TaxTMI 
TaxTMI 
2025 (12) TMI 764
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....ors granted the Appellants nonexclusive right to use intellectual property rights ('IPRs') in connection with design, production, distribution, marketing and sale of the products; the Appellants were discharging service tax on royalty being paid to the licensors under IPR Service under Reverse Charge Mechanism; further, the Appellant in consonance with provisions of Section 3 of Research and Development Cess Act, 1986 ('R&D Cess Act') was discharging R&D Cess @5% on the payments made to the licensors for import of technology; The Appellant was availing exemption on the taxable service involving import of technology from so much of service tax as is equivalent to the amount of cess paid towards the import of technology under R&D Cess Act; this was specifically mentioned by the Appellant in the ST-3 returns filed during the Relevant Period. 2.1. Revenue entertained an opinion that the services received by the Appellant were classifiable under the category of 'Franchise Service' and not 'IPRs and therefore, the Appellant was not eligible to avail the benefit of Exemption Notification; a Show Cause Notice dated 19.10.2012 and Statement dated 16.05.2014 we....
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....se agreement entails significant assistance that is provided by the franchisor to the franchisee; as the appellants did not receive franchise service, exemption is available; in the instant case t is not a franchise agreement for the following reasons: * the arrangement is merely that of licensing and not of franchising; the Appellant never loses its individual identity as in a typical franchise agreement; Licensor does not have significant control over the operation of the Appellant; Appellant can bring about change in the products to suit Indian conditions. * all the products manufactured by the Appellant contain a declaration that the same have been manufactured by the Appellant; trademarks are registered under the name of the Appellant. * Appellant is not bound by Business Techniques of the licensors; the cost of advertisement and marketing are being borne by the Appellant; Appellant follows its own marketing strategy * Appellant have granted sub-licensing rights to third parties. 5. She relies on the following cases in support of her contentions. * Esys Information Technologies Pvt Ltd 2025 (4) TMI 373 CESTAT Chandigarh ....
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.... that the services are rightly classifiable under the category of 'intellectual property service' and paid tax accordingly after availing the exemption under Exemption Notifications; department was already aware about the classification adopted by the Appellant and the same was also specifically reflected in ST-3 returns; further as the issue involves interpretation of the complex provisions of Law, extended period of limitation could not be invoked. She relies on Mahanagar Telephone Nigam Ltd 2023-TIOL-407-HC-DEL-ST; Reliance Industries Ltd 2023TIOL-94-SC-CX and Hyundai Motor India Pvt Ltd 2019 (29) GSTL 452 (Tri. Chennai) [affirmed by in 2020 (32) GSTL J154 (S.C.)]. She submits that when the demand itself is not sustainable, demand of interest and penalty as is liable to be set aside. 8. Learned Authorized Representative for the Revenue, reiterates the findings and relies on Hindustan Construction Company ltd 2025(391) ELT 382(Tri-Bom). He further submits that the issue is sub-judice before the Hon'ble Apex court of India as the Civil Appeal No 194-195 filed by the Revenue against the decision by Tribunal in the case of Air India 2017(7) GSTL 360(Tri-Del) is admitted. ....
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....nder the category of "IPR services" or "franchise services". According to the Appellant, the services received by the Appellant would fall under the category of "IPR service", while according to the Department the services received by the Appellant would fall under the category of "franchise service". 30. Before examining as to whether service received by the Appellant would be classifiable under IPR service, it is considered appropriate to first examine whether the services received by the Appellant can be classified under the category of "franchise service" with effect from 16 June, 2005. 31. Prior to 16 June, 2005, the definition of "franchise" was: "65(47) "franchise" means an agreement by which - (i) 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 such symbol, as the case may be is involved; (ii) the franchisor provides concepts of business operation to franchisee, including know-how, method of operation, managerial expertise, marketing technique or training and sta....
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....presentational 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) 34. 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 franchisee transaction, the "franchisee" loses its individual identity and represents the identity of the franchisor to the outside world. 35. In Tata Consultancy Services Ltd., the Mumbai Tribunal observed that the grant of a representational right would imply that the person to whom such rights have been granted undertakes the entire activity as if it had been undertaken by the person granting such rights.....
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.... in Global Transgene Ltd. v. Commissioner of Central Excise, Customs and Service Tax, Aurangabad - 2013-TIOL-1259-CESTATMUM = 2013 (32) S.T.R. 86 (Tri. - Mumbai), is of McDonalds where the customer are not concerned with who owns the McDonald restaurant because the customers identify the restaurant with McDonalds. 41. The terms of the agreements, therefore, leave no manner of doubt that the agreement is not a 'franchisee' agreement. 42. This apart, in a 'franchisee' agreement, the franchisor has the authority to exert a significant degree of control over the method of operation of the franchisee. The agreement executed between the parties in the instant Appeal clearly shows that the licensor does not have any significant control over the manner in which the Appellant conducts its operation. The Appellant is free to procure the raw materials as per its will and it has a right to fix the selling price of the final product. It is also free to run its business, marketing, distribution, sourcing and other activities as per its own choice without any inference by the licensors. It also makes its own marketing strategy. The only right which the licensor have is to superv....
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....nificant degree of control over the franchisee's method of operation or provide a significant assistance in the franchisee's method of operation? and (iii) Whether the franchisor must pay a certain amount after the franchise business begins? 44. There was no dispute about the first requirement as the agreement did involve sale or distribution of goods associated with the trademark of the plaintiff. In regard to the second and third requirement, the Court found that from a perusal of the agreement it was reasonable to conclude that Englert exercised control over the defendants only in regard to a single product line and that Englert did not have the ability to control any of the product of the defendant other than LeafGuard gutters which was one of the multiple products and services provided by the defendants. The level of control exerted by Englert over the defendant's method of operation was, therefore, not "significant" for the purpose of the FTC Franchise Rule and so the agreement between the parties was not 'franchise' but a 'license agreement'. 45. It would now have to be seen whether the services received by the Appellant can be classified as 'IPR s....
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....in the intellectual property service. Rather the various terms of the contract as given above indicate that the Appellant has to represent the Timken (USA) to their various customers in such a way that the Appellant loses its own individual identity and would perhaps be known only by the identity of Timken (USA)." 50. This decision will not come to the aid of the Department since a finding therein was recorded that the Appellant had lost its individual identity and would only be known by the identity of Timken (USA). This is not the factual position in the present Appeal as it has been found as a fact that the Appellant has not lost its individual identity to be known only by the identity of the licensor. 51. Likewise, the decision of the Principal Bench of the Tribunal in Amway India Enterprises Pvt. Ltd. will also not help the Department. The Tribunal found as a fact that the licensor had given a representational right to sell its products to the licensee. 52. The decision of the Principal Bench in Delhi Public School Society is also of no benefit to the Department. The Tribunal found that in terms of the unamended definition of franchisee, all the four....
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....al held that 3. The learned counsel has pointed out that the Development Commissioner's order cancelling earlier DTA sale permission was challenged before the Hon'ble High Court in a Writ Petition (W.P. No. 1718 of 2003). However, in answer to a query by the Bench, the counsel submits that he is not aware of any order of stay having been passed by the High Court against the Development Commissioner's order. In this context, he has also referred to the Supreme Court's judgment in Union of India v. West Coast Paper Mills Ltd. - 2004 (164) E.L.T. 375 (S.C.) wherein the Apex Court had observed inter alia that where an appeal was filed against a final order of the Tribunal and such appeal was admitted by the Apex Court, the finality and credence of the Tribunal's order was in jeopardy. On this basis, it has been argued that, even though there is no stay order from the Hon'ble High Court in W.P. No. 1718 of 2003, it should be deemed that the Development Commissioner's order challenged before the High Court did not attain finality. We are unable to accept this view. In the case considered by the Apex Court, the question pertained to the effect of an order of the Tribunal during t....