AI Drafter 
TaxTMI 
TaxTMI 
2024 (12) TMI 409
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....rade name and trademarks (Costa, vide the Development Agreement dated 28.09.2004. The Franchise Service has also been obtained from M/s International Franchise holding (Labuan) Ltd. Labuan who owns the trade name and trademark "Swensen's" by virtue of Master Franchise Development Agreement dated 09.12.2009. 2. Based on the various clauses of the aforesaid agreement, the department observed that franchisee/ appellant, apart from remitting franchisee fee and royalty amount, it has to contributed at least 2% of its gross sale for advertising and promotion of the brand name "Costa" owned by the Franchiser M/s Costa International Limited and Promotion of Brand name "Swenson's" of M/s International Franchise holding (Labuan) Ltd. Thus, both the Franchisors are getting extra consideration in the form of contribution towards advertisement from the Franchisee for promotion of their own brand instant of appellant incurring it's own advertisement. Department formed the opinion that the activity of the Franchisee is therefore, taxable as he is providing Business Support Service to the Franchisor, the amount paid by the appellant being the extra consideration spent by the franchisee-appellan....
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....eration being received by Costa/ IFHL in the form of contribution towards advertisement or promotion of the formers brand instead of appellant incurring expenditure on its own wrongly alleging the activity as Business Support Services being provided by the appellant to both the franchisors. Learned counsel impressed upon that the amount in question is 2%/ 4% of gross network revenue. This term is defined under clause two of the agreements to mean to be an amount towards advertisement of Costa outlets/ IFHL outlets. The meaning of these outlets is defined under agreements to mean retail shops opened and operated by the appellant within the development of area i.e. India. There is nothing in either of these agreements that casts an obligation on appellant to incur expenditure for advertising the brand name, trademarks etc. of Costa/ IFHL. Thus, it is submitted that the indirect result because of the advertisement activity under taken by appellant in India in respect of retail outlets operated by it is wrongly treated as extra consideration flowing from appellant to Costa/IFHL towards franchise services. It is for the reason that out of those advertisement it was appellant himself,....
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.... the Franchise Service do not fall in negative list of Section 66 (D) of Finance Act. The service is taxable. The amount received for such taxable service is liable to service tax hence. Since, the providers are outside India appellant is liable to pay service tax on the said amount under RCM. The entire demand confirmed is therefore, liable to sustain. With these submission the appeal is prayed to be dismissed. Learned DR has relied upon the decision in the case titled as M/s Subway System India Pvt. Ltd. vs. CST Delhi- II reported as 2019 (25) G.S.T.L 465 (Tri. Del.) 9. Having heard the rival contentions of both the parties, perusing the entire record of the appeal memo including both the Franchise Agreements, we observe that the moot question of adjudication is as follows; Whether, the amount spent by the appellant (2%/4% of the gross net revenue) towards advertisement and promotion of the Costa/IFHL outlets operated by the appellant is an amount of consideration in terms of Section 67 of Finance Act 1994 read with rule 5 of service tax (determination of value) rules 2006 being includable in the value of Franchise Services received by the appellant from overseas franchisor....
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....use of the condition set out in the agreement. The Supreme Court in the appeal filed by the Department against the aforesaid decision of the Tribunal also explained the scope of Section 67 of the Act both before and after the amendment in the following words: On a reading of the above definition, it is clear that both prior and after amendment, the value on which service tax is payable has to satisfy the following ingredients: a. Service tax is payable on the gross amount charged the words "gross amount only refers to the entire contract value between the service provider and the service recipient. The word "gross" is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word "gross" the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word "charged", it is clear that the same refers to the amount billed by the service provider to the service ser Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient. It does not enter into the equation for determining the value on w....
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....Developer shall pay to Franchisor a one time Territory Exclusivity Fee. The Territory Exclusivity Fee shall be non-refundable and shall be deemed to be fully earned upon execution of this Agreement. 3.2 The Territory Exclusivity Fee shall be paid by the Developer to the Franchisor in the manner stipulated in Appendix 2. 3.5 The Developer acknowledges and agrees that it shall be required to pay the Royalty Fee, as well as the Advertising Contribution, for any Shoppe opened pursuant to the rights granted to it hereunder, as set forth in Appendix 2, and otherwise accordance with the terms of the Individual Franchise Agreement. 3.6 During the Initial Term, the parties agree that a Royalty Fee as set forth in Appendix 2 equal to five (5) % of the total Gross Sales from each Shoppe shall be due and payable on a monthly basis by the Developer to the Franchisor, unless otherwise agreed in writing between the parties. The parties expressly acknowledge that the Royalty Fee at the rate of five (5) % of Gross Sales from each Shoppe is currently the legally permissible royalty fee rate that can be remitted overseas to the Franchisor in accordance with the rules and regulations of the R....
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....stion of extra consideration following from Appellant to Costa/ IFHL does not arises. Hence, the advertisement amount spent by Appellant is not includible in the taxable value of Franchise Services by treating the same as non-monetary consideration under Section 67 of the Finance Act as is held by the adjudicating authority in the OIO in the present case. Thus, the findings in impugned order are apparently wrong. We draw our support from the decision of this Tribunal in the case of Macdonald's India Pvt. Ltd. vs. Principal Commissioner of Service Tax Delhi (1) reported as 2019(30) GSTL J-51 (Tri.-del) wherein it was held that the condition of the Franchise Agreement is to require of the advertisement of the "Restaurant" and nothing else. Irrespective that while so advertising the trade names / service marks and trademarks of the Franchisor appear in the advertisement but it being the indirect benefit to the franchisor, the value of such advertisement cannot be called as the amount of consideration for receiving Franchise Services. The facts of present case are identical to the case of, Macdonald's case. We find no reason to differ from those findings Similar have been the findin....