2018 (8) TMI 30 - AT - Service Tax

Franchise Services - services rendered to registrars - setting up the registry for .in‟ country got top level domain name (TLD) and for operating as registry for .in‟ domain name in India - whether the registrar accreditation agreement is a mere agreement between the appellant and its registrar for accreditation or it actually is in agreement for rendering franchise services by the appellant to its registrars? Held that - The registrars are the entities which contract with the registered name holders and the registry and collects registration data about registry name holders and submit the same to the registry for entering in the database maintained by the registry. It becomes abundantly clear that both registry and registrars are independent entities operating on principle-to-principle basis - the original Adjudicating Authority has miserably erred while holding an arrangement of accreditation as that of providing franchisee services - demand set aside. Extended period of limitation - penalty - Held that - No services as alleged by the Department have been rendered by the appellant. Show Cause Notice in fact was wrongly served - there seems no ground available with the Department to invoke the extended period of limitation while serving the said Show Cause Notice - penalty also set aside on this ground. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Appeal against Order-in-Original confirming demand and penalties
- Allegations of collecting charges for domain name registration services
- Interpretation of franchise services under Section 65(105) (zze) of the Act
- Examination of registrar accreditation agreement
- Applicability of case laws
- Justification of impugned order by the Department
- Consideration of extended period for Show Cause Notice
- Imposition of penalties

Analysis:
The judgment pertains to an appeal against an Order-in-Original confirming a demand and penalties amounting to ?6,54,79,758/- under Section 78 of the Act and an additional penalty under Section 77 of the Act. The case involves allegations that the appellants, a not-for-profit company engaged in domain name business, were collecting charges from registrars for domain name registration services, deemed taxable as franchise services. The key issue was whether the registrar accreditation agreement constituted a franchise service arrangement. The tribunal analyzed the definitions of franchise, franchiser, and franchise services under the Finance Act to determine the nature of the agreement.

The tribunal scrutinized the registrar accreditation agreement and highlighted that it did not use terms like "franchise" or "franchisor." The agreement delineated separate roles for the appellant and registrars, emphasizing their independence. It clarified that registrars were accredited to perform specific functions for the appellant without entitling them to operate the registry. The tribunal concluded that the agreement did not align with the criteria for a franchise service arrangement, as defined in the Finance Act.

In considering the arguments presented, the tribunal referenced relevant case laws, including Direct Internet Solutions Pvt. Ltd. and Delhi International Airport Pvt. Ltd., to support its analysis. It emphasized that the agreement between the parties did not establish a franchise relationship, as the registrars were accredited to provide specific services without representing the appellant as a franchisor. The tribunal found that the original Adjudicating Authority had erred in characterizing the arrangement as a franchise service, leading to the set-aside of the levy confirmed in the impugned order.

Furthermore, the tribunal addressed the Department's invocation of the extended period for the Show Cause Notice due to alleged suppression of facts. However, given the absence of services as claimed by the Department, the tribunal deemed the Notice wrongly served. Consequently, the penalties imposed were set aside, and the appeal was allowed. The judgment provided a detailed analysis of the agreement, legal definitions, case laws, and the Department's justifications, leading to the ultimate decision to overturn the impugned order and penalties.