised that the issue that was to be decided was whether any "franchise" service was rendered by Siti Cable to the cable operators under the agreement entered into between them. The Principal Commissioner noted that the period involved was from July 1, 2003 up to March 31, 2008 and the definition of "franchise" underwent an amendment with effect from June 16, 2005. The Principal Commissioner, in view of the Circular dated June 20, 2003 issued by the Board that clarified that for an agreement to be called a "franchise" agreement all the ingredients mentioned at (i) to (iv) in the definition of "franchise" as it stood prior to June 16, 2005 had to satisfied, observed that since all the four ingredients were not satisfied in the agreement, the service rendered by Siti Cable to the cable operators prior to June 16, 2005 would not fall within the definition of "franchise" and therefore, dropped the demand. The relevant portion of the order passed by the Principal Commissioner on this aspect is reproduced below: "1. It would be of interes....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... rights, making it a "franchise" service leviable to service tax. The relevant portion of the order passed by the Principal Commissioner on this aspect is reproduced below: " In view of the amended definition the requirement as contained in the previous definitions are no more relevant. From the agreement entered between the party and the cable operators, which is extracted above it would be clear that the cable operators are providing identical service which was being performed by the party. The operators are also using the logo of Siti Cable while transmitting the signals cable network belonging to the party which has been hired out to the cable operators. The ultimate consumers are being given an impression through display of logo of party on the channels, as if the services are still being provided by siti cables. Therefore it amount, to exercising of representation rights of the party by the cable operators, though in the agreement there is no separate charge mentioned for using the logo of the party by the cable operators. However the rental being charged by the party from the cable operators also does not speak categorically that no amount is being charged in respect of th....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 50% of the total tax demanded." 15. Shri B.L.Narasimhan assisted by Shri Tarun Trehan learned counsel appearing for Siti Cable made the following submission; i) The activities undertaken by Siti Cable are not liable to service tax under "franchise" service. In support of this contention, learned counsel placed reliance upon the following decisions: 1) Delhi International Airport Pvt. Ltd. vs. Union of India &Ors. [2017(2) TMI 775] 2) National Internet Exchange of India vs. C.S.T.- Service Tax, Delhi [2018 (8) TMI 30] 3) M/s. Easy Bill Limited versus Commissioner of Central Excise and Additional Commissioner of Service Tax, Delhi [2020(1) TMI 274- CESTAT New Delhi] 4) M/s. Rackitt Benckiser (India) Ltd. versus CCE & ST, Panchkula [ST/50223/2016 decided on 27.11.2019] ii) The service rendered by Siti Cable is classifiable under the category of "supply of tangible goods for use", which was made leviable to service tax with effect from May 16, 2008 under section 65(105) (zzzzj) of the Finance Act and Siti Cable has been paying service tax under the said category post May 16, 2008; iii) Once the Department has accepted payment of service tax under one category, which was in....
X X X X Extracts X X X X
X X X X Extracts X X X X
....i [2019-TIOL-49-CESTAT-MUM] ii) The Principal Commissioner committed an error in not imposing penalty under section 78 of the Finance Act; and iii) The extended period of limitation for issuance of the show cause notice was correctly invoked. 17. The submissions advanced by learned counsel appearing for Siti Cable and the learned Authorised Representative of the Department have been considered. 18. Siti Cable is a Multi System Operator and is also engaged in providing services of broadcasting channels/ advertisement in the local cable network. This service is spread across India. Siti Cable also entered into agreement with local cable operators. According to Siti Cable, necessary hardware and network access was provided to the cable operators to enable them to render cable operator services to home customers. 19. The issue that arises for consideration in these Appeals is whether the service contemplated under the agreements is a "franchise" service as contended by the Department or a service in the nature of "supply of tangible goods for use" w.e.f. May 16, 2008, as contended by Siti Cable. 20. To appreciate this issue, it would be pertinent to examine the agreements. On rec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....quarter and in no case can be less than 1.50 lacs per month. The Second party shall pay the above amount to the First Party every month being the minimum amount of consideration on right to use. The said amount is to be paid by the 7th day of the succeeding month for the month. The Second Party shall send a detailed statement of affairs to the First Party showing total receipts received and operational expense incurred, every quarter, on the basis of which the surplus as mentioned above has been calculated. Any adjustments to amount receivable in excess of minimum amount are to be carried out every quarter. xxxxxxxx 4. ELECTRICITY POLE RENTALS: That it is understood by the Second Party that the permission for using the electricity poles for laying the cable has been granted by Haryana State Electricity Board (hereinafter referred to HSEB) in favour of the First Party. The Second Party has agreed to deposit the annual pole rentals to the concerned department on behalf of the First Party during the period of this agreement alongwith the arrears accrued from time to time and the Second Party shall submit a proper receipt issued by the concerned department showing the payments depo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r any part of the running network of the First Party to any third person, firm, company or any other agency. If the Second Party does any of the above acts, deeds, transactions, the act, deed/ transactions shall be null and void ab initio and Second Party shall be liable for criminal breach of trust. Further, if Second Party is found doing the above act, deed or transaction, this agreement shall stand automatically terminated. 15. INSPECTION: The first party's authorised officer/ representative shall inspect the running network at any time with prior notice, during the term of this agreement. The Second Party shall provide all facilities and assistance during such inspection, which the Second Party may be reasonably expected to give. xxxxxxx 18. OWNERSHIP: It is understood by Second Party that all the assets, equipments and materials used in establishing and running the network as mentioned in the Annexure-A exclusively belong to First Party and the Second Party shall not have any right/claim, of whatsoever nature, over the assets or cable TV networking business except as provided in the agreement. 19. USE OF LOGO: It is expressly understood by the parties that the "Siti Ca....
X X X X Extracts X X X X
X X X X Extracts X X X X
....all also be responsible for repair, replacement of the damaged or broken parts installed in the network by Siti Cable. Clause 15 permits the authorized officers of Siti Cable to inspect the running network at any time. Clause 18 makes it clear that all the assets, equipments and materials used in establishing and running the network exclusively belong to Siti Cable and Ashirwad Cable shall not have any right/ claim. Clause 19 notes that Siti Cable logo is a registered trademark and provides that Siti Cable has authorized Ashirwad Cable to use its logo during the currency of the agreement only for business under the agreement. 24. The dispute in the present appeal is with regard to the levy of service tax on Siti Cable with effect from June 16, 2005 under the amended definition of "franchise". It has been defined under section 65(47) of the Finance Act to mean an agreement by which the franchisee is granted a representational right to provide service or undertake any process identified with the franchisor, whether or not a trademark, service mark, trade name or logo or such symbol, as the case may be, is involved. 25. Thus, what is important to note is that the party should be gra....
X X X X Extracts X X X X
X X X X Extracts X X X X
....Tribunal observed that the grant of a representational right would imply that the person to whom such a right has been granted undertakes the entire activity as if it had been undertaken by the person granting such rights. 30. In National Internet Exchange of India, the Principal Bench of the Tribunal at Delhi, after examining the definition of "franchise", observed as follows:- "Representational right permits the person to represent himself as someone else to the external world such that the external world feels that he is procuring goods or services from the brand owner 19 Service Tax Appeal No.55357 of 2013 which can be termed as franchise rights. For the purpose franchise must surrender his own identity and in addition must step into the shoes of the franchisor." (emphasis supplied) 31. The same view has been expressed by the Tribunal in National Internet Exchange and M/s. Easy Bill Ltd. 32. In the decision of the United States District Court, D. South Carolina, Florence Division in Englert, Inc. v. Leafguard USA [Civil Action No. 4:09-cv-00253-TLW. (D.S.C Dec 14, 2009)] decided on December 14, 2009, the Court emphasised that there must be a significant control over the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t the MOU cast strict obligations on learning Centers to ensure that the quality of education remained as per the standards of the Appellant. It also comes out from the MOU that RCs framed marketing strategies to be implemented by Learning Centers in consultation with the Appellant. As per the MOU, the format and style of any advertisement or hoarding to be placed by RCs/ Learning Centers had to be done with the prior written approval of the Appellant lest these bring down or cast aspersions on or discredit the Appellant. Owing to the fact that Learning Centers represented the Appellant with regard to providing education, MOU laid down strict requirements of infrastructure, processes, qualifications of staff, etc. as elaborated in the MOU. Though the MOU states that it is not a franchise arrangement and is a model of public-private partnership for deciding classification of the service rendered thereunder, we have to see the nature, terms and conditions thereof; it is immaterial as to what nomenclature is assigned to it. Thus, notwithstanding that the MOU states that it is not a franchise agreement, the aforesaid analysis leaves no doubt that it satisfies all ingredients of franchi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aning of term 'representational right', in the context of "franchise" services and observed: "In light of the above observations, the phrase representational right would not mean, extinguishing the identity of the franchisee, but is only to grant representational right in respect of the transaction in relation to the services that is being provided by the franchisor." 40. The principle laid down by the Tribunal in Board of Control for Cricket in India is in direct conflict with the principle laid down by the Delhi High Court in Delhi International Airport. The relevant portion of the judgment of the Delhi High Court has been reproduced above. The decision of the Tribunal in Board of Control for Cricket India, thus, does not help the Department. 41. Learned counsel for Siti Cable also submitted the objective of the agreement entered into between Siti Cable and the cable operators is to grant the right to use the "Head-end" and other hardware, which was required by the cable operators for rendering services to their end customers. The hardware was always owned and controlled by Siti Cable and against such right to use, Siti Cable was recovering periodical payments from the cable ....