2013 (5) TMI 725 - AT - Service Tax

Franchise service or not - Appointment of agents - collection of fee form the agent of Rs. 15000/- each - The appellants main stand is that such agents are not franchise inasmuch as there is no franchise agreement between them and the agents. - held that - said agents are being paid by the appellants for the services done by them in respect of each transaction. The franchise agreement is allowing another person to use the brand name or trade name etc. for his own business. In the present case, agents so appointed by the appellant are not doing their own independent business in there own name but are raising invoices in the name of the appellants and are actually working for the appellant and are being paid by the appellant for such working done by the agents. As such, at this prima facie stage, we are of the view that such collection of sign of fee of Rs.15,000/- services so as to tax the same. - major part of the demand is barred by limitation. - full stay granted.

Summary

Issues:
1. Whether the service provided falls under the category of franchise services.
2. Whether the demand of Service Tax against the appellant is justified.
3. Whether the agents appointed by the appellant are conducting independent business.

Analysis:
1. The appellant is engaged in providing services under the category of Business auxiliary services by collecting and paying utility bills on behalf of customers. To expand their business, they appointed agencies throughout India, collecting a fee from each agency. The agents collected bills from customers, which the appellant then deposited with utility service providers. The revenue treated this service as franchise services, leading to a demand for Service Tax and penalty.

2. The appellant argued that the agents were not franchisees as there was no formal agreement between them. They contended that the agents worked for them, collecting bills under the appellant's name, and all transactions were conducted through the appellant. The revenue relied on the terms and conditions of the agreement between the appellant and agents, emphasizing the one-time fee paid by agents and service fees received for each transaction.

3. The Tribunal analyzed the agreement's terms, noting that the agents were paid by the appellant for services rendered in each transaction. Unlike traditional franchise agreements allowing independent business use of brand names, the agents in this case operated under the appellant's name and were compensated by the appellant. The Tribunal agreed with the appellant's stance that the sign-on fee of Rs.15,000 for appointing agents did not constitute franchise services. Additionally, a significant portion of the demand was time-barred, leading to the Tribunal dispensing with the demand for service tax and staying recovery during the appeal.

4. Ultimately, the Tribunal allowed the stay petition in favor of the appellant, highlighting that the agents appointed were not conducting independent businesses but working for the appellant under specific terms and conditions, leading to the conclusion that the service provided did not qualify as franchise services, warranting the dispense of the service tax demand and recovery stay.