TMI Blog2015 (10) TMI 2412X X X X Extracts X X X X X X X X Extracts X X X X ..... dered and thus agreement miserably fails to qualify as franchise agreement - Goods were sold to appellant and were consigned only to those persons whom he directed manufacturer to consign them to – Actual transactions between appellant and manufacturer are also in conformity with agreement – Impugned demand not sustainable – Decided in favour of assessee. - Appeal No. ST/1565/2010 & ST/394/2012-CU (DB) - F. Order No.52833-52834/2015 - Dated:- 3-7-2015 - G Raghuram, President And R K Singh, Member (T) For the Petitioner : Shri Balbir Singh, Sr. Adv. Shri Abhisek Singhal, Advs For the Respondent : Shri Rajeev Tandan, DR ORDER Per R K Singh Appeal is filed against order in original dated 26/08/2010 in terms of which service tax demand of ₹ 4,65,42,505/- was confirmed along with interest and penalties. 2. The facts of the case are as under: The appellant is engaged in the manufacture of branded alumina firebricks and other refractory material. Besides manufacturing the said goods in its own factory, the appellant, it is alleged, granted franchise for manufacture of firebricks of specifications, design and quality prescribed by it to some other ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in its books of accounts the amounts paid to these manufacturers is accounted as purchase cost of products and the sale value based on the commercial bills raised on its customers is recorded as value realised on sales. It was issuing sales tax declaration forms for such purchases from these manufacturers and it was also getting sales tax declaration forms from its customers. (g) The realisation for sales were done by it directly from the customers. The difference between the amount of excise invoice on which the taxes and duties were paid and the purchase price paid to these manufacturer as per the purchase order was termed as incremental/opportunity costs and it did not represent any service charges and the prices mentioned in the manufacturers' invoices to it did not represent the sale price but the price only for the purpose of calculating excise duty and sales tax. The manufacturers were only paid the purchase rates as agreed upon. (h) The sales tax was paid on the entire value and therefore service tax could not be levied on the same amount as has been held by Supreme Court in the case of Bharat Sanchar Nigam Ltd Vs. Union of India - 2006 (2) ST STR 161 (SC) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decided the issue in its favour. 4. The ld. DR supported the reasoning of the adjudicating authority and added that even the agreement with the manufacturers mentions the words franchise/franchisee. He cited the CESTAT judgement of Delhi Public School Society Vs. CST, Delhi - 2013 (32) STR 179 (Tri.-Del.) . 5. We have considered the contentions of both sides. The only issue in this case is whether the service, if any, rendered by the appellant to the manufacturers fell under the scope of franchise service. Therefore, it is useful to re-produce the definition of franchisor given in Section 65(48) of the Finance Act, 1994 and franchise defined in Section 65(47) of Finance Act, 1994 as under: Franchisor means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designed by franchisor to enter into franchise on this behalf and the terms 'franchisee' shall be construed accordingly. Franchise means an agreement by which (i) Franchisee is granted representational right to sell or manufacture good or to provide service or undertake any process identified with franchisor, whether or not a trademark, se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as agreed to grant franchisee to the party no.2 on specific condition that they shall manufacture the firebricks on the specifications, design and quality as directed by part no.1 as specified and shall dispatch the firebricks only to such customers of party no.1 as specified in their purchase orders; AND WHEREAS the party no.2 has agreed to supply the firebricks on the terms and conditions of party no.1 and to the customers of party no.1 alone on the price dictated by party no.1 and shall reimburse the incremental cost to party no.1 as mentioned in the Purchase Order/Annexure by way of payment of opportunity cost. NOW THEREFORE IT HAS BEEN AGREED BETWEEN THE PARTIES AS FOLLOWS: (a) That the party no.2 shall dispatch the firebricks to the customers of Party no.1 as per the directions of Party No.1 (b) That the party no.2 shall along with the dispatch of goods, send the invoice-cum-gate pass-cum-despatch advice showing the price as quoted by Party no.1 in their Purchase Order and shall also indicate in such documents besides the Sale Price the leviable sales tax and excise duty separately. (c) That the Party No.2, franchisee, will send to the Party No.1 a co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee, a brief analysis of the general principles of interpretation/construction of documents is appropriate. (a) In Radha Sundar Dutta v. Mohd. Jahadur Rahim - AIR 1959 SC 24; Puzhakkal Kuttappu v. C. Bhargavi and Others - (1977) 1 SCC 17; Ford against Beech - (1848) 11 QB 852; Inntrepreneur Pub Co. Ltd. v. East Crown Ltd. - (2000) 2 Lloyd's Rep 611; Investors Compensation Scheme Ltd. v. West Bromwich Building Society - (1998) 1 ALL ER 98 and Hideo Yoshimoto v. Canterbury Golf International Limited - 2000 NZCA 350 the general principles pertaining to construction of documents/contracts were delineated: Lord Hoffmann in the leading opinion of the House of Lords (with which the other learned law Lords concurred) in West Bromwich Building Society, while observing that almost all the old intellectual baggage of legal interpretation was discarded, summarized the principles by which contractual documents are presently considered, as under: (i) Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1. '... If detailed semantic and syntactical analyses of words in a commercial contract is going to lead to a conclusion that flouts business common sense, it must be made to yield to business common sense'. 17. In Hideo Yoshimoto, Thomas, J. for the New Zealand Court of Appeal after quoting with approval the restatement of law by Lord Hoffmann in West Bromwich Building Society and noting that the five principles Lord Hoffmann articulated were reiterated and applied by the New Zealand Court of Appeal in Boat Park Ltd. v. Hutchison, referred to a paradigm shift in the interpretative principles noticed by Wigmore [Wigmore on Evidence - 1981-vol. 9, para 2461] and agreed with the observation: The history of the law of interpretation is the history of a progress from a stiff and superstitious formalism to a flexible rationalism; and proceeded to state: The cardinal rule of contractual interpretation must be to ascertain the intention of the parties. To the extent this rule is not implemented, the courts must incur the criticism of failing to give effect to the reasonable expectations of the parties. Surely the parties are reasonably entitled to expect that the courts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... intent and content of the agreement. As has been analysed, no part of the agreement gives the slightest support to the contention that it gave representational right to the manufacturers to manufacture goods identified with the appellant. As a consequence notwithstanding the presence of words, 'franchise'/'franchisee', therein, the said agreement miserably fails to qualify as franchise agreement. The judgement of CESTAT in the case ofDelhi Public School Society Vs. CST, New Delhi - 2013 (32) STR 179 (Tri.-Del.) is not relevant to the present circumstances. In that case the franchisee had representational right to render service identified with Delhi Public School Society and also that judgement dealt with totally different facts and circumstances. 9. We have seen some of the invoices issued by the appellant as well as the manufacturers. We find that the manufacturers have issued invoices where the goods were shown to be sold to the appellant and the consignee is the person to whom the goods were consigned as per the direction of the appellant. The appellant in turn sent the invoice to the consignee- customer in which the total value shown was the aggregate of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... la etc. as laid down by the appellant. Further FIPL is bound to charge the price from the notified Identer of the appellant as fixed by the appellant. Only for the risks associated with the manufacturing process fastened on FIPL (CBU), it cannot be said that as FIPL is responsible for proper quality, quantity and timely production, they are providing Franchise Service and/or IPR Service. Further taking notice of the definitions which are reproduced below:- 47. Franchise means an agreement by which Franchisee is granted representational right to sell or manufacture good or to provide service or undertake any process identified with franchisor, whether or not a trademark, service mark, trade name or logo or any such of symbol, as the case may be, is involved. (48) Franchisor means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designed by franchisor to enter into franchise on this behalf and the terms 'franchisee' shall be construed accordingly. From the aforementioned definitions, it is crystal clear that in the facts and circumstances, no services have been provided by the appellant to FIPL un ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
