2015 (4) TMI 660 - AT - Service Tax

Demand of service tax - Franchise Service - Held that - During the relevant period, to satisfy the definition of franchise all the four limbs of the definition of franchise had to be satisfied. In the present case, neither in the show cause notice nor in the Primary Order or the impugned order, it has been brought out as to whether there was any grant of representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol as the case may be. Thus this limb of the definition is clearly not satisfied. There is also nothing on record to show that the last limb of the definition is satisfied in the present case. - though the franchisor provided know-how, expertise and quality control and granted representational right, no enquiry was made by the revenue for ascertaining whether as per the agreement appellants were under obligation not to engage in providing similar service with other persons and therefore the demand under franchise service was not sustainable. - Impugned order is not sustainable - Decided in favour of assessee.

Summary

Issues:
1. Duty demand under "Franchise Service" confirmed by Order-In-Original.
2. Interpretation of the definition of franchise during the relevant period.
3. Lack of satisfaction of all four limbs of the definition of franchise.
4. Comparison with a previous judgment regarding the obligation not to engage in providing similar services.

Analysis:
The appeal was filed against Order-In-Appeal No. IND-I/63/09 dated 18.03.2009, which upheld the Order-In-Original dated 22.10.2008 confirming a duty demand of Rs. 49,815 under "Franchise Service" along with interest and penalties. The definition of franchise during the relevant period (1.7.03 to 31.3.05) required the satisfaction of four specific criteria. The appellants argued that there was no written agreement with another party, M/s Kehems Engineering, and they were only granted the right to use and sell certain products without representing themselves as the appellants. The transaction was deemed not a franchise service as per the appellants' contentions.

Upon review, it was found that to meet the definition of "franchise," all four criteria of the definition had to be met. However, in this case, it was observed that there was no evidence of the grant of representational rights or the fulfillment of the last limb of the definition. Citing a precedent, Dewsoft Overseas Pvt. Ltd. Vs. CCE, New Delhi 2008 (12) S.T.R. 730 (Tri), it was noted that without confirming whether the agreement obligated the appellants not to engage in similar services with other parties, the demand under franchise service could not be sustained.

Consequently, as the impugned order did not meet the requirements of the definition of franchise, the appeal was allowed. The tribunal found the duty demand under "Franchise Service" to be unsustainable based on the lack of evidence satisfying all the necessary criteria as per the definition during the relevant period.