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2015 (5) TMI 705 - CESTAT NEW DELHI

2015 (5) TMI 705 - CESTAT NEW DELHI - 2015 (39) S.T.R. 1006 (Tri. - Del.) - Intellectual property Right services - Non speaking order - Held that:- Paras 28 and 29 of the impugned order which dealt with the impugned demand relating to intellectual property are clearly and admittedly non-speaking. Indeed, the first 6 = lines of the said para 28 are essentially reproduction of para 18 of the order-in-original passed in respect of the appellant in a case relating to a different show cause notice. T .....

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see service - Invocation of extended period of limitation - whether the appellant gave to the distributors representational right to sell its products i.e. products identified with it - Held that:- appellant does not dispute that it gave right to sell products identified with it to the distributors. To decide this issue, one necessarily has to refer to Amway s Business Starter Guide and Distributor Application and Terms and Conditions . As per the terms and conditions of distributors, an Amway d .....

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Section 78 of the Finance Act, 1994. As the ingredient for invoking extended period under proviso to Section 73 (1) ibid are identical to those required for imposing penalty under Section 78 ibid., it follows that the extended period is not invocable in this case and the finding of the primary adjudicating authority in para 44 of the impugned order (referred to above) is totally inconsistent with his finding that penalty under Section 78 is not imposable. It is also pertinent to note that Reven .....

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Dated:- 14-5-2015 - Hon ble Mr. Justice G. Raghuram, President And Hon ble Mr. R.K. Singh, Technical Member,JJ. For the Appellants : Shri Sujit Ghosh, Ms. Kanupriya Bhargava and Ms. Mannat Waraich, Advocates For the Respondent : Shri Govind Dixit, A.R. ORDER Per R.K. Singh: Appeal has been filed against order-in-original No. 92-94/AKM/2012 dated 29.11.2012 passed in respect of three show cause notices dated 21.10.2009, 21.9.2010 and 1.9.2011 covering different periods confirming impugned servic .....

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y Corporation USA which is a large direct selling company. The appellant is registered as a S.T. assessees. (ii) It was alleged that (a) the appellant had not paid service tax on expenditure incurred in foreign exchange on taxable service namely Intellectual Property Right service received from its associate enterprises based abroad and also under Franchisee service on the income received by it in the form of subscription from various distributors appointed by the company which were given the re .....

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g Fee Joining Fees is a onetime fee, which is paid as distributorship charges. The distributor is entitled to purchase the products only when he pays the joining fees. Annual Business Fee Annual Business Fee is allocated on pro rata basis over a period of one year. The distributor is entitled to purchase the products only when he pays the fee. Renewal Fee Renewal fee is allocated on pro rata basis over a period of one year. The distributor pays the renewal fee to get its distributorship renewed .....

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received the taxable services from their associated enterprises and they were liable to pay Service Tax under reverse charge in term of Section 66A of the Finance Act, 1994. However, they have made similar contentions that they are liable to pay service tax on these services only when the payment of these services is actually made by them . It was further contended that the amendment made in Section 67 enlarging the meaning of Gross amount charged for associated enterprises is prospective in op .....

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ns which are registered in India. Accordingly, they paid service tax after claiming 5% deduction from service tax on account of deposit of R & D cess in terms of Notification No.17/2004-ST dated September 10, 2004. The noticee was not entitled to the benefit of Notification as the Noticee had not submitted the documentary evidence in this regard. Further , the interest also liable to be charged and recovered from them under Section 75 of the Act ibid. 4. As regards the impugned demand under .....

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e following submissions made before the primary adjudicating authority; (a) it had paid service tax in respect of such IPR service for which they were registered in India after claiming the benefit of Notification No.17/2004-ST dated 10.9.2004. (b) It cited the definition of Intellectual Property Right in Section 65 (55a) of the Finance Act, 1994 which is reproduced below: intellectual property right means any right to intangible property, namely, trade marks, designs, patents or any other simil .....

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s are made in respect of certain Intellectual Property Rights (i.e. IPRs) such as patents, copyrights, trademarks and designs. The definition of taxable service includes only such IPRs (except copyright) that are prescribed under law for the time being in force. As the phrase law for the time being in force implies such laws as are applicable in India, IPRs covered under Indian law in force at present alone are chargeable to service tax and IPRs like integrated circuits or undisclosed informatio .....

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(2011) 11 SCC 786 - wherein it has been inter alia observed that it is not permissible for the Court to allow the party to lead evidence which is not in line of the pleadings . 6. As regards franchise service, the appellant referred to the definition of franchise given in Section 65 (47) of the Act which is reproduced below: Franchise means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified .....

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judgment in the case of UOI and Another vs. Hansoli Devi and Others (2002) 7 Supreme Court Cases 273 wherein it was held that it was not a sound principle of construction to brush aside words in a statute as being inapposite surplusage, if they can have appropriate application in circumstances conceivably within the contemplation of the statute . It also approvingly referred to a case of Quebec Railway, light Heat & Power Co. Ltd. vs. Vandry AIR 1920 PC 181 wherein it was observed that the l .....

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ified with it and not the representational right to sell such goods. It referred to the provisions relating to Franchise in some other countries and the dictionary meanings of representation or representational . 7. Ld. A.R. for Revenue on the other hand argued that (i) the non-speaking order can be set aside only by way of remand and the judgment of the Supreme Court in the case of Kalyan Singh Chouhan vs. C.P. Joshi (supra) was given in a different context. He cited the following judgments to .....

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cs Distributors vs. C.C.E., Pune 1997 (92) ELT 451 (SC). (ii) It is incorrect to say that IPR service would arise in respect of only such intellectual property which was registered under an Indian law and that there is no requirement for registration of intellectual property under an Indian law in the definition of IPR given in Section 65 (55a) of Finance Act, 1994. (iii) Ld. A.R. also referred to in detail to Amway s Business Starter Guide and Distributor Application and Terms and Conditions to .....

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ion 65 (55a) ibid] and that intellectual property right can (and does) arise under various Indian laws without any requirement of such registration and all such intellectual property right would be covered under the said definition. However, both sides conceded that the impugned order is a non-speaking order with regard to confirmation of the impugned demand pertaining to intellectual property service inasmuch as it had not considered and analysed the various submissions of the appellant before .....

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e noticees have not disputed that they have received taxable services from their associate enterprises and they were liable to pay service tax under reverse charge in terms of Section 66A of the Finance Act, 1994 Thus both sides have rightly agreed that the impugned adjudication order relating to the confirmation of service tax demand under intellectual property service is a non-speaking one. 9. The appellant has argued that by virtue of the impugned order being clearly non-speaking in respect o .....

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he Supreme Court s observation (quoted earlier) sought to be relied upon by the appellant was made in that context. In any case, the said judgment in no way leads itself to necessarily convey that a non-speaking quasi-judicial order has to be summarily set aside without recourse to remand. In the case of Deepak Agro Foods vs. State of Rajasthan (supra) the Supreme Court held that all irregular or erroneous or even illegal orders cannot be held to be null and void. In the case of Gajanan Fabrics .....

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a Pvt. Ltd. vs. C.S.T., Delhi III (supra) the Hon ble CESTAT remanded the case for fresh consideration observing in para 5 thereof as under: 5. Since the issue as to whether the transfer of technology and know-how by the Japanese holding company to the assessee fulfils the requirements of Section 65(105)(zzr) read with the definition of intellectual property Rights in Section 65 (55 a), has not been considered by the adjudicating authority. We are of the considered view that it is appropriate to .....

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icating authority on this aspect but shall not however be entitled to personal hearing again. Any case supporting the assessees contentions may also be appended to the memorandum of written submissions, within the time stipulated herein. Punjab and Haryana High Court in the case of C.C.E., Ludhiana vs. Gulab Industries (P) Ltd. (supra) in effect held that negligence by officers can not be a ground to allow a delinquent to go scot free and that an order issued in violation of principles of natura .....

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icer of the rank of Additional Commissioner, was not aware that he is required to append all relevant documents with the show cause notice, and if not appended, to provide copies to the noticee within reasonable time, before proceeding to adjudicate the show cause notice. Admittedly, documents were not supplied to the respondent. The negligence does not end here. The appellant authority granted time to the Department to furnish documents to the respondent so that it could reply to the show cause .....

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e or collusion by officers, enjoined with duty to collect taxes, detect evasion and/or to impose penalties, etc., cannot be a ground to allow a delinquent to go scot-free. Where an order discloses violation of principles of natural justice, it is incumbent, while setting aside such an order, to remand the matter instead of allowing defaulting party to go scot-free.The appellant authority as well as the Tribunal, while holding that principles of natural justice have been violated, should have rem .....

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service is required to be set aside and remanded to the primary adjudicating authority with a direction to pass a speaking order after adverting to submissions of the appellants. 11. As regards franchise service, the contentions that no word in a statute is to be treated as redundant, that legislature is deemed not to waste its words and that each word in a statute has to be given proper meaning is unexceptionable and accepted. Consequently, we are not making any reference to various judicial p .....

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e have to go only and only by the definition of franchise given in Section 65 (47) ibid. Therefore, it will be pointless to indulge in any analysis with regard to the meaning of the word franchise in other countries (and in relation to any other Indian law for that matter). In this regard it is useful to extract below the portion of para 9 from the judgment in the case of UOI and Another vs. Hansoli Devi and Others (supra): A provision is not ambiguous merely because it contains a word which in .....

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entational right to sell its products i.e. products identified with it; the appellant does not dispute that it gave right to sell products identified with it to the distributors. To decide this issue, one necessarily has to refer to Amway s Business Starter Guide and Distributor Application and Terms and Conditions . As per the terms and conditions of distributors, an Amway distributor is also governed by Rules of Conduct. According to the Business Starter Guide, a distributor is also known as a .....

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n as defined in para 2.1.5 of Business Starter Guide means the plan provided in the Amway Business Starter Guide detailing Amway s performance incentive systems, sponsoring procedures and guidelines, requirements, systems, procedures, and policies regarding the presentation of Amway products, the Amway business and the management of an Amway organization, as amended from time to time by Amway and of which these Rules are a part. (ii) be courteous and prompt in handling of any and all claims for .....

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ting Plan are a part. Para 4.8 of the Guide, inter alia, stipulates that Distributor shall comply with all law, regulations and codes that apply to the operation of their Amway business wherever said Amway business may be conducted within the market and they must not conduct any activity that could jeopardize the reputation of the Distributor and/or Amway. Thus the ABO is not merely having right to sell Amway product; he also does presentation of Amway s Sales & Marketing Plan which inter al .....

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else has the authority to grant, sell , assign or transfer such franchises or to assign or designate territories. Thus the Business Starter Guide clearly delineates as to in what respects/aspects the ABO can not represent. In other words, it follows that it is incorrect to claim that a distributor has not been granted representational rights to sell products identified with Amway It becomes further evident from para 8.2 of the said Guide which states that. At the first contact with prospective c .....

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self known is a suitable fashion as an Amway distributor and provide information concerning his name and address as well as concerning Amway and the purpose of contact, including introduction of the prospect to the Amway business. Thus it again becomes evident that the ABO has been given right to represent Amway business. Para 12.12 of the Guide also clearly states that if the distributor makes a serious misrepresentation of Amway or the Amway business which in Amway s opinion, is not likely to .....

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edia Policy, it is stated (referring to the ABOs) that Remember , what you say reflects upon your and Amway s reputation . Now Amway s reputation can be affected by what the ABOs says only when he is taken to represent Amway in some (however limited) capacity. From the aforesaid analysis of the Amway Business Starter Guide and Distributor Application and Terms and Conditions , it becomes evident that ABO/distributor is not merely granted right to sell Amway products but he has the representation .....

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these words nowhere appear in the definition of franchise . Reference to the meaning of the words Represent and Representational given in Oxford English Reference Dictionary and the Law Lexicon have been perused. Some of the meanings of represent in Oxford Dictionary are stand for , corresponds to , be example of , symbolize , make out , portray be entitled to act or speak for etc. Meanings of the word represent in Law Lexicon are same/similar to those given in Oxford Dictionary. The aforesaid m .....

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