TMI Blog2020 (8) TMI 79X X X X Extracts X X X X X X X X Extracts X X X X ..... e mark, trade name or logo or such symbol, as the case may be, is involved - what is important to note is that the party should be granted a representational right to provide service or undertake any process identified with the franchisor. In other words, if the condition relating to representational right is not satisfied, there can be no franchise service. Representational right means a right that is available with the franchisee to represent the franchisor and in that case the franchisee loses its individual identity and is known only by the identity of the franchisor . It is not possible to hold that the service contemplated under the agreement is a franchise service. - Demand with interest and penalty set aside. - ST/50223/2016 & ST/54514/2015 - FINAL ORDER No.: 50738-50739 /2020 - Dated:- 5-8-2020 - MR. JUSTICE DILIP GUPTA, PRESIDENT AND MR. C.L. MAHAR, MEMBER (TECHNICAL) Mr. Vivek Pandey, Authorised Representative for the Appellant Mr. B.L.Narasimhan and Mr. Tarun Trehan, Advocates for the Respondent ORDER A demand of ₹ 1,34,79,398/- towards service tax with interest under section 75 of the Finance Act 1994 [the Finance Act] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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, including know-how, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee; (iii) the franchisee is required to pay to the franchisor, 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. 7. With effect from June 16, 2005, the definition of franchise under section 65(47) is as follows: 65(47) 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. 8. A franchisor has been defined under section 65(48) of the Finance Act as follows:- 65(48) franchisor means any person who enters into fr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are liberty to negotiate the number of channels, type of channels. There is no restriction put by the franchisor by the party on the cable operator as to the content quality or any other material particular which could be download by the cable operator and further supplied to the customers. The only agreement between the party and cable operator is renting of the infrastructure laid by the party necessary to receive and transmit television signals. There is no other instruction or control by the party over the cable operators except that they are obliged to pay them monthly rent which has nothing to do with the business of the cable operator. Putting to the test the facts of the present case to that of the definition and clarification as mentioned above, I find that all the ingredients are not fulfilled in case of the party and therefore for the period up to 16.05.2005 the activities undertaken by the party do not fall within the parameters of franchise services and accordingly, to that extent demand made in the show cause notice is not sustainable. (emphasis supplied) 12. The Principal Commissioner then examined whether the services rendered by Siti Cable to the cabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from 16.06.2005 and accordingly I hold that the demand raised in the show cause notice for the period from 16.06.2005 to 31.03.2008 is sustainable. (emphasis supplied) 13. In regard to the liability to pay interest under section 75 of the Finance Act and penalties under sections 76 and 78 of the Finance Act, the Principal Commissioner observed as follows; Once short levy is sustained under Section 73 of the Finance Act, 1994 the liability of interest under section 75 is imperative. However as regards the penalty preposition under section 78 of the Finance Act, 1994, I find that in view of the pre-amended definition of franchise services and also in view of the fact that the department did not raise any demand under this category for the period subsequent to 31.03.2008, where the party was discharging service tax liability under the services of supply of tangible goods , penalty under section 78 of ibid cannot be imposed. However, penalty under section 76 of the Finance Act, 1994 is imposable on the party. (emphasis supplied) 14. Accordingly, the Principal Commissioner passed the following order: In view of the aforesaid discussion findings I pass the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d ] iv) Once a service has been identified as a service of supply of tangible goods for use , which was made taxable only w.e.f. May 16, 2008, the same service cannot be taxed under any other category prior to the introduction of such levy. In support of this contention, reliance has been placed upon the following decisions: i. Indian National Shipowners Association vs. Union of India [2009 (14) S.T.R. 289 (Bom.)] ii. Kanak Khaniz Udyog vs. Commissioner of Central Excise, Jaipur [2017 (52) STR 46 (Tribunal-Delhi)] iii. Commissioner of C.Ex., Chennai vs. M/s. MRF Ltd [2006 (3) STR 434 (Tri.-Che.)]. iv. Roots Multiclean Ltd. vs. Commissioner of C.Ex., Coimbatore [2006 (1) STR 17 (Tri.-Che.)] v) Without prejudice to the aforesaid submissions, Siti Cable is providing cable services as defined under section 65(105) (zs) of the Finance Act to the cable operators w.e.f. September 10, 2004; vi) In any view of the matter, the extended period for issue of the notice contemplated under the proviso of section 73 of the Finance Act could not have been invoked in the facts and circumstances of the present case. 16. Shri Vivek Pandey, learned Authorised Represe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elow; WHEREAS First Party is in the business of running a cable networking business and is also in the business of running a Cable Channel (s) under the brand name SITI CABLE/SITI CHANNEL in various Cities/ Towns by establishing Cable Networking Business to receive and distribute communication signals to various Cable Franchisee and household customers and to produce/ procure software, to encourage the local talent and to collect the subscription and advertisement charges. AND WHEREAS First Party has established a Cable Networking Business in the town of Panipat and having its master Control Room/ Head end at 8, Marla Colony, Behind Power House, Panipat, Haryana. AND WHEREAS First Party has invested in establishing the Network consisting of Studio and Recording Equipment, Head end, Cable, Dishes, Poles, Computers, Modem and Other technical machines, accessories, plants for receiving and distribution of communication signals by the first party. AND WHEREAS it is expressly understood by both the parties that all assets and materials used in establish the Network as above said are purchased/ procured and owned by the First Party and Second Party has shown his will ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me. Any activation/ de-activation of any pay channel is the sole responsibility of the Second Party and for this the Second Party shall indemnify the First party after execution of this agreement from any third party. It is agreed by the Second Party that Zee Bouquet of Channels should be run/telecast on prime band/tunable band. 6. LIST OF ASSETS: The First Party shall have access at all times to its material/ equipments installed/ used at the control room and in the network including material/ equipments supplied by it from time to time as per records maintained by the First Party. The lists of Materials/ Equipments installed/ used have been prepared as on date 7th July 2003 attached herewith as ANNEXURE-1. xxxxxxx 11. PERMISSION/LICENSE : It understood by the Second Party that the permission to use HSEB s pole is in the name of the first party. Other than the said permission, the Second Party shall obtain in his own name permission/license, if any, required to carry on the cable TV networking business, however, taking/obtaining such permission/license in his name and shall not provide any entitlement contrary to the agreed terms of this agreement. 12. MAINTENANCE, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dated April 1, 2004 between Siti Cable and Direct Home Services Pvt. Ltd. and therefore, the relevant terms of the agreement are not being reproduced. 23. It is clear from the aforesaid agreement that Siti Cable is in the business of running cable networking and channels under the brand name Siti Cable in various cities. It invested in establishing the Network consisting of Studio and Recording Equipment, Head end, Cable, Dishes, Poles, Computers, Modem and other technical machines, accessories, plants for receiving and distribution of communication signals. Clause 2 of the terms and conditions of the agreement is titled as consideration for right to use the network . It provides that as a consideration towards the right to use the assets of Siti Cable, Ashirwad Cable TV Network agrees to pay 20% of the net revenue to Siti Cable every month. Clause 4 of the agreement takes note of the fact that Haryana State Electricity Board had granted permission to Siti Cable for using the electricity poles for laying the cables and that Ashirwad Cable has agreed to deposit the annual pole rentals to the Board on behalf of Siti Cable during the period of the agreement. Clause 5 specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chisor . 27. The Delhi High Court in Delhi International Airport laid down the requirements for an agreement to be considered as franchise agreement and the observations are as follows:- 55. For OMDA to constitute a franchise, it would have to satisfy the requirements of Section 65(47) of the Finance Act, which inter alia requires that the franchisees (Petitioners) 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 lose ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... operator services to their end customers. The consideration received by Siti Cable from the cable operator is also only in lieu of provision of such equipment/assets. The relevant clause of the agreement states that the cable operator would pay a certain sum for use of the assets . There is no explicit or implied intention to grant representational rights in the agreement. There is also no identified consideration for the right to use of logo. This right to use the logo is only an incidental aspect to the business of broadcasting of channels, and not the purpose of the agreement. ii) Siti Cable does not have any significant degree of control over the method of operation of the cable operators. The cable operators are free to negotiate contracts at their own end in respect of pay-channels, advertisements, etc. This deviation itself evidences that the agreement between Siti Cable and the cable operators does not grant any representational right and that Siti Cable only to provide the hardware necessary for the cable operators to render cable network services. 34 The decisions cited by the learned Authorised Representative of the Department now need to be considered. 35. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment. This decision, therefore, does not help the Department. 37. In Amway India Enterprises, the Tribunal observed that the distributors/ABOs have not only been granted right to sell Amway products, but they have the representational rights to sell such products. This was for the following reason: 12 .. Thus, at the first contact, the distributor is expected to make himself 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 be satisfactorily remedied by corrective actions , then Amway can terminate the authorization to operate as a distributor. Thus, only serious misrepresentation of Amway or Amway business can lead to termination of distributorship. In other words, he can, indeed should/is expected to, represent Amway in accordan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e hardware without transfer of possession and therefore, after May 16, 2005 Siti Cable has been duly paying service tax on such supply of hardware under the said category of service. Thus, when payment of service tax under the category of supply of tangible goods for use has never been contested by the Department, the confirmation of demand under the category of franchise service on the same transaction is not sustainable as once the Department has accepted payment of service tax under one category, which was introduced subsequently, it cannot demand service tax under a different category for the previous period. In support of this contention reliance has been placed on the following decisions of the Tribunal: a. Aravali Construction Company Private Limited vs. Commissioner of Central Excise, Jaipur-II [2017 (6) GSTL 347(Tribunal-Delhi)] b. Malviya National Institute of Technology v. Commissioner, Service Tax, Jaipur [2019 (6) TMI 127- CESTAT New Delhi] c. CCE, Customs and Central Excise vs. IOCL [2019 (11) TMI 382- CESTAT Hyderabad ] 42. Learned counsel for Siti Cable also submitted that once the impugned transaction has been identified as a service of supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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