TMI Blog2017 (12) TMI 1197X X X X Extracts X X X X X X X X Extracts X X X X ..... from moving or removing machine from its original place of installation without prior approval of the appellant. Clause in agreement show that clients are required to keep illuminated sings on the machine, if any, illuminated all the times. The article 6 of the said agreement prescribed that franchisee shall not have any right, title or interest in the appellant’s trade mark/trade name/logo. Aforesaid agreement also prohibits franchisee from selling any other beverages from the vending machines in terms of clause (b) of Article 3 of agreement. In fact as per clause (e) of Article 3, the appellant or its nominee only have right to refill, reload the raw material in the vending machine. In terms of above condition of the agreement itself apparent that the appellant have granted representational right to the franchisee. To any person wishing to have beverages, it would appear that he is buying beverages from the appellant and not from the franchisee as it is the appellant’s name that appears on the machine and same is prominently displayed on the machine. The raw material used also appearing the brand name of the appellant. To a person purchasing the beverage from the said vending ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... charged for demand of service tax under head of Franchise Service . Ld. Consultant pointed out that they are not covered under the said service as they have not granted any representational rights to their client. Ld. C.A. argued that they are involved in supply of beverage vending machine bearing name BEVERAGE EXPRESS to various clients. The said machines are installed in the clients premises. The appellant have entered into agreement with the said client. Ld. C.A. presented one such agreement as a sample. As a consideration the client has to make onetime payment apart from certain monthly payment. In terms of the said agreement the client are obliged to purchase the beverages ingredient from the appellant. The premises of the client are approved by the appellant in terms of the agreement and position where machine is to be placed in the client s premises is decided by the appellant in terms of agreement. The clients are prohibited to sell any other beverages other than those specified by the appellant from time to time from the said vending machine. The clients are obliged to follow the operating instruction of the said machine, the appellant are obliged to maintain proper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other beverages. Ld. C.A. argued that in this circumstances it cannot be said that the identity of the client has been subsumed in the identity of the appellant. 2.3 Ld. C.A. argued relied on the decision of the Tribunal in case of ACE Calderys Ltd Vs. Commissioner of Service tax, Bhopal[2016(42) S.T.R. 8(Tri. Del)] to assert that merely because the word Franchise and Franchisee has been used in the agreement between appellant and client does not ipso facto means that as per that agreement franchise service was rendered. 2.4 Ld. C.A. further argued that they have paid sale tax on the said transaction and therefore it is to be treated as transfer of property and therefore No. service tax can be levied. Ld. C.A further argued that benefit of cum tax duty has not been extended. For this assertion he relied on the decision of Tribunal in case of CCE Vs. Advantage Media Consultant [2008(10) S.T.R. 449 (Tri. Cal) which was maintained in the Apex Court reported as [2009(104) S.T.R. 0J49 (SC)]. 2.5 In so far as issue of limitation is concerned, Ld. C.A. argued that they were paying sales tax on the same transaction and in this circumstances there cannot be intentio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... beverages from the vending machine other than those belonging to the appellant in terms of Clause (b) of Article 3 of the agreement. In view of the above, it is seen that condition (ii), (iii), and (iv) are clearly satisfied. The remaining condition regard grant of representational right is being examined in the following paratraphs 5.1 The term franchise needs to be appreciated in the context of the definition of franchisor and franchisee . The term franchisor is defined in clause 48 of Section 65 of Finance Act, which reads as under: franchisor means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term franchisee shall be construed accordingly 5.2 In the instant case the appellant are giving machine containing their company logo, which may be illuminated, affixed on the said machine. The said machine in terms of agreement is required to be placed in such manner that the logo/illuminated logo is clearly visible. Ld. C.A. have relied on the decision of Hon ble Delhi High Court in case of Delhi International Airport P. Ltd Vs. U ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the users of the services. 12. Under Article 11.1 of the OMDA, in consideration of the Grant of Rights granted under Article 2.1.1 of the OMDA, the petitioners have to, inter alia, pay an Annual Fee to AAI. The Annual Fees payable to AAI is @ 45.99% in the case of DIAL @ 38.7% in the case of MIAL, of the projected Revenue to be received by the petitioners. 13. The Revenue s share payable to AAI is paid through an escrow bank account. Under the escrow mechanism, all receipts from various sources received by the petitioners are deposited into a Receivable Account from which they are transferred to a Proceeds Account. From the Proceeds Account, payments are first made towards statutory dues and out of the balance, AAI is paid the Annual Fees and any other amounts due to it under the OMDA. The balance is transferred to a Surplus Account, which comes to the petitioneRs.as their respective share of the Revenue. In the said case the defence of the appellant was what they are recovering is only share of the Revenue and DIAL is not paying to Airport Authority of India. In para 28 and 29 of the said order following has been observed. 28. It is further su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioners) should have been granted representational right by franchisor (AAI). 56. Merely because, by an agreement, a right is conferred on a party to sell or manufacture goods or provide services or undertake a process, would not ipso facto bring the agreement within the ambit of a franchise. What is also required is to establish that the right conferred is a representational right . 57. The term representational right would necessarily qualify all the three possibilities i.e., (i) to sell or manufacture goods, (ii) to provide service, and (iii) undertake any process identified with the franchisor. 58. A representational 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. The above observations essentially summerised the test for exist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Windows only denote that the processor or the operating system/software, as the case may be, in the said laptop is that of Intel or Microsoft. By putting such label, the laptop manufacturing company does not represent either Intel or Microsoft or become the franchisee of Intel or Microsoft or become the franchisee of Intel or Microsoft . We find that in the said case there is No logo or mark of the Global Transgene Ltd on the product being marked. In the instant case product being marked and the machine used for making the product, both contained logo/mark/eliminated signs of the appellant. In view of this fact in case are different. In the instant case the agreement contains following clause. WHEREAS GPI is in the business of selling beverage ingredients(for hot and cold beverages) of different flavours, premixes and syrups (hereinafter called Raw Materials ) as well as placement and maintenance of its branded beverage vending machines. WHEREAS The Franchisee has approached GPI and represented that it has the required location and requisite infrastructure and has offered to run and operate GPI s vending Machine at this location using GPI Raw Mat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... soever. (i) Use the fresh and can un-expired stock_ of the said raw materials for the preparation of the said beverages and undertaken/bear all the liabilities/fines/penalties etc as may be brought against/imposed on GPI in case of any violation in this regard. (j)) Maintain and keep intact the original logo advertisement and/ or any other indication/mark affixed on the said machine and shall neither obstruct deface or remove the same nor shall add any other logo, advertisement, mark etc.(other than the ones agreed/approved by GPI) to the said machine. It shall not obstruct, move or remove the said machine from its original place of installation without prior written approval of GIP. In the event the machine contains an illuminated signs, shall kept such sign illuminated at all times. ARTICLE 6: INTELLECTUAL AND PROPRIETORY RIGHTS : The Franchisee shall not have any rights, titles or interests including intellectual/ proprietary rights or otherwise in or to the GPI trademarks, trade names, logos, said raw materials machines etc supplies by GIP RTICLE 7: OWNERSHIP AND TITLES: The ownership rights titles, interests etc in the said Vending Machine sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances, it cannot be denied representational rights have been granted to the franchise by the appellant. 5.5 The next issue raised by the appellant related to fact that they are paying sales tax/VAT on the said transaction under the category of transfer of rights to use as deemed sale and therefore No. service tax can be demanded on the said transaction. It is not for this Tribunal to decided if the liability under sales tax arises or not. This tribunal can only adjudicate if the liability under service tax arises or not. In this regard appellant argument that they have paid sales tax is of No. avail. The appellant also raised the issue of limitation relying on the facts that they have paid sales tax on the same transaction therefore there was No. intention to evade duty. We find that the mere fact of payment of sales tax is not sufficient to hold that they are not liable to service tax. The decision relied upon in their defence like Bharat Sanchar Nigam Ltd. Versus Union of India[2006 (2) S.T.R. 161 (S.C.)] and Shilpa Color Lab Versus Commissioner of C. Ex., Calicut[2007 (5) S.T.R. 423 (Tri. - Bang.)] also recognized that mere fact that sales tax is been paid is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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