TMI Blog2021 (10) TMI 640X X X X Extracts X X X X X X X X Extracts X X X X ..... s were granted to the home solution service provider. The reliance placed by Revenue in the case of Australian Foods India Ltd. COMMISSIONER OF CENTRAL EXCISE, CHENNAI-II VERSUS M/S AUSTRALIAN FOODS INDIA LTD. [ 2013 (1) TMI 330 - SUPREME COURT ] is totally misplaced - this decision also does not help the case of Revenue, as this decision has not been rendered in the case where the issue was in respect of franchisee services but was in case of trade and brand name. The appeal filed by Revenue is dismissed. - Service Tax Appeal No. 86777 of 2015 And Cross Objection No. ST/CO/91180 of 2015 - A/86864/2021 - Dated:- 22-9-2021 - HON BLE MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) AND HON BLE DR. SUVENDU KUMAR PATI, MEMBER (JUDICIAL) Shri Nitin Ranjan, Deputy Commissioner, Authorised Representative for the Appellant Shri V. Sridharan, Senior Advocate, for the Respondent ORDER PER: SANJIV SRIVASTAVA This appeal is filed by Revenue against Order-in-Original No. MUM-LTUNT-000-COM-2-5-15-16 dated 13.05.2015 passed by the Principal Commissioner of Central Excise Service Tax, LTU, Mumbai. 2.1 During the course of audit, it was observed that for the peri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 3 LTU/MUM/CX/GLT- 7/APL/179(3)Audit/10- 11 11.01.13 91,67,405/- Jan-12 to Mar-12 2.4 After considering the submissions made by the respondent, the Commissioner has adjudicated the matter as per the order referred to in para 1 above. 2.5 Aggrieved by this order, Revenue has preferred this appeal. 3.1 We have heard Shri Nitin Ranjan, Deputy Commissioner, Authorised Representative, for the Revenue and Shri V. Sridharan, Senior Advocate for the respondent. 3.2 Arguing for the Revenue, learned AR submits that, - The agreement between the respondent and one of the home solution service providers, viz. M/s. Home Associates, reads as follows:- 1. Service Provider is bound by an Exclusive contract with the Respondent. 2. Also, the Service Provider was required to use the Poster, Circulars and Promotional materials supplied by the Respondent, free of charge. 3. Service Provider shall be guided by the requirements of the Respondent regarding the quality of service. 4. The Respondent has provided the Software Application for capturing Customer data with the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice or undertake any process identified with the franchisor. Since home solution service providers are, as per the agreements, having such representational rights. They are covered by the definition of franchisee as per Section 65(47) of the Finance Act, 1994. Hence the order of the Commissioner needs to be set aside to this extent and appeal allowed. 3.3 Countering the argument, learned senior counsel submits that, - for considering home solution service provider as franchisee of the respondent, it needs to be shown that they are having the representational rights granted by the respondent. In absence of anything in the contract or execution of the same, the home solution service providers could not have been considered as franchisee of the respondent. He refers to CHITTY ON CONTRACTS Twenty-Seventh Edition, Volume II Specific Contracts, London, Sweet Maxwell 1994. Essentials of franchise agreement are stated as follows:- Franchise agreements. Franchise agreements are those whereby the proprietor of a trade mark, business name or other distinctive marketing presentation (the franchisor) grants one or more parties (the franchisees) the rights to use the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... - Mahindra Mahindra Ltd. [1995 (76) ELT 481 (SC). - Speed and Safe Courier Service [2008 (10) STR 337 (Tri.- Bang.). - Speed and Safe Courier Service [2010 (18) STR 550 (Ker.)]. - Indian Gateway Terminal (P) Ltd. [2010 (20) STR 338 (Tri.-Bang)]. - Popular Vehicles Services Ltd. [2010 (18) STR 493 (Tri.- Bang)]. - BPL Mobile Communications Ltd. [2007 (7) STR 440 (Tri.- Mumbai)] Affirmed by Bombay High Court [(2008 (9) STR 349 (Bom.). - Magnus Construction Pvt. Ltd. [2008 (11) STR 225 (Gau.)]. - Home Solution Retail India Ltd. [2009 (14) STR 433 (Del.)]. - Rohan builders Ltd. [2009 (13) STR 56 (Tri.-Bang)]. - Jetking Information Ltd. [2007 (7) STR 314 (Tri.-Mumbai)] Appeal admitted by Bombay High Court [2009 (13) STR J72 (Bom.)]. Since there is nothing to show that home solution service providers were granted any representational rights by the respondent, the order of the Commissioner cannot be faulted with, and the appeal of Revenue is liable to be dismissed. 4.1 We have considered the impugned order along with the submissions made in appeal and during the course of hearing. 4.2 The Commissioner has in his order held as follows:- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n return of any service provided by the noticee to the HSSP. It is the revenue earned by the noticee from the customer remaining after covering the expenses on material, labour and taxes. Viewed in that perspective, the HSSP acts in a fiduciary capacity. They are custodian of the revenues earned by noticee from the customers. 4.4 It is clear that the HSSPs execute the contract as a subcontractor of the noticee. The noticee pays them for the work done. They work under supervision guidance of the noticee. The third recital of the agreement reads: The Company proposes to facilitate such Services to customer though independent service providers, who can promote, undertake and provide quality painting service to its customers under the Company s guidance and supervision and desires to appoint such Service Providers in India. 4.5 Let s consider the statutory definitions in the above background of facts. In terms of Section 65(105)(zze) of the Finance Act, 1994 taxable service means any service provided or to be provided to a franchisee, by the franchisor in relation to franchise. The terms Franchise, Franchisor and Franchisee have been defined vide sub-secti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... act with the customer and bill him in their own name. the invoices raised by the HSSPs do not contain any reference to the brand name or logo of the noticee and do not indicate in any manner that the HSSPs have acted as franchisee of the noticee. 4.7 Commercially, in a Franchisee contract, the business of the franchisee remains independent of the franchisor. As stated in Chitty on Contracts, Specific Contracts, 27th Ed. At page 1089 (reproduced by the noticee in his reply) Each franchisee remains on independent trader bearing his own financial risk but he benefits from the goodwill associated with the franchisor s business. To the outside observer the franchisees premises look uniform and sell products of the same appearance and quality. Thus the risk of the business of franchisee remains that of the franchisee. The franchisee has to earn his own incomes and make his own expenditures. The franchisor does not take any responsibility of meeting expenses of the franchisee. In the present case, the HSSP is not responsible to meet his expenses. He receives customer leads from the noticee itself. He receives money from the customers and spends it only as a custodian. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 franchisee with a franchisee and includes any associate of franchisor or a person designated by franchisee to enter into franchisee on his behalf and the term franchisee shall be construed accordingly. 9.The taxable service under Section 65(105)(zze) of the Finance Act means a service provided or to be provided to a franchisee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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. (emphasis supplied) 28.The Mumbai Tribunal in Global Transgene Limited [2013 (32) S.T.R. 86 (Tri. - Mum.)] also observed that the foremost requisite for a service to qualify as a taxable franchise service is that the franchisee should have been granted a representational right and that in a franchise transaction, the franchisee loses its individual identity and represents the identity of the franchisor to the outside world. 29.In Tata Consultancy Services Ltd., the Mumbai Tribunal observed that the grant of a representational right would imply that the person to whom such a right has been granted undertakes the entire activity as if it had been undertaken by the person granting such rights. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i 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 Punjab Technical University, the agreement entered into between Punjab Technical University and the Learning Centers explicitly provided that the Learning Centers were authorized to take students by claiming and making it clear that the education they were providing was on behalf of Punjab Technical University. The Learning Centers were also allowed to advertise to that effect. It is in this context that the Tribunal observed : 4 . From the foregoing there remains no doubt that LCs were authorized to take students by claiming and making it clear that the education they were providing was on behalf of the appellant. They were allowed even to advertise to that effect. It was because Learning Centers were representing the Appellant with regard to providing education, that the MOU cast strict obligations on learning Centers to ensure that the quality of education remained as per the standards of the Appellant. It also comes out from the MOU tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate 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 accordance with and to the extent allowed as per the Amway s Business Starter Guide and Distributor Application and Terms and Conditions. In the Sections of the Starter Guide dealing with Social Media Policy, it is stated (referring to the ABOs) that Remember, what you say reflects upon your and Amway s reputation . Now Amway s reputation can be effected by what the ABOs says only when he is taken to represent Amway in some (however limited) capacity. (emphasis supplied) 38.The said decision is distinguishable for the factual aspect itself as neither does Siti Cable grant any representational right to the cable operators nor the cable operators are required make themselves known as Siti Cable franchisee/distributor. 4.5 In case of Rackitt Benckiser (India) Ltd. [2021 (46) GSTL 41 (T)], Delhi bench again considered the same issue and has followed the same line of argument as was followed in the case of Siticable, supra. For sake of brev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... omers under the Company s guidance and supervision and desires to appoint such Service Providers in India. 4. The Service Provider has represented to the Company that it has the necessary infrastructure to provide the said Services. 5. The Company, based on the said representations and assurances given by the Service Provider, has accepted the offer of the Service Provider, who undertakes to provide such Services to the customers in Mumbai on the terms and conditions mutually agreed to and set out hereunder. 2. SCOPE OF WORK: i) The Service Provider shall provide the Services and address the painting needs of consumers in Mumbai and aid the customers to avail of a reliable painting service and provide complete turnkey solutions to customers. ii) It shall be the sole responsibility of the Service Provider to provide the Services in terms of the desired quality and expectations of the Company through its work force including Sales Associates, Relationship Associates, Team Leaders, Office Assistants and Tele-callers. The role and responsibilities shall be determined by the Service Provider in consultations with the Company. iii) The parties agree th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... execution, delivery and performance of this Agreement. ii) The Service Provider undertakes to purchase the painting materials from an authorized dealer of the Company based on the requirements at the customers site. iii) It shall be the duty of the Service Provider to engage contractors for painting the site as per the requirement and shall ensure that such painting contractor is listed in the Applicator Panel duly approved by the Company for the purpose. iv) The Service Provider undertakes that the aid Services provided and obligations to be performed pursuant to this Agreement shall be rendered and performed with utmost care and diligence and shall be in to the satisfaction of the consumer. v) The Service Provider submits that it shall collect charges from the customers based on the painting estimates, in advance on acceptance of order by the Customer. The amount so collected shall be inclusive of all taxes as may be applicable. vi) The Service Provider will create a separate Bank Account for Home Solutions. The said Bank Account shall be used for the purpose of the following: a) Deposit all the amount collected from the customers b) Pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vide that home solution service provider is barred from making any statement on behalf of the company or in any manner how to represent the respondent. When there is a specific clause in the agreement which bars the home solution service provider from representing the respondent, then how it has been claimed that such representational rights have been granted to the home solution service provider. 4.7 In the case of SKOL Breweries Ltd. [2014 (35) STR 570 (Tri.-Mumbai)], the Tribunal has held as follows:- 8. Having considered the rival submissions, we find that as per the agreement between the parties, the risk of manufacture and sale lies with the appellant in respect of the Foster Brand beer got manufactured by it from FIPL. It is evident from the contract that FIPL is only responsible for bottling, packing and dispatch as per the specification, terms, formula etc. as laid down by the appellant. Further, FIPL is bound to charge the price from the notified Indenter 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 time ..... X X X X Extracts X X X X X X X X Extracts X X X X
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