2019 (3) TMI 348 - HC - Service Tax

Franchise service or not - Demand of service tax - Held that - The definition of the term franchise as found in this clause means an agreement by which the franchisee is granted 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, is involved - Insofar as the understanding of the Revenue about the franchise service is concerned, it is apparent that this is to be found in sub-clause (zze) of clause (105) of section 65 of the Finance Act, 1994. There, the definition of taxable service means any service provided or to be provided and, in the instant case, to a franchise by the franchisor in relation to franchise. The tribunal found that clause (10) of the agreement between the assessee and the dealer was picked up and read in isolation to arrive at the above conclusion. That is not justified at all. The agreement will have to be read as a whole and precisely - Once the matter is approached in a holistic manner and looked as such, then, we do not find any perversity or error of law apparent on the face of the record in the impugned order. Appeal dismissed.

Summary

Issues:
Challenge to CESTAT order on service tax demand against a corporation for franchise service.

Analysis:
The Revenue challenged the CESTAT order dropping the service tax demand against a corporation, claiming the corporation's distribution of petroleum products through a dealer network constituted franchise service. The Revenue argued that the agreement between the corporation and the dealer, specifically clause (10), indicated a representational right granted to sell products under the corporation's name and logo, constituting a franchise service arrangement. The Revenue contended that the questions of law proposed were substantial.

On the other hand, the corporation argued that the tribunal's factual finding was not perverse or vitiated by any legal error, opposing the admission of the appeal. The High Court examined the impugned order and noted the definition of "franchise service" under the Finance Act, emphasizing the need for a representational right in a franchise agreement. The Court highlighted the importance of reading the agreement as a whole rather than in isolation, critiquing the Revenue's selective interpretation of clause (10) and supporting the tribunal's holistic approach in the order.

Ultimately, the High Court found no perversity or legal error in the tribunal's order, leading to the dismissal of the Revenue's appeal. The Court emphasized the necessity of considering agreements comprehensively and rejected the Revenue's isolated reading of specific clauses. Consequently, the appeal was dismissed with no order as to costs.