2004 (2) TMI 1 - AAR - Service Tax

Whether service tax applicable on agreements executed for franchise services prior to the date of introduction of service tax i.e. 1st July, 2003?

Summary

Issues involved:
Applicability of service tax on agreements executed for franchise services prior to the date of introduction of service tax i.e. 1st July, 2003.

Analysis:

1. Maintainability of the Application:
- The application was made under Section 96C of the Finance Act seeking an advance ruling on the applicability of service tax on agreements for franchise services executed before the introduction of service tax on July 1, 2003. The Authority examined the application as per Section 96D and found grounds to reject it. The applicant was issued a notice to explain why the application should not be rejected, citing reasons such as the activity being already commenced and the question being pending before a Central Excise Officer.

2. Procedural Considerations:
- The applicant's counsel requested a waiver of a written notice and proposed to argue on the maintainability of the application. The Authority heard both the counsel for the applicant and the Departmental Representative to consider the application's validity.

3. Interpretation of Finance Act Provisions:
- Section 96D of the Finance Act outlines the procedure for examining applications for advance rulings. The Act specifies conditions under which the Authority may reject an application, including if the question raised is already pending with a Central Excise Officer or has been decided by a Tribunal or Court. The Act mandates providing reasons for rejection in the order.

4. Definition of "Advance Ruling" and "Applicant":
- The Act defines "advance ruling" as the determination of a question of law or fact regarding the liability to pay service tax for a proposed service. The term "applicant" includes entities like non-residents setting up joint ventures or wholly owned subsidiary Indian companies proposing to undertake business activities in India.

5. Application of Advance Ruling Provision:
- The judgment clarifies that the benefit of seeking an advance ruling applies to entities that have not yet commenced business activities. In this case, the applicant, a wholly owned subsidiary Indian company, had already entered into franchise agreements and commenced business before the introduction of service tax on franchise services.

6. Decision and Rationale:
- The Authority rejected the application as the applicant's business was ongoing when service tax provisions for franchise services came into force. The judgment emphasizes that the Act limits the scope of advance rulings to entities not engaged in business activities at the time of application. The rejection was based on the grounds of the activity being already commenced, rendering the application not maintainable.

This detailed analysis highlights the key legal considerations, procedural steps, and interpretations of relevant provisions leading to the rejection of the application seeking an advance ruling on the applicability of service tax on franchise agreements executed before the introduction of service tax.