By TIOL News Service

MUMBAI, NOV 27, 2015: REVENUE is in appeal.

The facts are that M/s Akola Pravasi & Malvahatuk Sahakari Sanstha Maryadit, Aurangabad (APMSS) entered into an agreement whereby the respondent Aurangabad Municipal Corporation allowed APMSS to use the logo 'AMT' (Aurangabad Municipal Transport) on city buses running in Aurangabad city which were operated by APMSS.

Aurangabad Municipal Corporation 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 respondent under the category of "Franchise Service" as defined under section 65(47) of the Finance Act, 1994.

The demand was confirmed but in appeal the Commissioner (Appeals) held that the relationship is not of franchisor and franchisee; that both parties are in a joint venture and there is no case for demanding Service Tax.

Aggrieved, Revenue is in appeal before the CESTAT.

The Bench, after considering the submissions, observed -

"5. We 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 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 trademark, 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.

5.1 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 representational 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 01.07.2003." We have seen the conditions of the Agreement between the appellant and APMSS as extracted in the adjudication order. We 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. We did not find any representational right having been granted by appellant to APMSS to provide any service identified with the franchisor. We agree with the order passed by the Commissioner (Appeals)."

In fine, the impugned order was upheld and the Revenue appeal was dismissed.

(See 2015-TIOL-2514-CESTAT-MUM)