2018 (8) TMI 481 - AT - Service Tax

Franchise services - business of refining of crude oil and marketing of petroleum products - Held that - HPCL and dealers are not granted representational right to sale the petroleum products procured from other companies independently for selling the same as the products of HPCL - HPCL have not provided franchise service to the dealers. The agreement made by HPCL is not a franchise agreement. The said services were not to be considered under the purview of franchise service as per Section 65(105)(zze) of the Finance Act, 1994 - appeal dismissed - decided against Revenue.

Summary

Issues:
- Appeal against Order-in-Original No.45/Commr./ST/Kol/2009-10
- Service tax on license fees collected from dealers
- Interpretation of franchise agreement
- Applicability of Section 65(105)(zze) of the Finance Act, 1994

Analysis:
The judgment pertains to an appeal filed by the Revenue against Order-in-Original No.45/Commr./ST/Kol/2009-10 issued by the Commissioner of Service Tax, Kolkata. The case involves the imposition of service tax on license fees collected by M/s Hindustan Petroleum Corporation Ltd. (HPCL) from its dealers. The Directorate General of Central Excise Intelligence received information that HPCL appointed dealer/franchisees for the sale of petroleum products. The Revenue contended that service tax was applicable on the fees collected from the dealers. However, the Commissioner, in the impugned order, ruled in favor of HPCL, allowing their claim and dismissing the Department's demand for service tax.

During the hearing, it was established that HPCL sold petroleum products to dealers at fixed prices, which included commissions for the dealers. Additionally, HPCL charged fees on a KL basis for the usage of various facilities provided to the dealers. The terms of the agreements between HPCL and the dealers did not grant the dealers the right to sell petroleum products independently as products of HPCL. The Tribunal noted that HPCL did not provide franchise services to the dealers, and the agreements were not considered franchise agreements. The Commissioner's decision aligned with a previous order from the Commissioner of Central Excise (Adjn.), New Delhi, where similar facts were considered.

Based on the analysis of the agreements and the nature of the services provided, the Tribunal concluded that the activities in question did not fall under the purview of franchise services as defined in Section 65(105)(zze) of the Finance Act, 1994. Consequently, the Tribunal dismissed the appeal filed by the Revenue, ruling that no service tax was leviable on the activities in question. The judgment highlights the importance of interpreting the terms of agreements and the nature of services provided to determine the applicability of relevant tax provisions accurately.