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TMI Blog2012 (10) TMI 489X X X X Extracts X X X X X X X X Extracts X X X X ..... case are that the appellants are engaged in providing Commercial Training and Coaching Services and are registered with the department. During the departmental audit it was found that during January 2007 to December 2008 the appellant had paid an amount of Rs. 1,68,23,658/- towards royalty to their USA based Franchiser M/s. Crest Com International Limited, USA for the use of logo and study materials. It appeared that the appellant had neither taken registration under "Franchise Service" nor paid service tax on the royalty paid to the foreign company. Hence, a Show Cause Notice proposing to demand an amount of Rs. 20,18,839/- towards Service Tax, Rs. 40,377/- towards Education Cess and SHE cess of Rs. 19,288/- under proviso to Section 73(1) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tional Ltd. USA (iii) that it is not in law to pay services tax on payment made to M/s. Crest Com International Ltd. USA for which no service are received by the appellant and payment made to M/s. Crest Com International Ltd. USA are only sharing of profit after the entire Service tax payable in India are fully paid; (iv) that the appellant acts as a Pure Agent of M/s. Crest Com International Ltd. USA. Explanation 1 to Rule 5 provides that for the purpose of Rule 5(2), "Pure agent" means a person who does not use such goods or service so procured. (v) That training materials supplied are not used by the appellant and, only by franchise holders. (vi) That Rule 4 of taxation of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid by them to M/s. Crest Com International Ltd. USA. The Department had demanded the Service tax under "Franchise Service" banking heavily on the definition and as per Rule 2(1)(d)(iv) of Service Tax Rules, 1994. 5.2 Let me first take the issue whether the appellant's activity falls under "franchise service" or not. The disputed period in the instant case is from January 2007 to December 2008. The Finance Act, 2005 has substituted the following definition with effect from 16-6-2005 as follows :- '(47) "franchise" 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ascertained that the appellant is the only franchisee in India of M/s. Crest Com International Ltd. USA and that they conduct training programme for managers and create 'Bullet proof' managers for corporate world. They are marketing a training programme titled "Bullet proof manager". Thus, the activity of the appellant is clearly covered by the definition of "franchise" service and I hold that the appellant's activity is franchise service. Section 65(18) of the Act defines a 'franchisor' as follows : '(48) "franchisor" means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term "franchisee" shall be construed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) the services must be provided by a franchisor. In the instant case, M/s. Crest Com International Ltd. USA is a franchisor and had rendered service to the appellant who is the only franchisee on receipt of certain amount by granting representational right and license to use their trade mark to persons who are franchisees. Hence, M/s. Crest Com International Ltd. USA is rendering a taxable service for which he is liable to pay service tax on the amount received from the appellant. But as the service provider in the instant case is a foreign company who is not having office or fixed establishment in India, as per 2(1)(d)(iv) of Service tax Rules, 1994 read with Section 66A the appellant as a service receiver is liable to pay service tax on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oreign company under "Franchise Service". 5.5 The appellant had produced sample invoices raised by him towards training fees, franchisee fees, distributorship fee along with service tax to the distributors in the name of M/s. Crest Com International Ltd. USA with a note that cheque should be drawn in favour of the appellant. The appellant had contended that after paying service tax to the Department, the royalty is being paid to the foreign company. From these invoices, it is evident that the appellant had collected service tax while charging the above fees from their distributors but they had not produced any evidence whether the collected service tax was paid to the Department. I am of the view the onus is on the appellant to substa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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