9911796707
TMI Blog2006 (9) TMI 593X X X X Extracts X X X X X X X X Extracts X X X X ..... nce Act, 1994 should not be imposed upon them. The said show cause notice was decided by the impugned order, confirming the demand of service tax along with interest and imposing penalties u/s 75-A (Rs. 500/-), u/s 76 (Rs. 100/-per day of delay), u/s 77 (Rs. 1,000/-) u/s 78 (Rs. 10,88,065/-). Feeling aggrieved with the aforesaid order, the appellants have filed the instant appeal mainly on the following grounds:- The Department had relied upon the agreement dated 2-9-2003 to prove that the Appellant were engaged in providing the services as franchisee; The Adjudicating Authority has misinterpreted and misconstrued the terms stated in the Trade Mark Licence Agreement and has wrongly concluded that the Appellant had provided Franchisee Services to M/s. Ashok Pan Products Pvt. Ltd. during the period July 2003, to Dec, 2004; The Appellant is a proprietary concern and had entered into a Trade Mark Licence Agreement with M/s. Ashok Pan Products Pvt. Ltd., under which the appellant had allowed M/s. Ashoka Pan Products Pvt. Ltd. production of goods bearing his brand name. Licence production agreement is clearly exempt from franchise Service in term of CBEC Circular No. 59/8/2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (55b) define Intellectual Property Rights in which the Trade Mark given for Licence Production Agreement is given. It follows that at best services relating to Intellectual Property Right in respect of Trade Mark given to M/s Ashoka Pan Products Pvt. Ltd. under the Licence Production Agreement could have been covered, which the department has not done. As such the Adjudication Order is erroneous and is not liable to be maintained; No penalty should have been imposed in light of the Pronouncements of Higher Courts in cases of Rastriya Ispat Nigam Ltd. - 2004(163) E.L.T. A53 (SC); M/s Bright Motors Pvt. Ltd. - 2006(2) S.T.R. 502 (Tri. - Del) and Bharti Cellular Ltd. - 2006 (2) S.T.R. 255 = 1999 (106) E.L.T. 564 (Commr. Appl). 3. An opportunity of personal hearing was granted to the appellants, which was attended by Shri Amit Awasthi, Advocate on behalf of the appellants, who reiterated that it is an issue where trade mark is allowed to be used by other party for limited period. He cited the pronouncement of Hon ble CESTAT, New Delhi in the case of Aviat Chemicals Pvt. Ltd. - 2006 (3) S.T.R. 291 (Tri.-Del.) = 2004 (170) E.L.T. 466 (T) in his favour, wherein it has been settled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied with any other person. Therefore, in the absence of such ingredients, a mere licensed production can not be called as a franchise agreement and accordingly license fees paid for such license production can not be charged to service tax. 5. The said circular further confirms the view that unless all the ingredients mentioned in the sub-section are satisfied, a service would not qualify to be franchise service. In this regard, the appellants contended that the Agreement fails to satisfy all the ingredients of Franchise Service as provided under clause (i) to (iv) of sub-section 47. 6. The Agreement in question is a typical example of a licensed production agreement, under which principal manufacturer has allowed production of goods bearing his brand name by another person(The Company) under License Production Agreement which is clearly exempted from franchise service. The appellants have quoted some excerpts from the agreement in question, which inter alia reads as under :- WHEREAS, USER desires to obtain a written license from LICENSOR to use the TRADE MARKS wholly for purposes of manufacture and sale of Pan Masala, Gutkha and Chewing Tobacco in India and to such ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Agreement there is no such restriction upon the manufacturing company not to provide similar goods or services or process identified with any other person. Further the appellants under the Agreement are neither providing any concept of business operation nor any know how, method of operation or managerial expertise to the Company. Therefore, the Trademark Agreement in the instant case does not satisfy the ingredients of franchise service as provided under clauses (ii) (iv) of section 65(47) and would accordingly be exempt from this category of taxable service. 8. Further, they have contended that the instant agreement, with specific references to the clauses quoted above, would show that the true spirit of the Agreement is granting limited right to use the intellectual property right for a consideration. The Intellectual Property Right involved in the instant case is Trade Mark. The limited right to use is given by way of license and such an arrangement of licensing of trade mark would fall squarely within the purview of Intellectual Property Service as defined in the Act, and not under franchise services as confirmed by the impugned Adjudication Order. Discussions F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erty, under any law for the time being in force, but does not include copy right. The Taxable Service in relation to Intellectual Property right has been defined in Sec. 105(zzr) of the Act as any service provided to any person by the holder of intellectual property right, in relation to intellectual property Services ; the intellectual property right involved in this case under Appeal is Trade Mark and the limited right to its use has been given by the Appellant by way of a Licence Production Agreement, which is not a franchise agreement. In a franchise agreement the manufacturer is bound to follow the concept of business operation, managerial expertise, market techniques etc. and none of these redients are present to brand the Appellants under franchise services as the Appellants had never entered into an agreement with M/s Ashoka Pan Products Pvt. Ltd., directing them to follow the concept of business operation, managerial expertise, market techniques etc. Therefore, in the absence of such ingredients in the agreement, a mere Licence Production Agreement should not have been called as a Franchise Agreement and accordingly the license fee in the form of royalty paid by M/s As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nse Production Agreement , does not make the agreement a Franchise Agreement. A franchise agreement also includes the franchisee being obliged to follow the concept of business operation, managerial expertise, market techniques etc. of the franchisor and is under an obligation not to engage in selling, producing or providing similar goods or services, identified with any other person. Therefore, in the absence of such ingredients, a mere licensed production cannot be called as a franchise agreement and accordingly the license fees paid for such license production cannot be charged to service tax . 15. I observe that the above exclusion clause has probably lost sight of the investigation officers as well as the Adjudicating Authority. This clearly provides exclusions of those agreements which are in the nature of Licence Production Agreements or which lacks following up the concept of business operation, managerial expertise, market techniques etc. of the franchisor. 16. In this regard, the appellants have further drawn my attention towards some specific references to the clauses in the opening page of the agreement (quoted supra), which shows the spirit of the agreement. It c ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
