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TMI Blog2024 (2) TMI 907X X X X Extracts X X X X X X X X Extracts X X X X ..... anchisee should have been granted a representation right and that in a franchise transaction, the franchisee loses its individual identity and represents the identity of franchisor to the outside world. In Tata Consultancy Services Ltd. v. Commissioner of Central Excise [ 2019 (6) TMI 109 - CESTAT MUMBAI] , this Tribunal held that the grant of a representational right would imply that the person to whom such a right has been granted undertakes the entire activity as if it had been undertaken by the person granting such rights. The 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, trade name or logo or any such symbol, as the case may be, is involved. The sine-qua-non for Franchise Service is therefore grant of representational right to sell or manufacture goods, or to provide service or to undertake any process identified with the franchisor. It is not possible to hold that the Race Promotion Contract is a Franchise Agreement, under which FOWC provided franchise service to JSIL and co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of service tax to the extent of Rs.20,36,32,619/-, penalty imposed under Sections 78 and 77 and demand of interest cannot be sustained and the same are accordingly set-aside - appeal allowed. - MR. P.K. CHOUDHARY, MEMBER (JUDICIAL) AND MR. SANJIV SRIVASTAVA, MEMBER (TECHNICAL) Shri Nishant Mishra, Advocate for the Appellant Shri Sarweshwar T. Khairnar, Authorized Representative for the Respondent ORDER The present appeal is directed against the Order-in-Original No. 30/ Commissioner/ ST/Noida/ 2016-17 dated 31.03.2017 passed by the Ld. Commissioner, Service Tax, Noida, by which the transaction between M/s Jaypee Sports International Ltd. and Formula One World Championship Ltd. under the Race Promotion Contract dated 13.09.2011 has been held to be a Franchise Service , liable to service tax under Section 66A of the Finance Act, 1994. The services provided by Formula One Management Ltd. to M/s Jaypee Sports International Ltd. are also held to be Business Auxiliary Service and since such services were provided from outside India, hence demand of service tax has also been confirmed on such services. 2. The facts of the case in brief are that M/s Jaypee Sp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lify as import of service and accordingly JSIL is liable to pay tax on such services under reverse charge mechanism. The show cause notice also invoked extended period of limitation alleging suppression of facts regarding rendering/receiving taxable services. Vide judgment and order dated 14.09.2015 of the Hon ble Allahabad High Court, JSIL stood amalgamated with M/s Jaiprakash Associates Limited. 5. After considering the submissions of the Appellant in reply to the show cause notice, the Ld. Commissioner adjudicated the show cause notice as per the order indicated in paragraph 1 supra. The demand of Service Tax of Rs.20,36,32,619/- has been confirmed on the ground that the transaction between JSIL and FOWC under the Race Promotion Contract is a Franchise Service provided by FOWC to JSIL and since FOWC has no office in India, hence JSIL being recipient of service, is liable to pay service tax on such services. The Commissioner has also held that the services provided by FOM are in the nature of Business Support Service , and since FOM has no office in India, hence JSIL is liable to pay service tax amounting to Rs.1,12,23,633/-. Thus, the Commissioner has confirmed the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... seeking necessary permissions within his country whereas the manpower and racing equipments (cars, drivers, officials, marshals etc.) are provided by FIA. 8. After elaborating the above modalities, the ld. counsel submitted that as the circuit of JSIL confirmed to the specifications laid down by FIA, hence JSIL was issued approval by the FIA, after which the JSIL entered into a tripartite Organisation Agreement dated 20.01.2011 with FIA and the Federation of Motor Sports Club of India ( FMSCI ), under which the JSIL undertook to organise a Grand Prix Event, in consideration for and subject to such event being duly listed by the FIA in the calendar of the FIA Formula One World Championship. 9. The ld. counsel then submitted that the Race Promotion Contract dated 13.09.2011 was executed between JSIL and FOWC, wherein JSIL was granted the right to host, stage and promote the FORMULA 1 GRAND PRIX OF INDIA ( Event ) against consideration of US$ 40,124,120.26, subject to the execution of Artworks agreement with FOWC and Service Agreement. Under the Artworks Agreement dated 13.09.2011 executed with Formula One Management Ltd. ( FOM ), JSIL was granted a non-exclusive, non-transfera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issues that need to be deliberated in the present appeal are as under:- (i) Whether the Race Promotion Contract dated 13.09.2011 executed between JSIL and FOWC is covered by the expression franchise as defined under Section 2(47) of the Finance Act, 1994 and therefore a taxable service under Section 65(105)(zze) of the said Act; (ii) Whether the show cause notice dated 09.07.2014 was rightly issued in respect of tax liability under the Service Agreement dated 13.09.2011, when the entire service tax liability along with interest on this issue was deposited on 06.06.2012; (iii) Whether extended period of limitation was rightly invoked in the facts and circumstances of the present case; (iv) Whether penalties imposed under Sections 77 and 78 are justified in the facts and circumstances of this case. 13. So far as the first issue is concerned, we find that the entire case of Revenue is based on the Race Promotion Contract dated 13.09.2011, which has been treated by the revenue as a Franchise Agreement and on the basis of which the revenue has formed an opinion that FOWC transferred representational rights to JSIL against a consideration, thereby providing Franchi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... save only to the extent first approved by the FIA. 11. The Organiser shall ensure that no person can, whether on payment or otherwise gain access to any part of the Circuit which is not protected in the event of an accident to at least the degree required by local laws and by the FIA for the general public and, without prejudice to the generality of the foregoing, to the paddock, pits, pit lane and track, unless such person is in possession of a pass or tabard issued by or on behalf of the FIA (a Pass ). The Organiser further undertakes that each such person to whom a Pass is issued will wear it in the prescribed manner at all times when on duty. 12. The Organiser will supply to the FIA no later than 60 days before the Event, a list of all persons concerned with the organisation of the Event who will need passes or tabards in order to carry out their duties, together with the function of each such person and the Organiser undertakes that such Passes will only be used by such persons as the Organiser has thus listed or described. 15. The Organiser shall provide a covered area where the FIA can install and operate weighing equipment and operate a secure parc ferne. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and binding agreement with Beta Prema 2 Limited (Beta), in a form satisfactory to Beta; (b) evidence that the Promoter has entered into a valid and binding agreement with All sport Management S.A (All sport) in a form satisfactory to All sport; (c) evidence that the Promoter has entered into a valid and binding agreement with such third party in accordance with clause 18.3 (Service Agreement); and (d) payment of the sum of Forty Million One Hundred and Twenty Four Thousand One Hundred and Twenty United States Dollars Twenty Six Cents (US$ 40,124,120.26) in accordance with Clause 24.1(a) 4.1 FOWC agrees subject to the terms of this Agreement to grant to the Promoter during the Term the right to host, stage and promote the Event (the Right). 4.2 The Promoter agrees that the Right is limited to the Event. Promoter s Warranties 5. In consideration of the foregoing the Promoter warrants at the date of this Agreement and throughout the Term that (a) subject to Clause (4), the Promoter has or will have the exclusive right to act as the promoter of the Event. .................... (f) that it is or will be in exclusive possession of s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther beneficially or legally) to a third party except with the prior written consent of FOWC whose consent may be given or withheld in the absolute discretion of FOWC. FOWC shall have the right to assign, license, charge or otherwise dispose of any or all of the benefits or obligations on its part under this Agreement without the consent of the Promoter provided the assignee has the capacity and ability to comply with the rights and obligations of FOWC pursuant to this Agreement. 37. FOWC and the Promoter are independent contractors with respect to each other and nothing in this Agreement is intended to or shall operate to create any association, partnership, joint venture or agency relationship of any kind between them. 16. Artwork Agreement dated 13.09.2011 was executed between FOWC and JSIL wherein JSIL was granted a non-exclusive, non-transferrable, royalty free license permitting the incidental use of certain intellectual property (including certain trade marks) and Artwork solely for the limited purpose of facilitating the hosting, staging and promotion of the Event. Service Agreement dated 13.09.2011 was executed between FOM and JSIL wherein JSIL engaged FOM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry for the purpose of hosting and staging the event and to apply for and obtain all necessary licenses and consents in its own name and that everything in relation to the circuit was to be constructed subject to approval of FOWC and the FIA. Sub-clauses (f), (g) and (j) of Clause 6 also provides that JSIL undertakes to maintain a bonded area within the circuit for customs facilities in respect of the case and ancillary equipments, obtain and maintain all necessary consents and approvals and also ensure that no commercial brand or logo is included or associated with the circuit name or any building utilised for staging the event. Clause 7 prohibits the JSIL from restricting in any manner, the advertising displayed on the cars, drivers or personnel and JSIL cannot require any car, driver or personnel to carry any advertising material. Clause 8 requires JSIL to allocate pits, pit area, pit area parking, garages etc. in the manner specified by FOWC. Clause 14 further obliges JSIL to ensure that only passes and tabards issued by FOWC under the authorisation of FIA shall have access to the parts of circuit and that the validity of any passes and tabards issued by FOWC is upheld. Clause 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring goods or services from the brand owner 19 Service Tax Appeal No.55357 of 2013 which can be termed as franchise rights. For the purpose franchise must surrender his own identity and in addition must step into the shoes of the franchisor. 21. After considering the aforesaid definition, the Hon ble Delhi High Court in Delhi International Airport P. Ltd. v. Union of India Ors (2017) 50 STR 275, after considering the scope and ambit of taxable services under Section 65(105)(zze) has held as under:- 56. Merely because, by an agreement, a right is conferred on a party to sell or manufacture goods or provide services or undertake a process, would not ipso facto bring the agreement within the ambit of a franchise. What is also required is to establish that the right conferred is a representational right . 57. The term representational right would necessarily qualify all the three possibilities i.e., (i) to sell or manufacture goods, (ii) to provide service and (iii)undertake any process identified with the franchisor. 58 . A representational right would mean that a right is available with the franchisee to represent the franchisor. When the Franchisee repre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ufacture goods, or to provide service or to undertake any process identified with the franchisor. An analysis of the Race Promotion Contract establishes that no franchise service has been rendered by FOWC to JSIL for the following reasons: (i) The agreement is for transfer of right to host, stage and promote the Event, wherein races shall be conducted by the FIA and its affiliates and JSIL was required to provide necessary facilities and amenities for the same including necessary licenses and permissions in its own name. The consideration paid by JSIL is also in lieu of grant of such right. There is no explicit or implied intention to grant representational rights in the agreement, whereby JSIL could represent FOWC in any capacity; (ii) FOWC, being only authorised by FIA to negotiate the contracts with the Organisers with commercial angle only, hence there was no authority with the FOWC to grant any representational right in respect of the F-1 Race; (iii) There is also no identified consideration for the license permitting use of certain intellectual property. The license to use intellectual property is only an incidental aspect to the conduct of race by FIA FOWC an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the remittance of US $ 40.12 million is a franchisee fee paid to FOWC for conducting F-1 race in India, is based on the letter dated 10.08.2011 of the Ministry and therefore does not advances the case of the revenue. 26. Thus, it is not possible to hold that the Race Promotion Contract is a Franchise Agreement, under which FOWC provided franchise service to JSIL and consequently the demand of service tax of Rs.20,36,32,619/- is clearly not sustainable. 27. As regards the second issue is concerned, we find that the demand of Rs.1,12,23,633/- pertains to payment of US $ 20,00,00 to FOM arising out of Service Agreement dated 13.09.2011, for which invoice was issued by FOM on 17.04.2012, payment was made by JSIL on 16.05.2012 and service tax of Rs.1,34,68,358/- (inclusive of interest) was deposited on 06.06.2012, which fact is also recorded in the impugned. Apparently when the entire amount of service tax along with interest was deposited, we find no reason for issuance of show cause notice on this count in view of specific provisions contained in sub-section (3) of Section 73. However, since the ld. counsel for the appellant has fairly not pressed the demand on merits, no furthe ..... 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