TMI Blog2019 (6) TMI 166X X X X Extracts X X X X X X X X Extracts X X X X ..... isor as the trademarks have been permanently assigned to M/s Aventis and they have become absolute owner with no control of the Appellant - The trademarks and the IPR sold by the Appellant stands transferred to M/s Aventis. The consideration received by the Appellant is not towards any service. In Franchisee agreement, the Franchisee charges are computed with reference to quantum of sale and the charges are not collected before hand. The franchisee pays the amount for a pre-determined period or on the basis of quantum of service as per the terms and it is never a one time payment. M/s Avantis are not representing themselves as part of Appellant whereas in the franchisee agreement, the franchise represents himself associated with the Franchisor which is not the case here. Assuming it to be franchisee agreement it would be illogical to conclude that the huge amount has been paid by M/s Avantis to the Appellant as one time alleged franchise fee. Thus the whole notion of terming such sale of brand name as franchisee fee is illogical and perverse. No such agreement for ranting a mere franchisee has been ever entered into Commerce or Industry. It is wholly natural and logical in comme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t ORDER RAMESH NAIR The present appeal has been filed against impugned Order No. DMN-EXCUS-000-COM-041-16-17 passed by Commissioner of Central Excise Service Tax, Daman. The brief facts of the case are that the Appellants are engaged in manufacture of PP medicaments falling under chapter heading No. 30 of the first schedule to CETA, 1985 and are registered with the Central Excise as well as service tax departments. The Appellants entered into a Business Purchase Agreement (BPA) dt. 24.08.2011 with M/s Aventis Pharma (Later known as Sanofi India Ltd) for sale of marketing divisions for consideration of ₹ 567 Cr. Pursuant to EA-2000 Audit, the department issued show cause notice to the appellant demanding service tax alongwith interest and penalty on the ground that the purchaser has placed several restrictions on Appellants under the agreement and therefore the transaction was in nature of providing Franchise services as defined under Section 65 (105) (zze) of Finance Act, 1994. That the Appellants has merely provided representational rights to the franchisee to sell or manufacture goods or provide service. It also plac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Purchaser shall not claim any right of ownership and title in the Know-how related to manufacture of the Products contained in the Manufacturing Dossiers and the Purchaser hereby acknowledges that delivery of the Manufacturing Dossiers as set out in this Agreement, shall not inure any right of ownership and title in such Know-how to the Purchaser and the rights of the Purchaser to use the information and Know-how related to the manufacture of the Products contained in the Manufacturing Dossiers shall be as set out in the Manufacturing Dossier IP License Agreement. 14.2.1 If during the term of the Supply Agreements wherein the Purchaser continues to suource a majority of the Products from the Seller and/or Geltec on an exclusive basis, the Seller or an Affiliate of the Seller (the Overseas Nutraceutical Business Seller ) intends to sell the Overseas Nutraceutical Business in part or in who, the Overseas Nutraceutical Business Seller shall, and the Promoters shall procure that the Overseas Nutraceutical Business Seller shall, before making any approach or entering into discussions with any other person, send a writer notice to the Purchaser intimating t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er undertakes to carry on the Business as a going concern in the ordinary and usual course as carried on prior to the date of this Agreement, save in so far as agreed in writing in advance by the Purchaser or otherwise expressly required by the terms of this Agreement. 6.1.2 Without prejudice to the generality of Clause 6.1.1, the Seller undertakes that, between the date of this Agreement and Closing, it shall not (and the Promoters shall procure that the Seller shall not) in connection with the Business, without the prior written consent of the Purchaser, which shall not be unreasonably withheld: (i) enter into any transactions for the sale of or create any Encumbrance over the Business or any part of the Business, except for the sale of the inventory in the ordinary course of Business consistent with past practices; (ii) enter into any transactions with any entity controlled by the promoters or any current or former employee, current or former director or any current or former consultant of any entity controlled by the promoters, or any person connected with any of such persons or in which any such person is interested (whether directl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... heir due date in respect of the business; (xii) amend, to any material extend, any of the terms on which goods, facilities or services are supplied for the conduct of the business; (xiii) make any change to its accounting practices or policies; (xiv) make any amendment to the terms and conditions of employment (including remuneration, pension entitlements and other benefits) of any relevant employees; (xv) dismiss any key employee; (xvi) or appoint any new employees in relation to the business whereby the total number of employees will exceed the number of relevant employees; (xvii) make any changed in the scope, nature and / or activities of the business, including any change in the strategic direction and/ or entry into any new lines of business; (xviii) commence or settle any litigation, arbitration or other proceedings, in relation to the business other than collecting debt in the ordinary course of business consistent with past practices and for the purposes set out in clause 6.3.1 (ii); (xix) commence or take any steps in relation to the discontinuance in an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Advocate) appearing for the Appellant submits that the transaction amounts to slump sale of going concern and not a transaction of grant of franchise to Aventis where all assets and liabilities has been transferred to Aventis. The consideration was arrived after independent valuation and the ownership of the trademark has been permanently assigned. Therefore it cannot be said that merely right to sell has been given to Aventis. M/s Aventis sells the goods as owner and not as franchisee. He relies upon the relevant clauses of agreement and also takes us through the definition of Franchiser, franchisee and franchise agreement to support his contention that there is no representation rights granted to M/s Aventis by the Appellant. M/s Aventis after such sale has not shown any of the product as connected with the Appellant as seen from the labels of the product. The brand name stands transferred to M/s Aventis absolutely with no scope of revocation. They are not charging any amount over and above the one time amount against slump sale and hence there is no franchisee services involved. 3. On the other side Shri Amit Mishra, Ld.Deputy Commissioner (AR) appearing for the r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... concern, on a slump basis. 2.1.2 (i) the Products; (ii) the Business IPR; (iii) the Contracts (which are in force on the Closing Date), subject to the provisions of Part 4 of Schedule 2; (iv) the Permissions, to the extent they can be transferred under Law; (v) the Inventory, subject to the provisions of Clause 6.2; (vi) the complete customer files and receivables thereon; (vii) the Relevant Employees of the Seller, together with any advances given to such Relevant Employees, subject to Clauses 5.1.3 and 5.3.2; (viii) the Books and Records, subject to Clause 9.4.5; (ix) the goodwill relating to the Business, together with the exclusive right for the Purchaser to represent itself as carrying on the Business in succession to the Seller; (x) the Assumed Liabilities; and (xi) all tangible assets related to o held for use exclusively in connection with the Business, as set out in Schedule 19. 2.1.3 The seller agrees and acknowledges that the assets and liabilities being transferred as a part of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verseas Business , the Seller (or any of its Affiliates) shall, and the Promoters shall procure that the Seller shall, send a written notice to the Purchaser (the Selling Overseas Business Offer Notice ) offering to sell the Selling Overseas Business to the Purchaser on the same terms as set out in the Bona Fide Selling Overseas Business Offer. The Selling Overseas Business Offer Notice shall set out the details of the Bona Fide Selling Overseas Business Offer including the price at which the Third Party has offered to purchase the Selling Overseas Business, the material terms and conditions of the Binding Selling Overseas Offer. The Selling Overseas Business Offer Notice shall be Overseas Business to the Purchaser at the price and on the terms set out in the Selling Overseas Offer Notice. 15. Rights of First Offer of the sale of the Business by the Purchaser 15.1.1 If, during the term of the Supply. Agreements wherein the Purchaser continues to source a majority of the Products from the Seller and / or Geltec on an exclusive basis, the Purchaser or an Affiliate of the Purchaser (the Business Seller ) intends to sell the whole or a majority of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es identified with the principal on his behalf, such services by the principal to the service recipient would be taxable. In the light of above definitions under the Act and subject circular dt. 27.07.2005 we find that none of the ingredients of franchisee service or the Board Circular are present in the BPA between the Appellant and M/s Aventis. The transaction is of sale of business marketing division. The Appellants do not qualify as Franchisor as the trademarks have been permanently assigned to M/s Aventis and they have become absolute owner with no control of the Appellant. We even find from the labels of all the product that the such labels now bear the Aventis House Mark on them and the name of Universal does not appear as was the case prior to sale. The business is being run in the name of Aventis/ Sanofi and there is no representation of Appellant over such product. The goods are not identified with the Appellants in the form of sign or symbol. M/s Aventis is not using goods, services or trademark of Appellant. The Appellant were given royalty free licence to use trademark overseas. We find that in terms of Business purchase agreement M/s Aventis has become absolute and p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been considered as profits or gains arising from a slump sale under section 50B. The adjudicating authority has held that the Appellant is having technical know how of the impugned products is the sole owner and as long as technical know how of the manufacturing is not sold out/ transferred to the purchaser, the transfer of marketing division is nothing but granting of marketing rights in India. We find that the adjudicating authority did not appreciate the fact that the transaction of the marketing division is a stand alone business of the Appellant and was sold as going concern individually which is permissible in law. When the Income tax act admits such slum sale as sale of business in that case the same cannot be interpreted in other way as held by the Tribunal in case of Rent Works India Pvt. Ltd 2016 (43) STR 634 (TRI). The relevant portion of the same is as under : 7. On perusal of the agreement with Mr. Alan Van Niekerk, we find that the said agreement is between appellant and one Mr. Alan Van Niekerk for rendering the services to appellant on the management of market and exclusive services. The said agreement provides for payment of an amount as m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otice and the impugned order has interpreted the same in their own way. The BPA does not even recognises the Appellant as service provider and M/s Aventis as service recipient. No nature of any service is appearing in BPA and in such case reliance placed upon some of the clauses in isolation cannot be interpreted as the agreement to be of franchise agreement. It is pertinent that the brandname/ tradename of the product in question stands transferred to M/s Aventis under the deed of assignment and once the highest Authority i.e the Trademark Registry has transferred the brand name/ trade name to the ownership of M/s Aventis, the Appellant has no right over such brand name and trade name and there is no question of any representational rights of Appellant to be given to M/s Aventis. The clause 14 and 15 of the BPA has been relied upon by the Adjudicating authority which relate to right to purchase the business in case the Appellant wishes to sell the overseas business or the buyer wishes to sell back the domestic business. We find that in view of such clause it cannot be interpreted that there is a representational rights or franchise agreement. It is normal commercial covenant and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of the BPA which is not the case here. Even the statements only state the fact that marketing business have been transferred. Thus the interpretation advanced by the adjudicating authority is not sustainable. It is also a fact that except interpreting the clause of the agreement, the revenue has not brought any evidence to show that the BPA was not followed or the transaction were executed otherwise. We thus, in view of above findings and observation hold that the impugned order is not sustainable on merits. Coming to the issue of raising of demands by invoking extended period of limitation, we find that there is no instance which can show that there has been suppression or mis-statement of facts by the Appellant with intention to evade service tax, if otherwise would have been payable. Such transaction first of all is not liable for service tax and was publicized in media. The transactions were reported to various regulatory authorities viz. FDA, Ministry of Corporate Affairs, SEBI etc. and also disclosed in books of accounts and balance sheet. In such case when there is no evidence of suppression or intention to evade service tax, the demand cannot be made by invoking extende ..... X X X X Extracts X X X X X X X X Extracts X X X X
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