TMI Blog2019 (7) TMI 830X X X X Extracts X X X X X X X X Extracts X X X X ..... r is in nature of joint venture for which no service tax is payable by the appellant. Warranty service - HELD THAT:- The appellant has undertaken to provide warranty service to the customers and receiving the payment through dealers for warranty during the period of warranty. It is like an assurance given by the appellant to the customers that during the period of warranty, if any, defect arises the same will be make good without any fees - The said activity cannot be termed as Franchise Service and same is not liable to pay service tax under Franchise Service . The management service and warranty fee recovered by the appellant from the dealers is not taxable under the category of Franchise Service - demand set aside - penalty also set aside. Appeal allowed - decided in favor of appellant. - Appeal No. ST/1138/2010, ST/58122/2013, ST/51625/2014, ST/60511/2016 - A/60706-60709/2019 - Dated:- 16-7-2019 - Mr. ASHOK JINDAL, MEMBER (JUDICIAL) And Mr. BIJAY KUMAR, MEMBER (TECHNICAL) Shri B. L. Narsimhan, Shri Amrinder Singh, Advocates for the Appellant Shri G. M. Sharma, Shri Tarun Kumar, Shri H. Singh ARs for the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dealer takes the ultimate decision in so far as buying old cars, subject to the terms and conditions of the agreement. The appellant provides a detailed guide on how to ascertain the value of the car. After following the guidelines the true value of the refurbished car is ascertained. This value is certified by the appellant. Depending on market forces, sometimes the cars are sold at a price which may be higher or lower than the true value ascertained by the appellant. Therefore, the dealer provides the necessary infrastructure for the sale of the vehicles pursuant to the refurbishment based on the know-how of the appellant. Thereafter, the appellant assumes the risk in so far as the assurance that the MTV car will run defect free for the stipulated period. For sale of refurbished cars, the appellant receives a management fee which is nothing but a share in the profits which fluctuates over a period of time and sometimes even results in losses on the sale of the car. The appellant also receives a warranty fee towards the warranty that is provided with respect to the refurbished car. The arrangement between the appellant and the dealers involves sharing of expenses and the same fa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e qualified as Franchise Service . He also submits that the appellant role in the said business is not restricted to merely providing proprietary system, technical inputs, trademark etc. but the appellant also plays a significant role in determining the price of vehicle to be sold, standards of refurbishment, appointing an engineer at the dealer s workshop for supervision, providing warranty in respect of such vehicles etc. Therefore, the said management fee is not qualified as Franchise Service . He further submits that the amount received by the appellant as warrantee fee is not liable to pay service under Franchise Service . It is his submission that the appellant have undertaken to provide warranty service to customer. For providing such services, the dealer passes on the warranty fee to the appellant and the appellant submits that the warranty fee received from the dealer is entirely on account of warranty provided under the agreement and it cannot be the subject matter of service tax under Franchisee Service . Further, it is an amount charged for a warranty agreement between the customer and the appellant. Warranty is one of the expenses to be borne by the appellants. H ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Franchise has been defined and sub-section 48 also defined the franchiser which are as under:- 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 with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved. Franchisor means any person who enters into frandhise 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. On going through the said definition of franchise which means:- franchise means an agreement by which (i) Franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved: (ii) The franchisor provides concepts of business operation to franchisee, includin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essential element of any taxable service is absent in the relationship amongst the partners/co-venturers or between the co-venturers and joint venture. In such an arrangement of joint venture/partnership, the element of consideration i.e. the quid pro quo for services, which is a necessary ingredient of any taxable service is absent. 18. In our view, in order to render a transaction liable for service tax, the nexus between the consideration agreed and the service activity to be undertaken should be direct and clear. Unless it can be established that a specific amount has been agreed upon as a quid pro quo for undertaking any particular activity by a partner, it cannot be assumed that there was a consideration agreed upon for any specific activity so as to constitute a service. In Cricket Club of India v. Commissioner of Service Tax, reported in 2015 (40) S.T.R. 973 it was held that mere money flow from one person to another cannot be considered as a consideration for a service. The relevant observations of the Tribunal in this regard are extracted below : 11. Consideration is, undoubtedly, an essential ingredient of all economic transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the aforesaid submissions in the light of the material placed on record. We shall advert to the second aspect namely, as to whether the arrangement between GSFC and GACL amounts to providing any services by GSFC to GACL and 50% incineration expenses incurred would constitute charges for providing such services. There is no dispute about the manner in which HCN is received through pipeline from M/S. Reliance Industries Ltd. by GSFC and GACL and then shared in the ratio of 60:40 respectively. GSFC and GACL are public sector undertakings, as already mentioned above. Since GCN is to be received through pipeline, it is abundantly clear that in order to save the expenditure, both the parties agreed that there should be a common pipeline. Once HCN is received through the said common pipeline, it comes first to GSFC s premises and from there it is diverted in the ratio of 60:40, meaning thereby GSFC receives 60% of the HCN whereas GACL receives 40% of the supply in accordance with their respective requirement. To enable GACL to receive this HCN through common pipeline, arrangement/agreement was entered into between these two parties. For this purpose, handling facilities were installed in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce and same is not liable to pay service tax under Franchise Service . 12. Further, the issue has been examined in the case of Delhi International Airport P. Ltd. vs. UOI (supra) wherein the Hon ble High Court of Delhi observed as under:- 49. Since the stand of the respondent Revenue is that the Upfront Fee and Annual Fee is exigible under the taxing entry Franchise Services and not under the taxing entry Renting of Immovable Property Services , we are limiting the examination to the taxing entry Franchise Services . 50. Section 65(47) of the Finance Act, 1994 reads as under : 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 with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved. 51. To constitute a franchise, an agreement has to satisfy the following conditions : (i) the franchisee must be granted a representational right to : (a) sell or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the franchisor. 68. Further, the taxable service is not mere granting of a franchise but is where the franchisor provides service to a franchisee. For the transaction to be taxable, it is necessary that the service should be provided by the AAI to the petitioners. It is not pointed out by the Revenue as to how and in what form service is being provided by AAI to the petitioners. The Annual Fees paid is not because of any service rendered by AAI to the petitioner. AAI has entrusted the petitioners with some of its functions under Section 12 of the Airports Authority of India Act and no service is being rendered by the AAI to the petitioners in performance of those functions. Perusal of clauses of OMDA clearly shows that AAI does not render any service to the petitioners. 13. Therefore, we hold that the management service and warrantee fee recovered by the appellant from the dealers is not taxable under the category of Franchise Service . Accordingly, the demand against the appellant are set-aside. Consequently, no penalty is imposable. 14. In result, the impugned orders are set-aside and allow the appeals filed by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X
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