The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) quashed service tax demand and noted that the Race Promotion Contract between Formula One World Championship and Jaypee Sports is not franchise agreement.
The present appeal was directed against the order passed by the 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 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.
The dispute in the present appeal is whether the transaction between the FOWC and JSIL under the Race Promotion Contract dated 13.09.2011 amounts to Franchise Service under the amended definition of franchise.
The counsel for the appellant submitted that sine-qua-non for franchise service is transfer of representational right and in the present case JSIL merely had the right to host, stage and promote the event and was not given any right to represent FOWC and therefore there is no transfer of representational right in the present case. The various clauses of the Race Promotion Contract clearly showed that JSIL retained its identity throughout the event and the identity of JSIL never got subsumed in the identity of FOWC, as the entire event was conducted by FIA only.
The D.R submitted that the Race Promotion Contract involves transfer of representational right and hence demand has been rightly made after invoking extended period of limitation and penalties have rightly been imposed. He further submitted that the appeal filed by the appellant, being devoid of any merits, may be dismissed.
The Tribunal in Global Transgeme Limited v. Commr. of Central Excise, has held that the foremost requisite for a service to qualify as a taxable „franchise‟ service is that the franchisee 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.
A Two-Member Bench of PK Choudhary, Judicial Member and Sanjiv Srivastava, Technical Member observed that “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 consequently the demand of service tax of Rs.20,36,32,619/- is clearly not sustainable” the Bench concluded.
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