TaxTMI 
TaxTMI 
2021 (10) TMI 640
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....t service providers called 'Home Solutions Service Provider'. 2.2 As per the arrangement for the provisions of home solution services through home solution service provider and the fact that consideration flowing from the service provider to the party in the form of major shares of provide, Revenue was of the view that these services will fall under a category of franchisee service as defined under Section 65(105)(zze) of the Finance Act, 1994. Accordingly a show cause notice dated 19.04.2011 was issued to the respondent asking them to show cause as to why: "(i) The service provided by the noticee should not be classified as 'Franchisee Services', which are taxable services under Section 65(47) of Finance Act, 1994, as amended. (ii) The Service tax amounting to Rs. 5,98,66,424/- (Rupees Five Crore Ninety Eight Lakhs Sixty Six Thousand Four Hundred And Twenty Four only) including Ed. Cess and Secondary & Higher Ed. Cess, should not be demanded and recovered from them for the period 01.10.2005 to 31.12.2010, under the provision to section 73(1) of the Finance Act, 1994. (iii) Interest should not be demanded & recovered from them under section 75 of the Finance Act, 1994. ....
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....90:10, which is the normal practice in Franchise service. * In the Bills raised by the Service Providers, it has been clearly stated: "For any queries call - customer care no 18000-209-5678 or email us at [email protected]". For all services provided by the service provider, one year warranty has been provided by Asian Paints Ltd. * Detailed reading of the agreement and reading of the process by which the ultimate customers procure the service and their execution, it can be concluded that home solution service providers are franchisee of the respondent bound by an exclusive contract and also carry out those processes as defined by the respondent. * The money received is deposited in the ratio of 90% towards the respondent and 10% towards the home solution service provider. * He also relies on the FAQ on Home Painting Solutions as provided on the website of the respondent. * The Commissioner has held that home solution service providers are not franchisees just for the reason that invoice provided to the consumers of home solution do not have brand seal of the respondent without going into other aspects such as contractual agreement, process of execution a....
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.... has proven customer appeal. Franchise agreements and Article 85. In the leading case of Pronuptia the Court of Justice considered the terms of a standard form franchise agreement for the well known bridal outfitters. The Court held that those clauses which were essential to the proper operation of the franchise system did not fall within Article 85(1). Thus, since it was essential that the franchisor be able to protect the knowhow and other expertise that he provides to the franchisee, Article 85(1) is not infringed if the franchisee is not prohibited from opening a shop of the same nature in an area where he may compete with another member of the network. Similarly, since it is essential that the uniformity of appearance and quality of the outlets in the franchise network is maintained, obligations on the franchisee to decorate his premises in a certain way or, in some circumstances, to buy his supplies of product from the franchisor are permissible. For those franchise agreements which do fall within Article 85(1), Regulation 4087/88 provides block exemption for agreements which contain restrictions not going beyond those set out in the Regulation." * The issue also in sim....
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.... painting for the noticee. The HSSP executes the contract and raises bill on the customer. In these bills it charges service tax to the customer under the heads commercial or industrial construction service, construction of complex service or works contract. 4.3 Although the HSSPs raise bills on customer in their own name, they receive and hold the money on behalf of the noticee. However, the entire amount received from the customer remains property of the noticee. The money belongs to the noticee and the HSSPs are required to provide account to the noticee. The HSSPs are required to create a separate bank account for dealing with the money of the noticee. Clause 5(vi) of the agreement reads: "All such amount collected and/or deposited by the Service Provider under this Agreement, thereunder shall be the property of the Company and shall be held by the Service Provider in trust for the Company or on behalf of the Company until satisfactorily accounted and settled the same. The collection shall not be used for any other purpose unless authorized by the Company in writing." The bank account is used only for - Depositing the amounts received from customers, - Making pay....
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....e very purpose of agency is to represent another person. All sub-contractors are not franchisee, though they essentially carry out the same work as was required to be done by the principal contractor. To take an example, in the case of a contract awarded for setting up of a thermal power project, if the contractor in turn engages a subcontractor who undertakes actual execution of the contract, it cannot be said that the sub-contractor is a franchisee. The fact remains that the sub-contractor acts as agent of the contractor and does, in that sense, represent the contractor. Yet, the subcontractor is not disguised as the contractor. He retains his separate identity before the customer. The bills raised by the HSSPs on customers are in their own name and not in the name of the noticee. These bills do not contain logo of the noticee (although the bills raised by the HSSPs on noticee do contain the logo of the noticee). The customers know that the service contract is being executed by the HSSP. There is huge difference between representing 'Asian Paints' and saying that the HSSP is trained by 'Asian Paints' to execute the service contract. In order to be termed as 'franchisee', not only....
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.... franchise service to HSSPs and is not liable to pay tax as 'franchisee' under clause (zze) of Section 65(105) of the Finance Act, 1994." 4.3 It is not settled law that unless and until representational rights have been actually transferred to the franchisee, the service tax could not have been levied under the category of franchisee services. 4.4 The Tribunal in the case of Sity Cable Network Ltd. [2020- TIOL-1379-CESTAT-DEL] has held as follows:- "5.The amendment made in the definition of "franchise" under Section 65(47) of the Finance Act with effect from June 16, 2005 is the reason that has persuaded the Principal Commissioner to drop the demand of service tax for the period from July 1, 2003 up to June 16, 2005. 6.It would, therefore, be necessary to reproduce the definition of "franchise" before and after the amendment. Prior to June 16, 2015, the definition of "franchise" was as follows : "65(47)"franchise" means an agreement by which - (i) the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any su....
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....ght to provide service or undertake any process identified with the franchisor. In other words, if the condition relating to "representational right" is not satisfied, there can be no "franchise" service. 26."Representational right" means a right that is available with the "franchisee" to represent the "franchisor" and in that case the "franchisee" loses its individual identity and is known only by the identity of the "franchisor". 27.The Delhi High Court in Delhi International Airport laid down the requirements for an agreement to be considered as "franchise" agreement and the observations are as follows :- "55.For OMDA to constitute a franchise, it would have to satisfy the requirements of Section 65(47) of the Finance Act, which inter alia requires that the franchisees (Petitioners) should have been granted representational right by franchisor (AAI). 56.Merely because, by an agreement, a right is conferred on a party to sell or manufacture goods or provide services or undertake a process, would not ipso facto bring the agreement within the ambit of a franchise. What is also required is to establish that the right conferred is a "representational right". The term "....
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.... control over the method of operation of the party for the agreement to be called a "franchise" agreement. 33.An analysis of the agreement between Siti Cable and Ashirwad Cable clearly establishes that no "franchise" service has been rendered by Siti Cable to Ashirwad Cable for the following reasons : (i) The agreement is for the 'right to use" assets. Siti Cable provides equipment to the cable operators for rendition of cable operator services to their end customers. The consideration received by Siti Cable from the cable operator is also only in lieu of provision of such equipment/assets. The relevant clause of the agreement states that the cable operator would pay a certain sum for use of the 'assets'. There is no explicit or implied intention to grant representational rights in the agreement. There is also no identified consideration for the right to use of logo. This right to use the logo is only an incidental aspect to the business of broadcasting of channels, and not the purpose of the agreement. (ii) Siti Cable does not have any significant degree of control over the method of operation of the cable operators. The cable operators are free to negotiate contracts at ....
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....all ingredients of franchise as defined in section 65(47) of the Finance Act, 1994 in as much as Learning Centers were granted representational rights to provide service and to undertake various activities identified with the Appellant." (emphasis supplied) 36.It is for the aforesaid reasons that the Tribunal held that the arrangement between Punjab Technical University and the Learning Centers was a "franchise" arrangement. This decision, therefore, does not help the Department. 37.In Amway India Enterprises, the Tribunal observed that the distributors/ABOs have not only been granted right to sell Amway products, but they have the representational rights to sell such products. This was for the following reason : 12 ........... Thus, at the first contact, the distributor is expected to make himself known is a suitable fashion as an Amway distributor and provide information concerning his name and address as well as concerning Amway and the purpose of contact, including introduction of the prospect to the Amway business. Thus, it again becomes evident that the ABO has been given right to represent Amway business. Para 12.12 of the Guide also clearly states that "if the....
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....3 and having its registered office at 6 A Shanti Nagar, Santacruz (East), Mumbai - 400 055, (hereinafter referred to as 'the Company' which expression shall, unless repugnant to the context or meaning thereof be deemed to include its successors and assigns) of the One Part AND Ms Pramila M Gandhi carrying on business in the name and style of M/s. Colour Speak Services, a proprietary firm, having its registered office at A-305, Kanara Business Centre, Laxmi Nagar, Off. Ghatkopar - Andheri Link Road, Behind Everest Gardens, Ghatkopar (East), Mumbai 400075, (hereinafter called 'the Service Provider'), which expression shall, unless it be repugnant to the context or meaning thereof be deemed to mean and include their legal heirs, administrators, executors, successors and assigns, etc.) of the Other Part 1. The Company is in the business of manufacturing and sale of paints and allied products. 2. As a part of its business, the Company also offers 'one stop' painting solutions to its customers through Asian Paints Home Solutions (hereinafter referred to as 'Services') with an objective of enhancing its customer's equity by catering to painting needs. 3. The Company propose....
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....e Service Provider personnel shall always be and remain the employees of Service Provider and the Company shall at no point of time be construed as their employer. v) The Service Provider and/or its staff shall not in any manner make any statement on behalf of the Company or in any manner bind the Company or hold out or represent that Service Provider is representing or acting as an agent of the Company. Service Provider hereby indemnifies and keeps the Company indemnified from all the claims whatsoever in this regard. 4. CONSIDERATION i) For the Services provided by the Service Provider to the Company, the Company shall pay the Service Provider a fixed administrative charge of Rs. 3,00,000/- (Rupees Three lakhs only) per month during the term of this Agreement. 5. SERVICE PROVIDER'S COVENANTS & OBLIGATIONS i) The Service Provider submits that it has the full capacity, power and authority to enter into this Agreement, and to carry out and perform all it's duties and obligations as contemplated herein and has already taken and will continue to take all necessary and further actions, (including where applicable and without limitation, obtaining of all Governmental and ....
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....mpletion of the job undertaken by the Service Provider and upon sufficient evidence being submitted to the Company that the job is finished. 6. COMPANY'S COVENANT: i) The Company shall provide to the Service Provider, the required information and the customer leads received through any or all of the following sources, to enable the Service Provider to undertake the job of painting as per the requirement of the customer: 8. ADVERTISING AND INTELLECTUAL PROPERTY RIGHTS: i) The Service Provider shall make known the services of the Company in every way reasonably practicable. The Service Provider shall display in its offices, posters, circulars, or other promotional or publicity material supplied by the Company free of charge to the Service Provider, any such material of a permanent or valuable character and so designated by the Company, shall remain the property of the Company. 18. RELATIONSHIP It is agreed that this Agreement is between two independent parties and is purely on a principal-to-principal basis and does not create and shall not be deemed to create any employer-employee or principal agent relationship between Company and the Service Provider." 4.7 The ....