TaxTMI 
TaxTMI 
2024 (2) TMI 907
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....e tax has also been confirmed on such services. 2. The facts of the case in brief are that M/s Jaypee Sports International Ltd. ('JSIL') was the owner of a motor racing circuit i.e. Buddha International Circuit, situated at Greater Noida, Gautam Budh Nagar, U.P. On 30.10.2011, the FORMULA 1 GRAND PRIX OF INDIA (17th race of the Formula One Season) was successfully hosted at the Buddha International Circuit, Gautam Budh Nagar. Acting on the intelligence developed by the officers of DGCEI, Delhi Zonal Unit, R. K. Puram, New Delhi that JSIL had not discharged their service tax liability in connection with Formula 1 Grand Prix of India ('F-1 Race') held at Buddha International Circuit, a team of Officers visited the office of JSIL on 03.11.2011. During the visit, JSIL by its letter dated 03.11.2011 submitted various documents such as copies of Service Tax returns, Annual Audited statements, Organisation Agreement dated 20.01.2011, Race Promotion Contract dated 13.09.2011, Service Agreement dated 13.09.2011, Artwork Agreement dated 13.09.2011, invoice dated 23.09.2011 for US$ 40,124,120.26, confirmation letter dated 03.11.2011 of Banker regarding remittance to Formula One World Ch....
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....SIL is liable to pay service tax amounting to Rs.1,12,23,633/-. Thus, the Commissioner has confirmed the demand of service tax to the tune of Rs.21,48,56,252/- [Rs.20,36,32,619/- + Rs.1,12,23,633/-] along with interest and penalty of Rs.21,48,56,252/- u/s 78, the amount of Rs.1,34,68,358/- deposited by JSIL has been appropriated and a further penalty of Rs.10,000/- u/s 77 has been imposed for failure to incorporate the services in the registration certificate. 6. Aggrieved by the impugned order, the Appellant is in appeal on the grounds stated in the appeal. 7. At the outset, the ld. Counsel has explained the modalities of Formula One Championship racing competition and organisation of races as under:- (i) Races of Formula One cars (having cylinder capacity upto 3 litres and minimum weight of 600 kgs) are undertaken by Federation Internationale De L'Automobile ('FIA') and are held under the name of 'Formula One Grand Prix' or 'Grand Prix' suffixed with the hosting country's name and the year of the event. Such racing competitions comprises of number of rounds/races, held in different countries around the world, each one referred to as 'Grand Prix'. (ii) Orga....
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....works Agreement dated 13.09.2011 executed with Formula One Management Ltd. ('FOM'), JSIL was granted a non-exclusive, non-transferable royalty free licence to use the artwork and incorporate such licensed marks in licensed materials approved by FOWC and under the Service Agreement dated 13.09.2011, FOM was appointed to carry out and perform all services relating to the organisation of the international television feed and broadcasting of Event against consideration of US$ 2,000,000. 10. The ld. Counsel further submitted that sine-qua-non for franchise service is transfer of representational right and in the present case JSIL merely had the right to host, stage and promote the event and was not given any right to represent FOWC and therefore there is no transfer of representational right in the present case. The ld. Counsel also submitted that the various clauses of the Race Promotion Contract clearly shows that JSIL retained its identity throughout the event and the identity of JSIL never got subsumed in the identity of FOWC, as the entire event was conducted by FIA only. The ld. Counsel also submitted that the entire facts were in the knowledge of the Officers of DGCEI, who vis....
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....e basis of which the revenue has formed an opinion that FOWC transferred representational rights to JSIL against a consideration, thereby providing Franchise Service to JSIL and since FOWC has no office in India, hence JSIL being recipient of service, is liable to pay service tax on such services. The revenue has also relied upon letter dated 10.08.2011 of Ministry of Youth Affairs and Sports, Government of India to the effect that the Race Promotion Fee is akin to Franchisee Fee and also the written statement dated 12.06.2012 of Sri Rajan Sayal, Chief Executive of FMSCI to the effect that FIA is world body governing the motor sports, FOWC has received the commercial rights from FIA to run the Formula One Championship Events all over the world, FOM is the main operating company of the Group that controls broadcasting, operation and organisational rights and that the remittance of US $ 40.12 million is a franchisee fee paid to FOWC for conducting F-1 race in India. 14. To appreciate the issue, it would be pertinent to examine the agreements on record. The first agreement is titled as Organisation Agreement dated 20.01.2011, the second one as Race Promotion Contract dated 13.09.20....
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....s thus listed or described. 15. The Organiser shall provide a covered area where the FIA can install and operate weighing equipment and operate a secure parc ferne. Such area must be agreed to with the FIA prior to allocation of space for competitors in accordance with the Sporting Regulations. 20. The Organiser must make available for the exclusive use of the FIA on the Circuit such offices and facilities as are necessary for the FIA properly to fulfil its duties in relation to the Event. Such facilities must be agreed to with the FIA prior to the allocation of space for other uses. The Race Promotion Contract dated 13.09.2011 was executed between FOWC and JSIL and the clauses are reproduced hereunder: (A) The Federation Internationale de !'Automobile (FIA) is the governing body of world motor sport. The FIA is responsible for the sporting organisation and regulation of the FIA Formula One World Championship (the Championship), and has the right to supervise the sporting organisation of individual rounds of the Championship. (B) Pursuant to various agreements between the FIA, FOWC and its Affiliates (as defined in Clause l(p)) etc., FOWC ....
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....t the Term that (a) subject to Clause (4), the Promoter has or will have the exclusive right to act as the promoter of the Event. .................... (f) that it is or will be in exclusive possession of such rights as are necessary for the purposes of hosting and the staging the Event at the Circuit. (g) that it has applied for and obtained or will make timely application for and will obtain all licenses and consents (including if necessary and Governmental consents) necessary for the Event to take place, and that all such licenses and consents are or will be unconditional (or subject only to such conditions as have been notified to and approved by FOWC) and are not (or will not be) subject to revocation. (i) every aspect of the Circuit including the permanent buildings, permanent infrastructure, track layout, amenities, spectator viewing facilities, the pit/paddock building, media centre and medical centre, will be constructed, subject to the approval of FOWC and the FIA, and completed in good time before a final inspection by the FIA pursuant to the Regulations not later than 12 October 2011. Promoter's Undertakings ....
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....llectual property (including certain trade marks) and Artwork solely for the limited purpose of facilitating the hosting, staging and promotion of the Event. Service Agreement dated 13.09.2011 was executed between FOM and JSIL wherein JSIL engaged FOM to carry out and perform all services relating to origination of the international television feed and host broadcasting for the Event. 17. It is clear from the Organisation Agreement dated 20.01.2011 that JSIL undertook to organise the Event i.e. F-1 Race, in the consideration for and subject to the Event duly listed in the FIA calendar. Clause 10 provides that JSIL cannot limit or modify advertising or decoration on the race cars and drivers, JSIL cannot permit or allow any advertising material other than official FIA logo. Clause 11 provides that JSIL shall ensure that no person gains access to the circuit, other than those who have been allowed by FIA by way of issuance of pass and tabard. Clause 12 provides that list of the persons concerned with organisation of Event shall be provided by JSIL to FIA, who shall be issued passes by FIA. Clause 15 and 20 provides that JSIL shall provide suitable area, officers and facilities,....
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....ified by FOWC. Clause 14 further obliges JSIL to ensure that only passes and tabards issued by FOWC under the authorisation of FIA shall have access to the parts of circuit and that the validity of any passes and tabards issued by FOWC is upheld. Clause 18 prohibits the JSIL from permitting filming/recording at the event, without the permission of FOWC. Clause 36.1 provides that the rights transferred under the contract are personal to JSIL and JSIL cannot sell, assign, sub-license, charge, dispose of or otherwise deal with any rights granted herein with any third party. Clause 37 provides that both FOWC and JSIL are independent contractors and nothing in the contract shall operate as any agency between them. 19. The dispute in the present appeal is whether the transaction between the FOWC and JSIL under the Race Promotion Contract dated 13.09.2011 amounts to Franchise Service under the amended definition of 'franchise'. 20. The taxable service under section 65(105)(zze) of the Finance Act means a service provided or to be provided to a franchisee, by the franchisor in relation to franchise. The expression 'franchise' has been defined under sub-section (47) of Section 65 as u....
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....o 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. 22. The aforesaid dicta of law has been followed by this Tribunal in Siti Cable Network Ltd. v. Commissioner of Service Tax, Delhi-III 2021 (44) G.S.T.L 412 (Tri-Del) and Mahanagar Telephone Nigam Limited v. Commissioner of Central Excise and Service Tax, New Delhi 2021 SCC OnLine CESTAT 167 and it has been consistently held that in a franchise transaction, the franchisee loses its individual identity and represents the identity of 'franchisor' to the outside world. This Tribunal further held that a person to whom such right is granted undertakes the entire ....
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....presentational right in respect of the F-1 Race; (iii) There is also no identified consideration for the license permitting use of certain intellectual property. The license to use intellectual property is only an incidental aspect to the conduct of race by FIA & FOWC and the consideration paid for grant of right to host, stage and promote the Event cannot be linked with the license to use intellectual property, and the same is also not the case of revenue; (iv) JSIL also does not have significant degree of control over conducting the race as the race was conducted by FIA and its affiliates and JSIL was prohibited from interfering in the displayed on the cars, drivers or personnel, allowing any other competitors cars to participate, interfere in the work of conducting races, allow any person other than those authorised by FIA to enter the circuit and area allotted to FIA and its affiliates, filming/recording the Event, include or associate any commercial brand or logo with the circuit name or any building utilised for staging the event etc.; (v) JSIL retained its individual identity and its identity never got lost or subsumed in the identity of FOWC, as a....