TMI Blog2021 (4) TMI 15X X X X Extracts X X X X X X X X Extracts X X X X ..... tax could not have been imposed. Project Agreement indicates that the developer has not to represent itself as MTNL, nor has its identity as a Joint Venture Company been subsumed in the identity of the appellant. In the present case, the Project Agreement executed between MTNL and the Joint Venture Company is for development of the immovable property and is no manner identified with the appellant. The appellant is popularly known as a telecommunication service provider and not as a developer of immovable property . The essence of the Project Agreement is to grant development rights to the Joint Venture Company and there is nothing in the contract which may even remotely indicate that MTNL intends to do business through the developer - It cannot, therefore, be said that any franchise service was rendered to the appellant - Demand set aside. CENVAT Credit - HELD THAT:- It is a fact that out of the total amount of CENVAT credit of ₹ 4,99,32,736/- that has been disallowed claiming it to be for purchase of towers falling under Chapter 73. However, an amount of ₹ 4,90,91,607/- consisted of goods falling under Chapter 84 and 85 and, therefore, the appellant could a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant was in possession of land measuring 19.76 acres situated at B-3, Institutional Area, Sector-62 Phase-II, Noida, Utter Pradesh. It desired to develop this land as a Core Knowledge Park and for this purpose it invited proposals from the bidders for the selection of a Joint Development Partner in implementing the project. IDEB SUCG JV was selected for the project and this Joint Development Partner consisted of two members, with IDEB Projects (P) Ltd. [ IDEB ] being the lead member and Shanghai Urban Construction (Group) Corporation [ SUCG ] as a member. These two members formed IDEB-SUCG Knowledge Park Private Limited [ the Project Development Company ] for implementation of the Project. It entered into a Deed of Confirmation and Ratification on August 7, 2007 with the Project Development Company. 3. A Project Agreement dated August 7, 2007 was also executed between MTNL, the Joint Venture Company and the Project Development Company. MTNL agreed to transfer and assign to the Joint Venture Company/the Project Development Company its rights and obligations with regard to designing, planning, financing, marketing, development of buildings/ developed units, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act; (ii) Cenvat credit of ₹ 4,99,32,736/- (Rs. Four Crores Ninety Nine Lakhs Thirty Two Thousand Seven Hundred and Thirty Six only) wrongly availed and utilized against capital goods falling under chapter 73 as per details in para 4.3 above should not be disallowed and recovered from them in terms of Rule 14 of the Cenvat Credit Rules, 2004 read with Section 73 of the Finance Act read with Section 95 of the Finance Act, 1994 should not be demanded and recovered from them; (iii) Service tax (including education cess and higher and secondary education cess) of ₹ 12,56,342/- (Rs. Twelve Lakhs Fifty Six Thousand Three Hundred and Forty Two only) not paid on the POP charges received as per details in para 5.2 above should not be demanded and recovered from them in terms of Section 73 of the Finance Act read with Section 95 and Section 140 of the Finance Act, 1994 should not be demanded and recovered from them; (iv) Interest on the service tax not paid and Cenvat Credit utilized wrongly should not be demanded and recovered from them under Section 75 of the Finance Act, 1994 read with Rule 14 of the Cenvat Credit Rules, 2004; (v) Penalty under Section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or, but the Department failed to establish this fact. In this connection reliance has been placed upon a decision of the Delhi High Court in Delhi International Airport P. Ltd. vs. Union of India [ 2017 (50) S.T.R. 275 (Del.) ] ; (iii) In any case, neither does the show cause notice allege that a representational right was granted by the appellant to the Project Development Company/Joint Venture Company nor is there any finding in this regard in the impugned order; and (iv) The development of immoveable property is in no manner identified with the appellant, which is also an essential requirement of the charging provision. The appellant, in fact, is a known as a telecommunication service provider and not as developer of immovable property . CENVAT Credit (v) The entire CENVAT credit of ₹ 4,99,32,736/- crores has been denied to the appellant on the ground that the credit was claimed on purchase of towers falling under Chapter Heading 73 which is not specifically provided in rule 2(a) A of the CENVAT Rules. However, this CENVAT credit amounting to ₹ 4,90,91,607/- also consisted of goods falling under Chapter 84 and 85. Complete details wit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . To appreciate this issue, it would be appropriate to refer to the relevant clauses of the Project Agreement executed between the appellant, the Project Development Company and the Joint Venture Company. 15. The Project Agreement made on 7.8.2007 is between MTNL, the Joint Venture Company and the Project Development Company. Clause E of the Agreement, which deals with the transfer and rights and obligations, is as follows: E MTNL has executed this agreement to transfer and assign to the Joint Development Partner/PDC its rights and obligations with regard to designing, planning, financing, marketing, development of buildings/Developed units, provision of necessary infrastructure services operation maintenance of services infrastructure, administration and management of the Project upon the terms as set out in the Agreement herein. 16. The obligations of MTNL are contained of paragraph 3 of the Project Agreement and are reproduced below: MTNL s Obligation 3.1 Subject to the provisions of this Agreement, MTNL shall execute a Power of Attorney in the format specified in Schedule 1: Power of Attorney in favour of the PDC on the Effective Date ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed built-up area: The JV is to hand over to the Assessee, constructed built-up area of 25.2% in the knowledge park which was to be constructed by the JV. (c) Licence Fee: ₹ 1/- per sq. ft. per month for total built up area, payable till the end of concession period. (d) 50% discount on usage of common amenities to be provided by the JV to the Assessee. 19. The Commissioner confirmed the demand of service tax on Development Compensation and POP charges and also held that the appellant had wrongly availed and utilized CENVAT credit against capital goods falling under Chapter 73. 20. In regard to the service tax liability fastened upon the appellant on the amount received towards Development Compensation Charges, the Commissioner observed as follows: 15.3 Upon perusal of the above clauses, I observe that in terms of clause E of the agreement, MTNL has transferred and assigned its rights and obligations to JDP with regard to designing, planning, financing, marketing, development of buildings/ developed units, provision of necessary infrastructure service, operation and maintenance of services, administration and management of the project. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... therwise rendered by the franchisor is not acceptable. 15.5 With regard to control of JDP/PDC over 74.8% of the built-up area, Concessional Constructed Built up area to MTNL, License Fee to be paid to MTNL, 50% discount to be given on usage of common amenities etc. are terms of the agreement which is for the parties to decide. A Franchisee Agreement may contain any terms and condition based on which the two parties wish to enter into an agreement. Further, the quantum and form of consideration is also for the parties to decide. It is a settled proposition of law that the entire agreement and the pith and substance of the agreement would prevail over its form. Merely because the major control over the built-up area would be that of JDP/PDC, it does not take away the essence of the Franchisee Agreement. Since, the rights of the noticee, i.e. MTNL in respect of the said land and its development have been transferred to JDP/PDC and the JDP/PDC is undertaking the process identified with MTNL, it clearly amounts to a Franchisee Agreement and hence consideration received for the same is taxable under the head Franchisee Services . Thus, I am of the considered view that the aforesa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he same cannot be considered as an input for the present case and therefore, cenvat credit in respect of the same is inadmissible. 16.7 Thus, I hold that the entire amount of ₹ 4,99,32,736/- taken as Cenvat credit against capital goods for the period 2004-05 to 2006-07 is inadmissible and recoverable along with interest under Section 73 75 of the Finance Act, 1994 read with Rule 14 of the Cenvat Credit Rules, 2004. (emphasis supplied) 22. In regard to the POP charges, the Commissioner observed as follows: 17.3 Prima facie, I find that there is no dispute regarding the taxable element existing in the said activity under the provisions of the Finance Act, 1994. The stand of the Noticee that the balance amount of service tax, which is being disputed by the operator and the interest on the amount of Service Tax already paid will be deposited upon realization, cannot be accepted. Non-receipt of amount in respect of Service Tax or interest thereof cannot be taken as an excuse for delay in discharging their liabilities. It is a settled law that the amount of service tax is required to be deposited on the amounts received and where no amount for service tax in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... franchisee to enter into franchisee on his behalf and the term franchisee shall be construed accordingly. 25. The taxable service under section 65(105)(zze) of the Finance Act means a service provided or to be provided to a franchisee, by the franchisor in relation to franchise. 26. Under the definition, 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. Thus, if the condition relating to representational right is not satisfied the transaction would not be classified as a franchisee service. Representational right means that a right is available with the franchisee to represent the franchisor and in that case the franchisee loses its individual identity and would be known only by the identity of the franchisor. 27. A perusal of the Project Agreement executed between MTNL, the Joint Venture Company and the Project Development Company would indicate that MTNL transferred and assigned to the Joint V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ave 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. 54. The question that arises for consideration is: whether the OMDA constitutes a franchise and if so, whether any service is being provided by AAI to the petitioners? 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 represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licies, methods, design, techniques, etc. The sole responsibility and liability for performances of the services is that of the petitioners. AAI has completely divested its rights (other than reserved activities) to build, operate and maintain the airport. Once the functions of AAI have been completely divested by it and assigned to the petitioners, there is no question of the petitioners representing AAI in performance of those functions. There is no representational right that has been assigned to the petitioners by AAI. 69. Clearly, as there is no representational right conferred by AAI on the petitioners, the OMDA cannot constitute a franchise in terms of Section 65(47) of the Finance Act. Further as no service is being provided by AAI to the petitioners, there cannot be said to be any taxable service in terms of Section 65(105)(zze). (emphasis supplied) 29. The present Project Development Agreement is very similar to the Agreement that was analyzed by the Delhi High Court in Delhi International Airport. 30. The Mumbai Tribunal in Global Transgene Ltd. vs. Commissioner of Central Excise Customs Service Tax, Aurangabad [ 2013-TIOL-1259-CESTAT-MUM ] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . In fact, a perusal of the Project Agreement indicates that the developer has not to represent itself as MTNL, nor has its identity as a Joint Venture Company been subsumed in the identity of the appellant. In the present case, the Project Agreement executed between MTNL and the Joint Venture Company is for development of the immovable property and is no manner identified with the appellant. The appellant is popularly known as a telecommunication service provider and not as a developer of immovable property . The essence of the Project Agreement is to grant development rights to the Joint Venture Company and there is nothing in the contract which may even remotely indicate that MTNL intends to do business through the developer. 36. It cannot, therefore, be said that any franchise service was rendered to the appellant. The confirmation of the demand cannot, therefore, be sustained. CENVAT Credit 37. It is submitted that CENVAT credit of ₹ 4,99,32,736/- has been denied to the appellant on the ground that the credit was claimed on purchase of towers falling under chapter heading 73 and the same is not specifically provided in rule 2(a)A of the CENVAT Rules ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s/ parts and in alternative as accessory to the BTS and would are covered by the definition of capital goods . 53. On examination of the definition and the decisions, the court is of the considered opinion that the term all goods mentioned in Rule 2(k) of the Credit Rules would cover all the goods used for providing Output Services, except those which are specifically excluded in the said Rule. Therefore, the definition is wide enough to bring all goods which are used for providing any output service. Further, from the decisions of the Supreme Court and other judgments referred to previously, the test applicable for determining whether inputs are used in the manufacture of goods is the functional utility test. If an item is required for providing out the output services of the service provider on a commercial scale, it satisfies the functional utility test. In the facts of the present case, what emerges is that, BTS is an integrated system and each of its components have to work in tandem with each other in order to provide the required connectivity for cellular phone users and for efficient telecommunication services. The towers and pre-fabricated shelters form an ess ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
