The Customs Excise and Services Tax Appellate Tribunal (CESTAT) held that mere use of word ‘principle to principle’ cannot be a basis for the service fee which is taxable under the category of ‘Franchise Service’ as defined under Section 65 (47) of the Finance Act, 1944.
The appellant M/s Easy Bill Ltd. is engaged in providing an efficient and easily assessable payment collection services for the bill issuers for the collection of payments from the customers who wish to settle their bills from the bill issuer over the counter.
On the basis of specific intelligence gathered by the Service Tax Commissionerate, the records of the appellant were checked and it was observed that they have entered into Retail Agent Agreements with various retailers for providing licenses for opening shops in its names i.e. Easy Bill Ltd. And have collected the service fee from them.
It is alleged that the said service fee is taxable under the category of ‘Franchise Service’ as defined under Section 65 (47) of the Finance Act, 1944. Alleging that the appellant has evaded payment of service tax on the amount collected by them that 4 different show-cause notices were issued to the appellant.
The Order was delivered by division bench which includes Technical Member, Bijay Kumar, and Judicial Member, Rachna Gupta on an appeal filed by M/s Easy Bill Limited.
Section 65 (47) of the Finance Act elaborates as follows: “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 the franchisor whether or not a trademark, service mark, Trade name or logo or any such symbol, as the case may be, is involved”.
‘Franchise Service’ is the right of representation given by one company to another business company against the consideration paid by the later (franchisee) to the former (franchisor) for the same.
In the light of the judgement of High Court in the case of State Vs. Gangana reported as something altogether different from what is called Representational Right. Thus, we are of the view that the objective of the agreement is to merely appoint the agents as different from the franchisee.
The Tribunal opined that mere use of the word ‘principle to principle’ basis cannot be read for the impugned arrangement between the appellant and his agents to be called franchise service.
The Tribunal also states that “Nothing contained in this agreement shall authorize the retail agent to make representations or incur any liability on behalf of the company”.
While allowing the petition court also observed that This particular term of the agreement is absolutely against the intent of what can be called as franchise service.
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