2013 (8) TMI 748 - AT - Service Tax

Franchisee services - The appellant entered into sub-licensing agreement with various seed procuring companies to transfer the technology obtained from BTC for a consideration in the form of sub-license fee and the Revenue seeks to levy service tax on this fee under Franchisee services - Held that - The packages contain mark Fusion BT which only denotes that the seeds being sold contain Fusion BT genes, and it does not denote that the said mark is either a logo or a trademark or hallmark of the appellant - The department could not show that any logo or hallmark belonging to the appellant has been put on the packages manufactured/marketed by the sub-licensees. A laptop containing a label of windows , only denotes that the processor or the operating system/software, as the case may be in the said laptop and by putting such label, the laptop manufacturing company does not represent Microsoft or become the franchisee of Microsoft . - in a franchisee transaction the franchisee loses his individual identity and represent the identity of franchisor to the outside world, as in the case of McDonald the customers are not concerned with who owns the McDonald s restaurant (franchisee) - The customers identify it with McDonald (the franchisor). The appellants had imported the Technology which is owned by BTC and patented in China - The said technology was imported in the form of the mother seeds and the same were multiplied in the laboratory by or on behalf of the appellants and given to the sub-licensee to further multiply for onward sale by them to the farmers for the purpose of growing commercial crop - The appellants were not granted any representational right from BTC to represent them in India, nor entitled to grant or they have actually granted any representational right to the sub-licensees. The department failed to show that the appellant (the franchisor) granted representational rights to franchisee to sell or manufacture or provided service identified with them - order set aside Decided in favor of assesse.

Summary

Issues:
1. Whether the activity undertaken by the appellant falls under the category of 'Franchise Service'.
2. Valuation of the transaction with Nath Seeds Ltd.
3. Limitation period for demand from April 2004 to September 2007.

Analysis:

Issue 1:
The appellant obtained a license to use Fusion Bt. Technology and sub-licensed it to seven companies. The Department alleged that this activity falls under 'franchise services'. The appellant argued that the sub-licensees marketed the seeds in their own name, without any representational rights from the appellant. They contended that the key requisite for a transaction to qualify as taxable franchise service is the granting of representational rights, which was absent in this case. The Tribunal agreed, noting that the appellant did not grant representational rights to the sub-licensees, and the product packaging did not bear the appellant's logo or trademark. The Tribunal ruled in favor of the appellant, stating that the impugned order was not sustainable in law and set it aside, allowing the appeal.

Issue 2:
Regarding valuation, the appellant disputed the method used by the Commissioner to attribute value to the transaction with Nath Seeds Ltd based on comparable transactions. The appellant argued that there was no authority under the Finance Act, 1994 to use comparable transaction value when the transaction had no consideration. However, the Tribunal did not delve into this issue in its judgment.

Issue 3:
The appellant raised the issue of limitation, arguing that the demand for the period from April 2004 to September 2007 was beyond the normal limitation period. They contended that the Revenue had initially classified their services under different categories and only later under 'Franchisee services'. The Tribunal did not invoke the larger limitation period in this case, considering the Revenue's prior classification and the timing of the Show Cause Notice.

This detailed analysis of the judgment provides a comprehensive understanding of the issues involved and the Tribunal's reasoning behind its decision.