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TMI Blog2023 (5) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... vices. The petitioner claims that it is an independent service provider for the services falling within the scope of the Service Agreement. The petitioner is entitled to a consideration on cost plus 10% mark-up basis for the services rendered under the Service Agreement. The petitioner claims that the services rendered by it to McDonald's USA are 'zero rated supplies' under Section 16 of the Integrated Goods and Services Tax Act, 2017 (hereafter 'IGST Act'). 4. The controversy in the present petition relates to the period of April 2018 to March 2019. The appellant claims that during the said period, it had provided services under the said Service Agreement without payment of Integrated Goods and Services Tax (hereafter 'IGST') and thus, is entitled to refund of tax paid on inputs (hereafter 'ITC') 5. The petitioner filed an application dated 04.08.2020 for refund of goods and service tax paid on the inputs used for the services rendered to McDonald's USA, its holding company, under the Service Agreement. 6. Respondent no. 2 issued a Show Cause Notice dated 14.08.2020 proposing to reject the petitioner's claim for refund of ITC of Rs.9,26,34,542/- as claimed by the petitioner. 7 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sub-license the same with the approval of McDonald's USA. He stated that in terms of the MLA, the petitioner had entered into franchisee agreements with various parties. The petitioner was duly discharging its liability to pay royalty to McDonald's USA under the said agreement. He stated that in terms of the MLA, the petitioner was liable to pay consideration to McDonald's USA. It was contended that the Authorities had confused the MLA with the services provided under the Service Agreement. 12. He referred to the Service Agreement and submitted that the services rendered by the petitioner under the said agreement were independent services and did not involve any third-party supplier. He also contended that the issue involved in the present case was covered by an earlier decision of this Court in M/s Ernst and Young Limited v. Additional Commissioner, CGST Appeals-II, Delhi & Anr.: W.P (C) 8600/2022, decided on 23.03.2023 and M/s Ohmi Industries Asia Private Limited v. Assistant Commissioner, CGST: W.P. (C) 6838/2022, decided on 29.03.2023. Reasons and Conclusion 13. The principal question involved in the present case is whether the petitioner is an intermediary within the mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s in each of such sublicenses whereby the sublicensee shall acknowledge and agree to such assignment to Licensor." 16. Pursuant to the license granted by McDonald's USA, in terms of the MLA, the petitioner has entered into Franchise Agreements with various franchisees for operating McDonald's Restaurants. It is stated that the royalties received by the petitioner from the franchisees are subjected to tax and are not a matter of controversy. 17. The petitioner is liable to pay an initial franchisee fee for each restaurant operated or franchised by it. In addition, it is also liable to pay royalty equal to 5% of the gross sales from the operation of all restaurants on a monthly basis. There is no controversy regarding the payments made by the petitioner to McDonald's USA under the MLA. 18. In addition to the above, the petitioner has also entered into the Service Agreement with McDonald's USA for performance of certain services. The scope of services to be provided by the petitioner under the Service Agreement is set out in Article 2 of the Service Agreement. The same is reproduced below: "2. Services - At McDONALD'S direction, McDONALD'S INDIA shall perform the following servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hority are underlined and set out below: "Whereas, McDonald's will be obligated under the terms of certain agreements to provide certain know-how and business processes and to render certain services to subsidiaries, joint ventures and other commercial entities that participate in the McDonald's System (the "Covered Entities"), such services to include training and technical assistance in the operation of the McDonald's System in the Territory; Whereas, McDonald's wishes to obtain operating efficiencies and economics in adapting and introducing the McDonald's System to the Territory by contracting certain services to an Indian based service organization in lieu of furnishing these services from its Oak Brook Headquarters;" 22. The Adjudicating Authority held that the petitioner was performing services on behalf of McDonald's USA in the backdrop of McDonald's USA's obligations. Paragraph 5 of the impugned order reads as under: "5. On perusal of the above, it appears that the services which should be performed by the McDONALD'S India on behalf of McDONALD'S shows for enhancing chain of McDONALD'S Restaurant/ McDonald's System and for that part the expenditure part will be reim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and McDonald's USA. The Appellate Authority has not considered that the MLA, which entitles the petitioner to enter into sub-licenses with franchisees, is a separate agreement. Further, certain observations made in the impugned order also indicates that the Appellate Authority has proceeded on the basis that providing services on behalf of another party amounts to acting as an intermediary. 28. According to the Appellate Authority, the place of services supplied by the petitioner is in India, under Sections 13(3)(b) and 13(5) of the IGST Act. However, this was not the subject matter of controversy that had travelled to the Appellate Authority. There is no such allegation in the Show Cause Notice dated 14.08.2020 - which, as the Order-in-Original dated 31.08.2020 indicates, was preceded by a pre-consultation - or the Order-in-Original. We find merit in the contention that no such additional grounds for rejecting the petitioner's claim for refund could be raised suo motu by the Appellate Authority, in an appeal preferred by the petitioner. The impugned order is liable to be set aside on this ground alone. 29. Having stated the above, we also consider it apposite to briefly examin ..... X X X X Extracts X X X X X X X X Extracts X X X X
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