Whether service tax is leviable on chargesfor use of logo under franchise service, when representational rights has not been transferred?

PJ/CASE LAW/2016-17/3081

Case-C.C.E., AURANGABAD Versus AURANGABAD MUNICIPAL CORPORATION

Citation-2016 (41) S.T.R. 443 (Tri. - Mumbai)

Brief Facts-Revenue has filed this appeal against the impugned Order-in-Appeal dated 14-1-2010 passed by the Commissioner of Central Excise, Customs & Service Tax (Appeals), Aurangabad. The facts are that the appellant and M/s. Akola Pravasi & Malvahatuk Sahakari Sanstha Mryadit, Aurangabad (APMSS) entered into an agreement whereby the appellant allowed APMSS to use the logo ‘AMT’ (Aurangabad Municipal Transport) on city buses running in Aurangabad city which were operated by APMSS. The appellant received an amount of Rs. 71,90,682/- towards royalty. Revenue held that Service Tax amounting to Rs. 8,81,211/- is payable by the appellant under the category of “Franchise Service” as defined under Section 65(47) of the Finance Act, 1994. In adjudication this demand was confirmed by the adjudicating authority and penalties under Sections 77 and 78 were imposed. However in appeal Commissioner (Appeals) held that the relationship is not of franchisor and franchisee. Both parties are in a joint venture and there is no case for demanding Service Tax.

Appelants Contention-Learned AR drew thier attention to the grounds of appeal

Respondents Contention-learned CA drew their attention to the reasons given by Commissioner (Appeals) in dropping the demand.

Reasoning Of Judgement-The tribunal have carefully considered the facts and submissions made by both sides. They find that the grounds of appeal are based on a mis-appreciation of law under Section 65(47). “Franchise” means an agreement by which the franchise 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. For any agreement to be covered by the above definition, the requirement is to grant representational right to sell, manufacture or provide service or undertake any process identified with the franchisor.
The adjudicating authority confirmed the demand on the ground that “The noticee as per condition given in their agreement dated 31-10-2005 at Sr. No. 1 has mentioned that M/s. APMSS has to run city buses with the name AMT (Aurangabad Municipal Transport). AMT is nothing but the name of service provided and the noticee has permitted i.e. given represental right to use name AMT i.e. logo on the city buses to be run by M/s. APMSS. Providing of the service of use of name AMT on city buses by M/s. APMSS is nothing but a service mark/logo, trade name and slogan which is covered under Franchise service falling under Section 65(47) of Finance Act, 1994 and chargeable to Service Tax under Section 65(105)(zze) of Finance Act, 1994 w.e.f. 1-7-2003.”
They have seen the conditions of the agreement between the appellant and APMSS as extracted in the adjudication order and find that it clear reflects to a joint venture to run buses in the city. Even the logo is to be decided by both parties. There is no relationship of franchisor and franchisee. They did not find any representational right having been granted by appellant to APMSS to provide any service identified with the franchisor. They agree with the Order passed by the Commissioner (Appeals).Impugned order is upheld and Revenue appeal is dismissed.

Decision-Appeal dismissed

Comment-The gist of the case is that according to Sec 65(47) “Franchise” means an agreement by which the franchise 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. The necessary requirement under this agreement is to grant representational right to sell, manufacture or provide service or undertake any process identified with the franchisor. But as in the given case the agreement between parties does not reflect any representational right to provide any services identified with assessee, no relationship of franchisor and franchisee exist between parties. Therefore, service tax not leviable on use of a logo on buses of a private operator.

Prepared By-Neelam Jain

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PJ/CASE LAW/2016-17/3081

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