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TMI Blog2024 (8) TMI 19X X X X Extracts X X X X X X X X Extracts X X X X ..... vance Networking Technology (IANT),the appellant appointed various persons/organization to function as franchisee and they have entered into agreement with their franchisees on the terms and conditions mentioned in the agreements. The appellant are discharging service tax on the franchise fees received from franchisee, however, they are engaging advertisement agencies for giving advertisement in newspaper and in other media for which they are paying the advertising charges to the advertising agencies. Part of advertising expenses is collected from their franchisee for the purpose of advertisement for which they have executed agreement of advertisement with their franchisee. 1.2 On the advertisement expenses incurred by the appellant and part of it collected from their franchisee were not being included in the value of service namely franchise service, therefore, a show cause notice dated 22.12.2016 was issued to the appellant proposing to demand service tax on the advertisement charges collected by the appellant from their franchisee on the ground that these advertisement charges should also be a part of gross value of franchisee service. In the show cause notice, the demand of se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the appellant as reimbursement expense is includible in the gross value of the franchise fees. We find that the show cause notice is based on the provision of Rule 5 (1) of Service Tax (Determination of Value) Rules, 2006. The relevant para of show cause notice is reproduced below:- "10.2. Further in terms of provisions of Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006, where any expenditure or costs are incurred by the service provider in the course of providing taxable service, all such expenditure or costs shall be treated as consideration for the taxable service provided or to be provided and shall be included in the value for the purpose of charging service tax on the said service. Therefore whereas the assessee showed to have incurred expenditure of Rs. 11,07,06,782/- purportedly on advertisements for their franchisee centres, in terms of the franchisee agreements said amount was includible in the total taxable value for the purpose of charging of service tax on the Franchisee services so provided by the assessee, however which was willfully not done by the assessee. Therefore an amount of Rs. 11,07,06,782/-, which escaped from assessment to service ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tudents regularly regarding courses. And all expenses will be paid by their own; IANT will not contribute anything towards any such cost/expenses. Which is given by the Franchisee. (ii) The franchisee is agreed to participate in advertisement budget of IANT for print media, electronic media or any other activity. The print media cost would be upto 12 lac p.a. per franchisee and franchisee is agree to give this participation amount with IANT. (iii) The franchisee shall not have any objection if IANT take any media in any manner for the branding and promotion. (iv) If in case and in any time if franchisee disagree for any budgeting for advertisement, so franchisee would be cancelled on immediate basis. 23. On perusal of the above terms and conditions it is observed that a franchisee were required to pay a non-refundable Franchisee fee as set out in the agreement, which is Rs. 4 lac for two years in the above case. Thus, the Franchisee fee to be paid by the franchisees was a non-refundable fee and it was to be retained by the notice. 24. It is also observed from the above terms and conditions, that the Franchisees were bound for quarterly newspaper advertisement and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he action of the respondent is in violation of Clause (c) and (d) of the Explanation 1 to Rule 5(2) of the Service Tax (Determination of value) Rules, 2006. On the contrary, I find the respondent (M/s IANT) had rebutted in their detailed Cross Objections filed against the Grounds of Appeal that they were merely functioning as a 'pure agent' in the matter and no additional fees or profits or consideration for such Pure agent services is received by the appellant as defined under Rule 5(2) of Service Tax(Determination of value) Rules, 2006. However I find that the Department's view is worth reckoning as it is apparent from the fact that the respondent had allowed use of their brand name "IANT" under franchisee model to their various franchisees located in different parts of India and against these have received Franchise Fees. This is clearly in violation of Clause (C)of Rule 5(1) cited above. The respondent had given advertisement in the media all over India with the same pattern of promoting their brand and for creating awareness for students regarding the courses offered by them. Also, the respondent had shared the "Advertisement Budget" with all the franchisees as is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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