AI Drafter 
TaxTMI 
TaxTMI 
2023 (9) TMI 134
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....ause (zze) of Clause 105 of Section 65 of the Finance Act, 1994. The department issued impugned show cause notice dated 12.05.2011 whereunder the service tax of Rs. 20,43,893/- has been demanded under Section 73(1) of Finance Act, 1994 for providing franchisee service to its various dealers. Penal provisions under Section 76, 77 and 78 of the Finance Act, 1994 has also been invoked. 2. Shri Hemal Zaveri, Senior Manager Accounts of M/s. Itw India Limited has also been made liable for penal action under Section 76 of the Finance Act, 1994. 3. The matter has been adjudicated vide impugned order-in-original dated 17.05.2012 whereunder all the charges leveled in the show cause notice have been confirmed by the Adjudicating Authority and penalty of Rs. 10,000/- has also been imposed on Shri Hemal Zaveri under Section 77(2) of the Finance Act, 1994. The appellant have challenged the impugned order-in-original before Commissioner (Appeals) who vide his order dated 02.04.2013 has upheld the findings given in the impugned order-in-original except that he has allowed benefit of cum-tax value in terms of Section 67(2) of the Finance Act, 1994. The appellants are before us against the abo....
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....gued by the learned advocate that appellant has not given any representational rights to its distributors. The agreement which have been entered into by the appellant with these distributors is purely of purchase and sale and no element of transfer of representation rights is involved in this deal. 6. With regards to the "Exclusivity Fee" recovered by them from their distributors, it has been submitted that "Exclusivity Fee" is refundable amount and in the event of early termination of the agreement due to any reason, the appellant are duty bound to refund "Exclusivity Fee" on pro-rata basis for the unexpired period to the distributor. The learned advocate has given an example that as, if the distributor has agreement for 5 years and the agreement gets terminated after two years and one month, the period reckoned is two years and six months and the distributor will be entitled for refund of "Exclusivity Fee" on pro-rata basis for two years and six months. 7. In sum and substance, it has been the contention of the learned advocate that the relationship between the appellant and its distributors is that the distributors are wholesale buyers of their product and they further dis....
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....expertise in business operation, know how, quality control etc. to the franchisee; (iii) Franchisee pays fees to the franchisor; (iv) The franchisee is under an obligation not to engage in selling goods or providing services identified with any other person. 23.2 To make the coverage of franchise service more comprehensive, effective from 16-6-2005, amendments have been made to define "franchise" as an agreement by which the franchisor grants representational rights to franchisee to sell or manufacture goods or provide service or undertake any process identified with the franchisor, by any symbol such as a trade mark, service mark, trade name or logo. No other condition is required to be fulfilled for levy of service tax. 23.3 In view of the amended definition, License Production Agreements where principal allows production of goods bearing his brand name by another person would be covered under the purview of service tax under this category. Similarly, if rights are granted for rendering services identified with the principal on his behalf, such services by the principal to the service recipient would be taxable. Details of franchisees may be ob....
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....No. B-1/6/2005-TRU dated 27.07.2005 wherein the franchisee service has been explained by the CBEC. The relevant extract of the above mentioned Circular is reproduced below:- "23. Franchise Service Prior to 16-6-2005, franchise services were liable to 23.1 service tax only when the agreement between the franchisor and the franchisee satisfies all of the following conditions [as mentioned in section 65(47)] : (i) Franchisor grants representational right to franchisee to sell or manufacture goods or provide service identified with the franchisor; (ii) Franchisor provides expertise in business operation, know how, quality control etc. to the franchisee; (iii) Franchisee pays fees to the franchisor; (iv) The franchisee is under an obligation not to engage in selling goods or providing services identified with any other person. 23.2 To make the coverage of franchise service more comprehensive, effective from 16-6-2005, amendments have been made to define "franchise" as an agreement by which the franchisor grants representational rights to franchisee to sell or manufacture goods or provide service or undertake any process iden....
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....e DISTRIBUTOR of ITW and has agreed to assist ITW in setting up and managing its retail distribution network and infrastructure for the Territory, leveraging its extensive knowledge, experience and relationship in the Territory. D. ITW has agreed to renew the agreement with S V Packaging Agencies, as its Distributor and S V Packaging Agencies, has agreed to promote the sale of the Products in the Territory on the terms and conditions hereinafter appearing. ....... ....... ....... 6. DISTRIBUTOR'S RESPONSIBILITIES : distributor be responsible for, operating its business as a distributor, including for the provisions enumerated in the standard procedure (as amended from time to time by ITW), specifically the following, the costs of which shall be borne by the distributor; unless the contrary is expressly stated herein: (i) To use its distribution network for the purposes of this agreement, in the territory. (ii) To provide sufficient and suitable space for stocking the products, including refurbishment, partitions, air conditioning, communication, equipment, etc. For running of the Distributorship. (iii) To provide requisite amount of dedicated....
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....all not, under any circumstances, entertain any complain against any product, if made after the expiry of 7 days from the date of its sale. 9. DISTRIBUTOR'S COVENANTS: (i) Distributor agrees and undertakes that it shall not make an representation or give any warranty in respect of the products other than those contained in ITW's conditions of sale as current at the time of the offering for sale or the sale itself. (ii) Distributor agrees and understands it shall have no right of action against ITW in respect of any loss incurred by it by reason of an delay in delivery occasioned by shortage of stock or delays in transit delays caused by accidents or strikes (iii) Distributor agrees and understands it shall not have any power whatsoever to commit ITW to any financial outlay or any other responsibility or commitment of whatsoever nature and shall indemnify ITW from and against any and all losses, costs, claims, actions damages, liabilities, fines, penalties or expenses arising out of o resulting from any gross negligence or willful misconduct of the distributor. (iv) Distributor agrees and understands that during the term of this a....
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....ppointed by the appellant for the various territories. The amount of "Exclusivity Fee" of Rs. 30 Lakh being charged by the appellant from its distributors in the five equal installments of Rs. 6lakh each is to our understanding an amount of deposit with the appellant and if any distributorship get cancelled before the period of five years, the deposit which has been made by the appointed distributors under the category of "Exclusivity Fee" is being returned on the pro-rata basis by the appellant. With regard to AMC being referred to in the terms of agreement, on perusal of the entire agreement, to our understanding, it appears that the distributor is given a responsibility to provide after sale service of the products of the appellant which will be sold by the distributors and this AMC charges are to be shared by the distributors with the appellant. We are of the view that from the terms of agreement it becomes clear that the appellant have created distribution cum sale-marketing and after sale maintenance network by appointing various distributors in India. The Exclusivity Fee which is being charged by the appellant from its distributors is a kind of guarantee amount rather than a....
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....s, Modem and Other technical machines, accessories, plants for receiving and distribution of communication signals by the first party. AND WHEREAS it is expressly understood by both the parties that all assets and materials used in establish the Network as above said are purchased/ procured and owned by the First Party and Second Party has shown his willingness to run the Cable TV Networking Business of the First Party on the terms and conditions mentioned below: BOTH THE PARTIES HAVE DECIDED TO PUT THE FOLLOWING TERMS AND CONDITION IN WRITING: xxxxxxxx 2. CONSIDERATION FOR RIGHT TO USE THE NETWORK: As a consideration towards right to use the assets of the First Party, the Second Party has agreed to pay 20% of net revenue to the First Party. Net revenue being defined as gross receipts less pay channel cost and operative expenses of the network. The gross receipt includes the receipts from all sources relating to cable network business in Panipat and its surrounding areas. The net revenue shall be calculated at the end of every 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 Par....
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....y that the permission to use HSEB's pole is in the name of the first party. Other than the said permission, the Second Party shall obtain in his own name permission/license, if any, required to carry on the cable TV networking business, however, taking/obtaining such permission/license in his name and shall not provide any entitlement contrary to the agreed terms of this agreement. 12. MAINTENANCE, REPAIR AND UPKEEP OF MATERIAL AND EQUIPMENTS: The Second Party shall use and operate the equipment carefully and in workmanship manner and shall keep the equipments always in good and serviceable condition and shall also be responsible to repair, replace the damaged or broken parts or accessories with parts or accessories of equal value of the materials, equipments and other accessories installed in the network by the First Party. xxxxxxx 14. TRANSFER/SUB-LEASE OF NETWORK: The Second Party shall not remove or shift the control room/ Head end from the said premises at 8, Marla Colony, Behind Power House, Panipat, Haryana. Further, Second Party shall not sell, assign, mortgage, transfer/sub-let, encumber or any part of the running network of the First Party to an....
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....assets of Siti Cable, Ashirwad Cable TV Network agrees to pay 20% of the net revenue to Siti Cable every month. Clause 4 of the agreement takes note of the fact that Haryana State Electricity Board had granted permission to Siti Cable for using the electricity poles for laying the cables and that Ashirwad Cable has agreed to deposit the annual pole rentals to the Board on behalf of Siti Cable during the period of the agreement. Clause 5 specifically provides that Ashirwad Cable shall deal/negotiate with all pay channel companies, including Zee Pay Channel and would pay the channels charges. Clause 6 of the agreement specifies that Siti Cable shall have access at all times to its material/equipment installed/used at the control room and in the networking including materials/equipment supplied by it from time to time as per the records maintained by Siti Cable. The lists of the materials/ equipment installed/used as on July 7, 2003 forms part of Annexure 1 to the Agreement. Clause 12 of the agreement provides that Ashirwad Cable shall use and operate the equipments carefully and in workmanship manner and shall keep the equipments in good and serviceable condition. It shall also be re....
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.... conferred is a "representational right". 57. The term "representational right" would necessarily qualify all the three possibilities i.e., (i) to sell or manufacture goods, (ii) to provide service, and (iii) undertake any process identified with the franchisor. 58. A representational right would mean that a right is available with the franchisee to represent the franchisor. When the Franchisee represents the franchisor, for all practical purposes, the franchisee loses its individual identity and would be known by the identity of the franchisor. The individual identity of the franchisee is subsumed in the identity of the franchisor. In the case of a franchise, anyone dealing with the franchisee would get an impression as if he were dealing with the franchisor." (emphasis supplied) 28. The Mumbai Tribunal in Global Transgene Limited also observed that the foremost requisite for a service to qualify as a taxable "franchise' service is that the franchisee should have been granted a representational right and that in a franchise transaction, the franchisee loses its individual identity and represents the identity of the "franchisor" to the outside world. ....
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....peration of the cable operators. The cable operators are free to negotiate contracts at their own end in respect of pay-channels, advertisements, etc. This deviation itself evidences that the agreement between Siti Cable and the cable operators does not grant any representational right and that Siti Cable only to provide the hardware necessary for the cable operators to render cable network services. 34 The decisions cited by the learned Authorised Representative of the Department now need to be considered. 35. In Punjab Technical University, the agreement entered into between Punjab Technical University and the Learning Centers explicitly provided that the Learning Centers were authorized to take students by claiming and making it clear that the education they were providing was on behalf of Punjab Technical University. The Learning Centers were also allowed to advertise to that effect. It is in this context that the Tribunal observed: "4........... From the foregoing there remains no doubt that LCs were authorized to take students by claiming and making it clear that the education they were providing was on behalf of the appellant. They were al....
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.... 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 distributor makes a serious misrepresentation of Amway or the Amway business which in Amway's opinion, is not likely to be satisfactorily remedied by corrective actions", then Amway can terminate the authorization to operate as a distributor. Thus, only serious misrepresentation of Amway or Amway business can lead to termination of distributorship. In other words, he can, indeed should/is expected to, represent Amway in accordance with and to the extent allowed as per the Amway's Business Starter Guide and Distributor Application and Terms and Conditions. In the Sections of the Starter Guide dealing with Social Media Policy, it is stated (referring to the ABOs) that "Remember, what you say reflects upon your and Amway's reputation". Now Amway's reputation can be effected by what the ABOs says only when he is taken to represent Amway in some (however limited) capacity. (emphasis supplied) 38. The said decision is distinguishable for the factual aspect itself as neither does Siti Cable grant any representational right to the cable ....
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....ry for the previous period. In support of this contention reliance has been placed on the following decisions of the Tribunal: a. Aravali Construction Company Private Limited vs. Commissioner of Central Excise, Jaipur-II [2017 (6) GSTL 347(Tribunal-Delhi)] b. Malviya National Institute of Technology v. Commissioner, Service Tax, Jaipur [2019 (6) TMI 127- CESTAT New Delhi] c. CCE, Customs and Central Excise vs. IOCL [2019 (11) TMI 382- CESTAT Hyderabad ] 42. Learned counsel for Siti Cable also submitted that once the impugned transaction has been identified as a service of supply of tangible goods for use, which was made taxable only w.e.f May 16, 2008, the same cannot be taxed under any other category prior to the introduction of such levy. 43. It will not be necessary to examine these contentions advanced by the learned counsel for Siti Cable, as the demand in the present case was made in the show cause notice under "franchise" service. 44. Thus, for all the reasons stated above, it is not possible to hold that the service contemplated under the agreement is a "franchise" service. The confirmation of demand for the period comme....
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.... and RA-Administration. The impugned notice seeks to levy service tax on this activity under the following categories viz. -Franchise Service w.e.f 01.04.2004 -Business Support Services w.e.f 01.05.2005 ......... iv. On examination of each clause of the definition of "franchise" it is found that the agreement between the noticee and Sub Certifying authorities and Sub CA Administrators (Sub CAA), Registering Authorities and RA-Administration shows that latter were indeed granted representational right to provide the certifications. They interacted with the customers clearly representing that certification would be by TCS. However, they were not "agents" of the noticee and were not working for any commission. Instead they were paying fees to TCS in return of the right granted to them. Thus the first clause of the definition is satisfied. v. However, there is nothing on record to show that TCS provided the concepts of business operation to the service receivers. There is nothing to show that they provided any know how, method of operation, managerial expertise, marketing technique or training or standards of quality control to them. Th....
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....l the three possibilities i.e., (i) to sell or manufacture goods, (ii) to provide service, and (iii) undertake any process identified with the franchisor. 58. A representational right would mean that a right is available with the franchisee to represent the franchisor. When the Franchisee represents the franchisor, for all practical purposes, the franchisee loses its individual identity and would be known by the identity of the franchisor. The individual identity of the franchisee is subsumed in the identity of the franchisor. In the case of a franchise, anyone dealing with the franchisee would get an impression as if he were dealing with the franchisor." e. Similarly in case of Global Transgene Ltd [2013 (32) TR 86 (T-Mumbai)] Tribunal has held as follows: "5.2 From the above, it will follow that before the amendment w.e.f. 16-5-2005 and thereafter the foremost, and key pre-requisite to qualify as taxable service is that the franchisee should have been 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 log....