TMI Blog2023 (5) TMI 1123X X X X Extracts X X X X X X X X Extracts X X X X ..... he Adjudicating Authority held that the petitioner was performing services on behalf of McDonald s USA in the backdrop of McDonald s USA s obligations - the Adjudicating Authority rejected the petitioner s claim for refund of ITC. Rendering service on behalf of another person does not render the service provider an intermediary - However, if it is found that McDonald s USA is obliged to perform certain services to third parties and the petitioner is facilitating or arranging such services from third-party suppliers; the services performed by the petitioner may fall within the scope of intermediary services. However, it is essential that the principal service, the supplier of such services, and the service purchaser are identified to ascertain whether the services performed by the petitioner are those of a facilitator or one that arranges such services. The Order-in-Original has not analysed the services rendered by the petitioner on the aforesaid anvil. There are no basis for the Appellate Authority to have concluded that the petitioner acts as a mediator between joint ventures/ franchisees and McDonald s USA. The Appellate Authority has not considered that the MLA, which ent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appeals - II, Delhi) rejecting the petitioner s appeal against an Order-in-Original dated 31.08.2020. 2. The petitioner is a company incorporated in India and is a subsidiary of McDonald s Corporation, USA (hereafter McDonald s USA ). 3. The petitioner had entered into a service agreement dated 01.01.1996 (hereafter Service Agreement ), whereby the petitioner had agreed to perform certain services. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted that the Adjudicating Authority as well as the Appellate Authority has misconstrued the services rendered by the petitioner in terms of the Service Agreement. He submitted that there was a separate agreement (being a Master License Agreement hereafter the MLA ) between the petitioner and McDonald s USA, whereby the petitioner was granted non-exclusive rights to certain intellectual property of McDonald s USA including the right to 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 cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to enter into such other arrangements as Licensee deems advisable for the interim operation of any of the Restaurants. Any sublicenses shall contain provisions to the effect that, upon the termination of this Agreement for any reason, the sublicenses shall be deemed to be automatically assigned to Licensor, which hereby accepts such assignment, and Licensor shall be deemed to be substituted for Licensee as Licensor under such sublicenses. Licensee agrees to insert provisions 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appears to be not admissible as per CGST Act . 21. The Show Cause Notice was in broad terms. However, the petitioner was made aware that the principal question is whether the petitioner is an intermediary in the context of the services rendered by it. The Adjudicating Authority had considered the Service Agreement and highlighted Recitals in the said agreement for the purposes of concluding that the services rendered by the petitioner were in the nature of intermediary services. The Recitals as emphasized by the Adjudicating Authority 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 servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces. The Order-in-Original has not analysed the services rendered by the petitioner on the aforesaid anvil. 26. The impugned order appears to be proceeded on a somewhat different basis. The Appellate Authority has held that the petitioner was acting as a mediator between prospective joint ventures and franchisees, where the main supplies were made by McDonald s USA and ancillary supplies were provided by the petitioner. 27. We find no basis for the Appellate Authority to have concluded that the petitioner acts as a mediator between joint ventures/ franchisees 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovider. The supply of services by the petitioner to McDonald s USA does not require the physical presence of McDonald s USA. We are unable to follow as to why the physical presence of the service recipient, that is, McDonald s USA, in India is necessary for receiving the services rendered by the petitioner or any third-party supplier. Section 13(3)(b) of the IGST Act contemplates the location of service, whereby the presence of a service recipient is necessarily to be in India. 31. Section 13(5) of the IGST Act contemplates the supply of services by way of admission to, or organisation of a cultural, artistic, sporting, scientific, educational or entertainment event. It also contemplates admission to, or organisation of a celebration, conference, fair, exhibition or similar events. Conducting interviews, making reference checks or performing any screening services in connection with potential joint venture partners, franchisees or employees has no connection with the services as contemplated under Section 13(5) of the IGST Act. 32. In view of the above, we consider it apposite to set aside the impugned order as well as the order passed by the Adjudicating Authority and reman ..... X X X X Extracts X X X X X X X X Extracts X X X X
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