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TMI Blog2024 (12) TMI 409X X X X Extracts X X X X X X X X Extracts X X X X ..... enefit passed on by the Promisor to the Promissee or by the transferor or by the transferee. A Larger Bench of the Tribunal in M/S BHAYANA BUILDERS (P) LTD. OTHERS VERSUS CST, DELHI OTHERS. [ 2013 (9) TMI 294 - CESTAT NEW DELHI-LB] observed that implicit in the legal architecture is the concept that any consideration whether monetary or otherwise, should have flown or should flow from the service recipient to the service provider and should accrue to the benefit of the latter.'' Apparently and Admittedly, the appellant is paying service tax under RCM with respect to royalty fee and even on advertisement fee for advertising the trade name of Costa/IFHL. The amount in question is an amount for advertising the Costa/ IFHL outlets which are operated by appellant for its own Business Department has not produced anything to falsify these observations. Hence, the amount is question is an amount towards promotion of appellant s own outlets in this arrangement presence of the two people to Constitute Service rendered by one received by another is are missing vis-a-vis the promotion the promotional activity for the appellant operated outlets. Hence, the said amount has wrongly been i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the various clauses of the aforesaid agreement, the department observed that franchisee/ appellant, apart from remitting franchisee fee and royalty amount, it has to contributed at least 2% of its gross sale for advertising and promotion of the brand name Costa owned by the Franchiser M/s Costa International Limited and Promotion of Brand name Swenson s of M/s International Franchise holding (Labuan) Ltd. Thus, both the Franchisors are getting extra consideration in the form of contribution towards advertisement from the Franchisee for promotion of their own brand instant of appellant incurring it s own advertisement. Department formed the opinion that the activity of the Franchisee is therefore, taxable as he is providing Business Support Service to the Franchisor, the amount paid by the appellant being the extra consideration spent by the franchisee-appellant on advertisement and promotion of the Brand name of the Franchisor should form the part of the value of taxable service in terms of Section 67 of Finance Act 1994 read with Rule 5 of Service Tax ( Determination of Value) Rules, 2006. The appellant is accordingly, alleged liable to pay the service tax on the amount paid a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in question is 2%/ 4% of gross network revenue. This term is defined under clause two of the agreements to mean to be an amount towards advertisement of Costa outlets/ IFHL outlets. The meaning of these outlets is defined under agreements to mean retail shops opened and operated by the appellant within the development of area i.e. India. There is nothing in either of these agreements that casts an obligation on appellant to incur expenditure for advertising the brand name, trademarks etc. of Costa/ IFHL. Thus, it is submitted that the indirect result because of the advertisement activity under taken by appellant in India in respect of retail outlets operated by it is wrongly treated as extra consideration flowing from appellant to Costa/IFHL towards franchise services. It is for the reason that out of those advertisement it was appellant himself, who was getting benefitted out of such expenses, the retail outlets being run by appellant himself and not by Costa/IFHL. Decision of larger bench of this tribunal in the case of Bhayana builders Pvt. Ltd. vs. Commissioner of Service tax Delhi reported as 2013(32) STR 49 (Tri. L.B) is relied upon. 6. It is further submitted that Rule 5 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tain. With these submission the appeal is prayed to be dismissed. Learned DR has relied upon the decision in the case titled as M/s Subway System India Pvt. Ltd. vs. CST Delhi- II reported as 2019 (25) G.S.T.L 465 (Tri. Del.) 9. Having heard the rival contentions of both the parties, perusing the entire record of the appeal memo including both the Franchise Agreements, we observe that the moot question of adjudication is as follows; Whether, the amount spent by the appellant (2%/4% of the gross net revenue) towards advertisement and promotion of the Costa/IFHL outlets operated by the appellant is an amount of consideration in terms of Section 67 of Finance Act 1994 read with rule 5 of service tax (determination of value) rules 2006 being includable in the value of Franchise Services received by the appellant from overseas franchisors. 10. To adjudicate the same we, foremost have to look into Section 67 of the Finance Act. This Section talks about valuation of taxable services for charging service tax. The provision defines consideration to include any amount that is payable for the taxable services provided or to be provided. The expression considerations was decided by Hon ble Sup ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service tax is payable has to satisfy the following ingredients: a. Service tax is payable on the gross amount charged the words gross amount only refers to the entire contract value between the service provider and the service recipient. The word gross is only meant to indicate that it is the total amount charged without deduction of any expenses. Merely by use of the word gross the Department does not get any jurisdiction to go beyond the contract value to arrive at the value of taxable services. Further, by the use of the word charged , it is clear that the same refers to the amount billed by the service provider to the service ser Therefore, in terms of Section 67, unless an amount is charged by the service provider to the service recipient. It does not enter into the equation for determining the value on which service tax is payable. The amount charged should be for for such service provided : Section 67 clearly indicates that the gross amount charged by the service provider has to be for the service provided. Therefore, it is not any amount charged which can become the basis of value on which service tax becomes payable but the amount charged has to be necessarily a considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bution, for any Shoppe opened pursuant to the rights granted to it hereunder, as set forth in Appendix 2, and otherwise accordance with the terms of the Individual Franchise Agreement. 3.6 During the Initial Term, the parties agree that a Royalty Fee as set forth in Appendix 2 equal to five (5) % of the total Gross Sales from each Shoppe shall be due and payable on a monthly basis by the Developer to the Franchisor, unless otherwise agreed in writing between the parties. The parties expressly acknowledge that the Royalty Fee at the rate of five (5) % of Gross Sales from each Shoppe is currently the legally permissible royalty fee rate that can be remitted overseas to the Franchisor in accordance with the rules and regulations of the Reserve Bank of India and other applicable Indian laws, and the parties expressly agree to strictly comply with such rules, regulations and laws. 3.7 The Developer further acknowledges and agrees that it shall be required to pay the Franchisor in India an ongoing monthly fee of 1% of Gross Sales of each Shoppe through possible payment mechanism or alternative solutions as agreed by the parties in good faith including, without limitation, payment for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case of Macdonald s India Pvt. Ltd. vs. Principal Commissioner of Service Tax Delhi (1) reported as 2019(30) GSTL J-51 (Tri.-del) wherein it was held that the condition of the Franchise Agreement is to require of the advertisement of the Restaurant and nothing else. Irrespective that while so advertising the trade names / service marks and trademarks of the Franchisor appear in the advertisement but it being the indirect benefit to the franchisor, the value of such advertisement cannot be called as the amount of consideration for receiving Franchise Services. The facts of present case are identical to the case of, Macdonald s case. We find no reason to differ from those findings Similar have been the findings in the case of Delhi High Court in the case of Baush and Lomb Eye Care India Pvt. Ltd. vs the Additional Commissioner of income tax reported as 2016 (65) taxmann.com 141 Delhi. 12. Apparently and Admittedly, the appellant is paying service tax under RCM with respect to royalty fee and even on advertisement fee for advertising the trade name of Costa/IFHL. The amount in question is an amount for advertising the Costa/ IFHL outlets which are operated by appellant for its own ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to make rules for carrying out the provisions of Chapter V of Finance Act, 1994 is manifest, in the sense that only the service actually provided by the service provider can be valued and assessed to Service Tax. We are, therefore, undoubtedly of the opinion that Rule 5(1) of the Rules runs counter and is repugnant A to Sections 66 and 67 of the Act and to that extent it is ultra vires. It purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider in the course of providing taxable service . What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld. With these observations we hold that show cause notice is time bared and is vague also. The demand based on such show cause notice is not sustainable. Resultantly, we hereby set aside the order-in-appeal/ the order under challenge. Consequent, thereto, the appeal stands allowed. ( ..... X X X X Extracts X X X X X X X X Extracts X X X X
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