2013 (1) TMI 497 - AT - Central Excise

Rejection of transaction value - Additional consideration for sale - Whether one time technical assistance fee and a monthly fixed % on gross sales as fee, received from franchisees amount to additional consideration of sale Held that - No, one-time technical assistance received by the appellant from franchisee is for certain services being provided to the franchisees. Similarly, the monthly charges @ 8.5% of the gross sales excluding sales tax is for a bunch of other services rendered by the appellants and also right to use the technical know-how and brand name of the appellant. Appellant even since the business franchise service became taxable is also paying the service tax on the amount @ 8.5% of the gross sale being collected by them from the franchisees. When the amounts, in question, being received by the appellant from the franchisees are for certain services being rendered by the appellant to the franchisees, it cannot be said that the same are additional consideration for sale. Appeal decides in favour of assessee

Issues Involved:
1. Whether the technical assistance fee and monthly fee charged by the appellant from their franchisees should be included in the assessable value of the goods sold.
2. Whether the extended period for demand under Section 11A(1) of the Central Excise Act, 1944 was rightly invoked.
3. Whether the penalties and interest imposed under Section 11AC and Section 11AB respectively were justified.

Issue-wise Detailed Analysis:

1. Inclusion of Technical Assistance Fee and Monthly Fee in Assessable Value:
The primary issue was whether the lump sum amount of Rs. 3,00,000/- and the monthly fee @ 8.5% of gross sales collected by the appellant from their franchisees should be added to the assessable value of the goods sold to them. The Commissioner held that these fees were a pre-condition for the sale of goods and thus should be included in the sales price as additional consideration. However, the appellant argued that these fees were for providing technical assistance and for permitting the use of their brand name and business model, and had no connection with the sale price of the goods. The Tribunal found that the amounts collected were indeed for services provided to the franchisees and not additional consideration for the sale of goods. Therefore, these amounts should not be included in the assessable value.

2. Invocation of Extended Period under Section 11A(1):
The appellant contended that the demand for the period from 1997-1998 to 2000-2001 was time-barred as the department was aware of the relevant facts since February 1998. The Tribunal noted that the department had indeed addressed letters to the appellant in 1998 regarding the duty on the fees collected from franchisees, and the appellant had responded. Therefore, the extended period under Section 11A(1) could not be invoked, making the demand for this period time-barred.

3. Justification for Penalties and Interest:
The Commissioner had imposed penalties equal to the duty demand under Section 11AC and demanded interest under Section 11AB. Given the Tribunal's finding that the amounts collected from franchisees were not additional consideration for the sale of goods, the basis for the duty demand itself was invalid. Consequently, the penalties and interest imposed were also not justified.

Conclusion:
The Tribunal concluded that the amounts collected by the appellant from their franchisees were for services rendered and not additional consideration for the sale of goods. Therefore, these amounts should not be included in the assessable value. The demand for the period from 1997-1998 to 2000-2001 was time-barred, and the penalties and interest imposed were not justified. The impugned order was set aside, and the appeal was allowed.

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