2018 (9) TMI 1657 – CESTAT CHENNAI – TMI – Classification of services – appellant had outsourced their matrimony activity to other associate centers and had entered into franchise agreement with these associate centers – whether classified under Franchise service or under transfer of intellectual property service?
–
Held that:- The recital of the agreement in the first paragraph itself states that the appellant (formerly Bharatmatrimony.com) is referred as a franchisor and the associate member with whom the agreement is entered is referred to as the franchisee – it is not an agreement for mere transfer of intellectual property. In fact, the franchise agreement stipulates for payment of franchise fee charged by the franchisor upon the franchisee.
–
The argument of the ld. counsel that it involves only transfer of intellectual property cannot be accepted for the reason that the agreement involves conditions wherein the manner of functioning and operation of the associate center
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
Judicial) And Shri Madhu Mohan Damodhar, Member (Technical) Shri Akhil Suresh, Advocate for the Appellant Shri S. Govindarajan, AC (AR) for the Respondent ORDER Per Bench Brief facts are that the appellant is a private limited company having branches all over India and are providing matrimonial services through online information on website, providing private employment exchange for employers and job seekers to find the candidates and jobs respectively. They are also aiding property transactions in the websites by creating a common meeting ground for those dealing in real estate business and providing information on buying and selling of automobiles. For all these services, they had registration under the category of Advertisement Services. During the course of audit by the departmental officers, it was noticed that during 2005 – 06, appellant had outsourced their matrimony activity to other associate centers and had entered into franchise agreement with these associate centers. These
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
hri Akhil Suresh appeared and argued the matter. He adverted to the agreement entered into by the appellant with their associate centers and submitted that the agreement is mere granting of right to use the trademark of appellant company. As per the definition of franchise service, as it stood prior to 16.6.2005, there was specific condition and characteristics in order to classify the services under franchise service. After the introduction of Intellectual Property Service from 10.9.2004, the definition of franchise service underwent a change with effect from 16.6.2005 covering only those services of granting representative right to use the process identified with trademark, logo or symbol. Thus from 10.9.2004, difference has been drawn, through Intellectual Property Service were temporarily right is granted to use all intangible properties like trademark, technical know-how etc. He argued that as per the agreement, it is transfer of intellectual property right and would not fall unde
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
uld be covered under Intellectual Property service. Thus, the ld. counsel has argued that the services would not fall under franchise service but would be more akin to Intellectual Property service. 3. In addition, it was submitted that the demand cannot sustain as the show cause notice has been issued invoking the extended period alleging suppression of facts. That the appellant has not suppressed any facts. In fact, an internal audit was conducted in 2006 wherein the agreement was scrutinized by the officers during the course of audit and there was no objection raised with regard to the said agreement to be taxable under franchise service. Subsequently, in September 2007, another internal audit took place and the department has scrutinized the agreement, balance sheet and profit and loss account and thereafter has raised the demand invoking the extended period of limitation. In the alternative, he prayed that in any case, since the appellant was under bonafide belief that the said ac
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
upport service like design of marketing know-how, technical know-how etc. That these would clearly show that it is not an agreement for transfer of intellectual property but an agreement for franchise service. With regard to limitation, he submitted that the appellant have suppressed the activity of rendering franchise service, with intent to evade payment of service, the show cause notice issued invoking the extended period is proper. 5. Heard both sides. 6. The main ground that has been argued by the ld. counsel is that the activity does not fall under franchise service and that it would more rightly be classified under transfer of intellectual property service. We have perused the agreement dated 4.9.2006 furnished by the ld. counsel for appellant. The recital of the agreement in the first paragraph itself states that the appellant (formerly Bharatmatrimony.com) is referred as a franchisor and the associate member with whom the agreement is entered is referred to as the franchisee.
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =
arged by the franchisor upon the franchisee. The argument of the ld. counsel that it involves only transfer of intellectual property cannot be accepted for the reason that the agreement involves conditions wherein the manner of functioning and operation of the associate center is laid down. Thus the franchisor has a right to dictate or direct how the franchisee has to carry on the business. There is also a condition for the franchisee to attend the training conducted by them. Clause 5.3 states that the administration of centre shall be by the Centre Manager, the counselors etc. This shows that the franchisor issues guidelines to the franchisee as to how the business has to run, how the staff and employees have to be recruited etc. After going through the agreement, we are convinced that the agreement is a franchise agreement. For the same reason, we hold that the demand sustains on merits. 8. The ld. counsel has argued on the ground of limitation. It is his case that there was an audit
= = = = = = = =
Plain text (Extract) only
For full text:-Visit the Source
= = = = = = = =