9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2021 (1) TMI 424 - AAR - GSTClassification of goods and services or both - Franchisee Fees - Royalty - amounts received by the applicant under the franchise agreement from the franchisee for the right to use its trademark, brand name and other proprietary knowledge (Intellectual Property) - transfer of an operational outlet - Services by way of transfer of a going concern, as a whole or an independent part thereof - Exemption under Notification No.12/2017-Central Tax (Rate) dated 28th June, 2017 - Input Tax Credit of tax paid on the supplies received at the time of developing the outlet. Classification of goods and services or both - Franchisee Fees - Royalty - HELD THAT - The subject agreement is a Franchise agreement and not a License agreement - CBIC has issued the Explanatory Notes to the Scheme of Classification of Services on 12th June, 2018 . The explanatory notes indicate the scope and coverage of the heading, groups and service codes of the Scheme of Classification of Services. As per the Explanatory Notes, the Service Code (Tariff) 997336-Licensing services for the right to use trademarks and franchises, includes licensing services for the right to use trademarks and to operate franchises. As per the statement of facts, the applicant has made a Franchise Agreement and not the License Agreement , therefore, the services in question cannot be said to be Licensing services . Franchisee Fees and Royalty received by the applicant under the franchise agreement from the franchisee for the right to use its trademark, brand name and other proprietary knowledge (Intellectual Property), fall under Chapter Heading 9983 as Other professional, technical and business services and Service Code (Tariff)- 998396-Trademarks and franchises, attracting GST @ 18%. Transfer of an operational outlet - Services by way of transfer of a going concern, as a whole or an independent part thereof - HELD THAT - The transfer of business assets is to be considered as supply of goods. The transfer of business assets implies that a part of the assets are transferred and not the whole business. In the applicant s case, only one outlet of his business chain is being transferred/ sold to the recipient. Thus, it is not a case of transfer of an ongoing concern in whole. Further, the transaction is also not covered under the clause transfer of a going concern as an independent part thereof . Independent part of a firm would be a distinct business vertical and not the same vertical of which a certain portion has been transferred to other entity. The applicant is engaged in the business of running outlets in the name of Teapost and the business activity is one and only one but is merely having more than one branches for the same business. A branch of the same business vertical can be by no stretch of imagination considered as an independent part of the concern - the transfer of business assets is covered under the category of supply of goods and in no way is covered by the clause transfer of a going concern, as a whole or an independent part thereof . Thus, the transaction becomes a taxable event in terms of the provisions of Sec. 7 read with Sec. 9 of the CGST Act, 2017. Exemption under Notification No.12/2017-Central Tax (Rate) dated 28th June, 2017 - HELD THAT - It is pertinent to note that the exemption under Notification No. 12/2017 Central Tax (Rate) dated 28.6.2017 pertains to exemption granted to supply of services. As amply discussed hereinabove, the transaction is in the nature of supply of goods and, therefore, the provisions of Notification No. 12/2017 Central Tax (Rate) would not be applicable in as much as the transaction does not tantamount to supply of services . Accordingly, the answer is in negative. Input Tax Credit - tax paid on the supplies received at the time of developing the outlet - HELD THAT - In the instant case, the equipment/ infrastructure of the running outlet is being sold to the recipient as a part of the business activity of the applicant, the same would be covered under Sec. 16(1) of the CGST Act, 2017 and accordingly, the applicant would be eligible for Input Tax Credit subject to fulfilment of all the conditions specified under the Act and the rules made thereunder for admissibility of Input Tax Credit.
Issues Involved:
1. Classification of Franchisee Fees and Royalty under GST. 2. Determination if the transfer of an operational outlet constitutes "Services by way of transfer of a going concern." 3. Applicability of tax exemption under Notification No.12/2017-Central Tax (Rate) for transfer of a going concern. 4. Admissibility of Input Tax Credit if the transfer of an operational outlet is not considered a transfer of a going concern. Issue-wise Detailed Analysis: 1. Classification of Franchisee Fees and Royalty under GST: The applicant, a Tea House Chain, enters into franchise agreements where they grant the right to use their trademark, brand name, and other proprietary knowledge to franchisees for a lump sum fee and monthly royalty. The applicant argued that these fees fall under Serial No. 17, Heading 9973 (Leasing or rental services with or without operator) of Notification No.11/2017-Central Tax (Rate), attracting GST at 12%. However, the ruling determined that the services provided under the franchise agreement are "Franchising services" and not "Licensing services." Consequently, these services are classified under Heading 9983 (Other professional, technical, and business services) with Service Code (Tariff) 998396 (Trademarks and franchises), attracting GST at 18%. 2. Determination if the transfer of an operational outlet constitutes "Services by way of transfer of a going concern": The applicant sells operational outlets, including equipment, to purchasers who continue the business. The ruling clarified that this transaction is the sale of business assets and not the transfer of a going concern. The transfer of assets is considered a supply of goods under Section 7(1) of the CGST Act, 2017, and not a transfer of a going concern. The ruling emphasized that the transaction involves the sale of equipment/infrastructure necessary for operating the outlet and does not include the transfer of land or building. 3. Applicability of tax exemption under Notification No.12/2017-Central Tax (Rate) for transfer of a going concern: Given that the transfer of an operational outlet is classified as the supply of goods and not services, the exemption under Serial No. 2 of Notification No.12/2017-Central Tax (Rate), which pertains to the supply of services, does not apply. Therefore, the transaction is not exempt from GST. 4. Admissibility of Input Tax Credit if the transfer of an operational outlet is not considered a transfer of a going concern: Since the transfer of an operational outlet is classified as the supply of goods, the applicant is eligible for Input Tax Credit (ITC) on the tax paid for supplies received during the development of the outlet. This eligibility is subject to fulfilling all conditions specified under Section 16(1) of the CGST Act, 2017, and the rules made thereunder. Ruling: 1. "Franchisee Fees" and "Royalty" are classified under Heading 9983 (Other professional, technical, and business services) and Service Code (Tariff) 998396 (Trademarks and franchises), attracting GST at 18%. 2. The transfer of an operational outlet does not constitute "Services by way of transfer of a going concern." 3. The transaction is not covered under Serial No. 2 of Notification No.12/2017-Central Tax (Rate) and is not exempt from GST. 4. The applicant is eligible for Input Tax Credit subject to fulfilling all conditions of the CGST Act, 2017, and related rules.
|
