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2011 (4) TMI 242

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....o Diploma in advanced software technology, popularly called as CMC Modular DAST course and for use and access under its Franchise Scheme by the subscribers. The assessee has not registered itself with the Department under Franchisee Services. The Department contended that the Franchising Agreement entered by CMC with the subscribers have satisfied the definition of Franchise services under Section 65 of Chapter V of the Finance Act, 1994 (the Act) with effect from 1/7/2003 and they are liable to pay service tax w.e.f. 1/7/2003 as per provisions of Chapter V of the Act. The Department found that CMC collected one time franchise fee / licensing fee and deducts 25% of course fee as royalty from the course fee collected, as per Franchising agreement and has collected Rs.8,13,697/- on licensing fee and Rs.48,09,109/- on course fee fro the period from 1/7/2003 to 30/6/2004 from the subscribers and has not paid service tax of Rs.4,49,825/-. The Department alleged that CMC by reason of omission or failure on their part have failed to disclose wholly or truly all-material facts required for verification of the assessment under Section 71 of Chapter V of the Act and that the value of taxable....

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....e would draw our attention to the definition of the Franchisee services and submit that the appellant has not been receiving any fees from the franchisees and hence, they are not liable to pay any service tax. He would draw our attention to the typical agreement entered by the assessee with the franchisees and draw our attention to the various clauses and submit that at the end of the course the diploma was granted by the assessee. He would submit that a one time franchise fee which has been paid by the franchisees were liable for service tax under the franchise services and they have discharged the same and are not disputing the same before the Bench. They are challenging the findings of the lower authorities only to the extension of liability to pay service tax on 25% of fees retained by them. He would submit that student makes payment for the entire course to the appellant i.e. M/s. CMC Ltd. Out of this amount, the appellant retained 25% and disbursed the balance 75% to the franchisees who conduct such courses. This would indicate that they have been collecting the fees and the amount which is retained by them is nothing but fees. He would submit that subsequent to 1/7/2004, the....

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....show that franchisee has to pay the appellant one time franchisee fee and also royalty worked out at the rate of 25% of the course fee of each participant. It is his submission that this 25% of the course fee which has been remitted back or retained by the appellant is nothing but a franchisee fee as envisaged in the definition of franchisee services. He would submit that the exemption granted to the commercial Coaching or Training classes for conducting computer education would not applicable in this case as the appellant is only franchiser and has not conducted any commercial coaching classes but the franchisee is conducting the same. It is his submission that if nay exemption has to be given under Notification No.9/2003-ST, it could be only to the franchisees who are conducting this computer education classes. He would submit that the issue is now fairly settled by the decision of the co-ordinate Bench of the Tribunal in the case of Jetking Information Ltd. Vs. CCE, Mumbai-I [2007(7) STR 314 (Tri. Mum.)]. He would submit that the adjudicating authority had not given any reason for non-imposition of penalties on the appellant and hence the penalties imposed by the ld. Commissione....

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....franchisee is required to pay to the franchiser, directly or indirectly, a fee; and   (iv) the franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.   11. From the above reproduced definition, it can be seen that to consider an agreement as franchise agreement or the service rendered under the category of franchising service or not an assessee to satisfy all the four conditions which are enumerated herein above. Even the Board vide their Circular dt. 20/6/2003 had specifically indicated that all the ingredients mentioned from 1 to 4 need to be satisfied and then only such agreement can be considered as a franchise agreement. The assessee claims that they are not satisfying the condition (iii) as much that no amount is paid back to the franchiser i.e. appellant directly or indirectly as fee.   12. On the factual matrix on the perusal of the agreement entered by the appellant with one of the franchisees, we find that in clause No.5, there is a clear cut restriction on the franchisee in the following terms:-   5. Territory, Audience and General curriculum:   i. The F....

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....chisee. We find that the decision of the co-ordinate Bench in the case of Jetking Information Ltd.(supra) is squarely on the point. We may reproduce the ratio:-   6. The taxable service stands defined in Section 65(105)(zze) of Service Tax Act, as any service provided to a Franchisee, by the Franchisor in relation to Franchise . The Franchisor develops the brand name, concept of following the business, promotes the same and establishes the name. As such, by entertaining into an agreement of Franchisee s, it assigns the brand name to other person to carry out the business under his brand name or trade name, in the same manner in which he himself was conducting the business. The definitions of Franchisor under Section 65(48) of the Act, means any person who enters into franchise with an franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchisee s on his behalf. The agreement as placed before us refers the appellant as the franchisor and the other party as franchisee. In terms of the said agreement there are obligations on the franchisee to set up the adequate premises and to conduct the business in accordance with the terms....