Custom, Excise & Service Tax Tribunal
Board Of Control For Cricket In India vs Commr.Service Tax- Ii Mumbai on 10 December, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT No. I
APPEAL Nos. ST/87578-87581/2015
ST/Cross/91030,91032,91031,91033/2016
Board of Control for Cricket in India Appellant
Vs.
Commissioner of Service Tax-II, Mumbai Respondent
APPEAL No. ST/85038/2016
ST/Cross/91050/2016
Commissioner of Service Tax-II, Mumbai Appellant
Vs.
Board of Control for Cricket in India Respondent
(Arising out of Order-in-Original No. 30 to 33/PR.COMMR/ST-
II/PK/2015-16 dated 19.8.2015 passed by Commissioner of Service
Tax-II, Mumbai)
Appearance:
Shri Shri V. Sridharan, Sr. Advocate, with Shri Vinay Jain,
Advocate, for appellant-assessee
Shri Roopam Kapoor, Commissioner (AR), for Revenue
CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial)
Hon'ble Mr. Sanjiv Srivastava, Member (Technical)
Date of Hearing: 10.8.2018
Date of Decision: 10.12.2018
ORDER No. A/88075-88079/2018
Per: Sanjiv Srivastava
2 ST/87578-87581/2015,85038/2016
These appeals (Four Appeals have been filed by
BCCI (appellant) and one appeal has been filed by the
revenue) are directed against the order in original No 30
to 33/ PR. COMMR/ ST-II/PK/2015-16 dated
19/08/2015 of the Commissioner of Service Tax: II:
Mumbai. By the said order Commissioner has
adjudicated four show cause notices as detailed in para
2, holding as follows:
"Order
i. I confirm total demand of Rs 131,19,45,874/-
(Rs One Hundred and Thirty One Crores,
Nineteen Lakhs Forty Five Thousand Eight
Hundred and Seventy Four only) in respect of
the service tax liability which is to be paid by the
noticees in terms of proviso to sub-section 1) if
Sec 73 of Finance Act, 1994.
ii. I order recovery of interest at the appropriate
rate against the above confirmed demand, under
Sec 75 of the Finance Act, 1994.
iii. I impose a penalty of Rs 25,96,08,402/- (Rs.
Twenty Five Crores Ninety Six Lakhs Eight
Thousand Four Hundred and Two Only) under
Section 78 of the Act.
iv. I impose a penalty of Rs 87,82,39,421/- (Rupees
Eighty Seven Crores Eighty Two Lakhs Thirty
Nine Thousand Four Hundred Twenty Nine Only)
under Section 76 of the Act.
v. I impose penalty of Rs 5,000/- (Rupees Five
Thousand Only) each for SCNs art Sr Nos 1,2,3
above and Rs 10,000/- (Rupees Ten Thousand
Only) for SCN at Sr No 4 above (Total Rs
3 ST/87578-87581/2015,85038/2016
25,000/- 9Rupees Twenty Five Thousand Only)
under Section 77 of the Act.
vi. This order is issue without prejudice to any other
action that may be initiated against The Board of
Control for Cricket in India under the provision of
Finance Act, 1994 or the Rules made thereunder
or under the provision of any law for time being
in force."
2.1 Appellant is a society registered under the Tamil
Nadu Societies Registration Act, 1975, having a
separate sub-committee known as Indian Premier
League (IPL) set up to oversee the operations of domestic
T-20 Cricket competitions in India and abroad.
2.2 Appellants entered in media rights license
agreement as licensor with M/s MSM Satellite,
Singapore (MSM or Licensee) & M/s World Sports
Group (India) Pvt Limited (WSG or Licensee) vide
agreement dated 21.01.2008 (Revised by agreements
dated 25.03.2009 and 25.06.2010) licensing them the
media rights for telecast of IPL matches. They also
entered in Memorandum of Understanding dated
16.04.2008 with M/s Live Current Media Inc (LCM),
Canada to design, build, operate, maintain & promote
the IPL website as the sole IPL website sanctioned by
appellant. They also received certain amounts from M/s
Pioneer Digadsys under the head of "Media Right
4 ST/87578-87581/2015,85038/2016
Incomes" but had not produced the copy of agreement
with them.
2.3 On scrutiny of the said agreement revenue was of
the view that the services provided by the appellants to
the licensee were covered by the definition of Franchise
Services as defined by Section 65 (47) read with Section
65(48) and Section 65 (105) (zze) of the Finance Act,
1994. Since Appellants had not paid the service tax by
classifying the services provided by them and had not
filed ST-3 returns, four show cause notices were issued
to the Appellants as detailed in table I below:
Table 1 Details of Show Cause Notices
SCN No Date Period Amount Remarks
V/ ST/ HQ/ AE/ 14.10.2009 2007-08 & 36,52,38,000 Extended
E/ 47/ 09 2008-09 period as per
19.04.2011 2009-10 37,53,77,320 proviso to 73(1),
174/ Commr/ 24.10.2011 2010-11 41,10,17,933 Interest under
2011-12 Section 75 and
V/ ST/ Dn-II/ Gr 13.03.2013 2011-12 38,40,60,229 penalties under
VIII/ TBCCI/59/ 10 Section 76, 77
& 78
2.4 After considering the submissions made by the
appellants in reply to show cause notice and also during
the personal hearings granted Commissioner
adjudicated the four show cause notices as per the
order indicated in para 1 supra. Commissioner has
allowed the benefit of cum tax benefit to the appellants.
He also has imposed penalty under section 78 on in
respect of First Show Cause Notice and Penalty under
Section 76 in respect of other three show cause notices.
5 ST/87578-87581/2015,85038/2016
He has imposed penalty under section 77 in respect of
all four show cause notices and has demanded the
interest in respect of the demands confirmed.
2.5 Aggrieved by the order appellant have filed these
appeals.
2.6 Revenue has filed the appeal challenging the part
of order whereby benefit of cum tax value has been
granted by the Commissioner.
3.0 Appellants have in their appeal assailed the order
of Commissioner on various grounds which were again
pressed during the argument of the appeal.
4.1 We have heard Shri V. Sridharan Ld Counsel for
the appellants and Shri Roopam Kapoor, Commissioner
Authorized Representative, for the revenue. On
conclusion of the arguments both the parties were
asked to make written submissions stating various
points argued by them. Both the party's have filed the
written submissions.
4.2 Arguing for the appellant learned counsel
submitted-
a. The appellants had entered into agreement
dated 21st January 2008 with M/s MSM
Satellite, Singapore and M/s World Sport
Group (I) Private Limited for sale of Media
Rights for telecast of Indian Premier League
6 ST/87578-87581/2015,85038/2016
(IPL) matches. Both the agreements are
identical except for the territory of operation.
While M/s MSM was given telecast rights for
India, Pakistan, Sri Lanka, Bangladesh,
Bhutan, Nepal and Maldives, telecast right for
rest of the world were given to WSG.
b. Some of the salient features of the agreement
relevant for the controversy under dispute are
as hereunder:-
i. Subject to the terms and conditions of this
agreement, and in particular clause 2.1 (ii)
and (iii) below and the provisions pertaining
to exclusivity referred to in clause 2.3 below,
licensor hereby grants to licensee during the
rights period and within the territory:
a) The television rights and internet
rights on exclusive basis;
b) The audio rights on exclusive
basis;
c) The mobile rights on an exclusive
basis;
d) The in flight programming rights;
e) The right to make available
interactive services to viewers of
footage;
7 ST/87578-87581/2015,85038/2016
f) The right to produce unilateral
coverage and unilateral commentary
for transmission and delivery by means
of permitted delivery system.
ii. 2.9 The licensor hereby grants to the
licensee a non-exclusive royalty free license
to exploit during the rights period and within
the territory the league logos, league marks
and team logos (collectively the "licensor
marks"), together with these materials
provided to licensee pursuant to clause 2.11
below solely in connection with licensee's
exploitation to the media rights hereunder
and the promotion thereof and the
promotion of the channel, in accordance
with the brand guidelines and the terms of
this agreement (including without limitation
clause 12 below)
c. The Finance Act, 2010, introduced a new
category of service namely "Commercial Use or
Exploitation of any Event" under Section 65
(105) (zzzzr) of The Finance Act, 1994 effective
from 01.07.2010. as an abundant caution
appellants started discharging service tax
under this category on media right income from
service recipients located in India. In respect of
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the recipients located outside India they
claimed the benefit of export of service.
d. Department had been issuing various show
cause notices to them classifying the
broadcasting rights given by them to various
broadcasters under various categories-
i. 1999 to 2003- Advertising Services, However
CESTAT held that the income so received
cannot be taxable under the category of
advertizing services;
ii. 2005-06 to 2010-11, in respect of media
rights income for matches under than IPL
under the category of Intellectual Property
Right Services (IPR Services)
e. Grant of Media Right is not a provision of
"Franchise Service" as no right to represent the
appellant has been granted. The service
recipient is not performing any service, which is
being provided by the service provider.
f. The definition of franchisee requires
satisfaction of following two conditions
cumulatively-
i. The agreement must grant representational
right to the service recipient;
ii. The rights granted should be in relation to
either-
9 ST/87578-87581/2015,85038/2016
a) Sale of goods identified with
Franchisor;
b) Manufacture of goods identified
with Franchisor;
c) Provide service identified with
Franchisor;
d) Undertake any process identified
with franchisor.
Since these conditions are not satisfied in
the present case the services cannot be
classified under franchisee service.
g. Appellants have not given any representational
rights to MSM & WSG
i. Representational right shall be given to
undertake any process identified with
franchisor whether or not a trade mark,
service mark, trade name or logo or any
such symbol involved;
ii. Live matches are displayed on TV screen of
the viewers, for which the viewer has to
switch on/ log on to the channel of licensee.
The identity of broadcaster remains the
same and is not lost. They rely on the
decision of CESTAT in case of M/s Global
Transgene Ltd [2013 (32) STR 86 (CESTAT)],
wherein it has been held that the identity of
10 ST/87578-87581/2015,85038/2016
franchisee is lost and the customer avails
the service as if the outlet is owned by the
franchisor.
iii. Provisioning of league marks, league logos,
and team logos cannot be considered as
grant of representational rights to the service
recipients. The permission to use these logos
is granted for identification of the match
with league. This does not imply that they
have given representational rights to
licensee. There is also no consideration in
the agreement for the use of these logos;
h. The activities performed by MSM & WSG are
not covered in either of the limb of Franchise
Service
i. The second main condition for franchise
service is that the franchisor should grant
the rights to do certain specific activity. In
other word all sort of representational rights
are not covered.
ii. Show cause do not specify the nature of
service which appellant is providing and in
turn it has authorized the license to do so;
iii. Licensee have not been granted any right to
provide the services identified with the
11 ST/87578-87581/2015,85038/2016
franchisor i.e. to organize, control and
promote the game of cricket in India.
i. The process is not identified with them-
i. Appellants have given media rights to M/s
MSM/ WCG. In turn MSM and WCGH broad
cast the signals to the consumers.
ii. Appellants do not carry out any process in
relation to the broadcasting of signals. They
are engaged in conducting the matches and
providing the signals to broadcasters.
iii. MSM broadcasts matches through its TV
channel "Sony" whereas WSG has sub
licensed media rights to various other
broadcasters.
j. The service recipient has to perform the
activity, what is undertaken by the service
provider, as has been held by CESTAT in case
of M/s Directi Internet Solution Pvt Ltd. [2014
(36) STR 849 (T-Mum)] and M/s Delhi
International Airport P Ltd. vs CST [2017 (50)
STR 275 (Del)]
k. The best category in which the services
provided by them can be classified is
"Commercial use or Exploitation of any event"
under section 65 (105) (zzzzr) of the Finance
Act, 1994 with effect from 01.07.2010.
12 ST/87578-87581/2015,85038/2016
Appellant has taken registration under the
aforesaid category and started discharging
service tax on media rights income on services
within India. CESTAT has in case of M/s Royal
Western India Turf Club Ltd. [2015 (38) STR
811 (T-Mum).
l. Commissioner himself in para 22 of O-I-O has
accepted that the correct classification of the
service rendered will be "Commercial Use or
Exploitation of an Event." In para 34,
Commissioner has while confirming the
demand under IPR/ Franchise services held
that after 01.07.2010, these services will be
classified under the category of "Commercial
Use or Exploitation of an Event." In case of M/s
Indian National Shipowners Association [2009
(14) STR 299 (Bom)] it has been held that
"Introduction of new entry and inclusion of
certain services in that entry would presuppose
that there was no earlier entry covering the said
services."
m. They have rightly claimed the benefit of Export
of Service Rules, 2005 and the amounts
received from M/s MSM and sub licensees of
WSG qualifies for Export. The services provided
by them either under category "franchise
13 ST/87578-87581/2015,85038/2016
service" or "commercial use or exploitation of
event service" are category (iii) services and
following conditions need to be satisfied in
order to consider the services as export of
service-
i. Service is provided from India and used
outside;
ii. Payment for such services is received in
convertible foreign exchange.
n. After 27.02.2010, the only condition that needs
to be satisfied is that payment should be
received in convertible foreign exchange.
o. It is undisputed fact that against all these
services the payments have been received in
convertible foreign exchange. Since the
conditions as prescribed for the availing the
benefit of Export of Services are satisfied they
have correctly availed the benefit of the same.
p. Department has admitted that the services
provided by the appellant do amount to export
of services, because in Show Cause Notice
dated 13.03.2013, the demand has been made
only in respect of that turnover not shown as
export in ST-3 return. To the extent they have
disclosed as exports no demand has been
made.
14 ST/87578-87581/2015,85038/2016
q. They also rely on the decision of the tribunal in
case of Paul Merchants Ltd. [2013 (29) STR 257
(T-Del)] wherein it has been held that
destination of service has to be decided on the
basis of the place of consumption. (Para 76 (v))
r. Tribunal has in case of Tech Mahindra {[2014
(36) STR 332 (T-Mum)] upheld by Bombay High
Court in {2014 (36) STR 241 9Bom)]} held that
post 27.02.2010, the only condition that needs
to be satisfied for treating a service to be export
of service, is that consideration for the service
is received in convertible foreign exchange.
s. They also rely on the decision in the case of
Microsoft Corp (I) Ltd. Vs CST [2014 (36) STR
766 (T-Del)], Vodafone Essar Cellular Ltd. vs
CCE [2013 (31) STR 738 (T-Mum)] & CST Vs
Ate Enterprises Pvt Ltd [2017 TIOL 1906-HC-
MUM-ST and CST vs Balaji Telefilms Ltd. [2016
(43) STR 98 (T-Mum)], EPW Da Costa Vs UOI
[1980 (121) ITR 751 (Del)]
t. Appellants are entitled to the CENVAT Credit
on input services used by them for providing
the output services.
u. Cum tax benefit has been rightly allowed to
them by the Commissioner {CCE Patna vs
Advantage Media Consultant [2008 (10) STR
15 ST/87578-87581/2015,85038/2016
449 (T-Kol)] maintained in [2009 (14) STR J49
(SC)]}.
v. Extended period of limitation is not available to
the department for making the demand as the
department was throughout aware of the
services provided by the appellant, by way of
granting media rights to various broadcasters
for live telecast of the matches. Further the
issue involved is one of interpretation of statue
and cannot be alleged as a matter of
suppression of facts.
w. Since there has been no non-compliance on the
part of appellants' penalties under Section 76,
77 & 78 of the Finance Act, 1994 are also not
sustainable. Penalty under Section 78 can only
be imposed in case of any fraud or suppression
with an intention to evade payment of service
tax which is not applicable in the present case.
x. Interest under Section 75 is not demandable.
4.3 Arguing for the Revenue Learned Authorized
Representative submitted-
a. Commissioner has, in his findings, gone through
the terms of the contract and held that -
i. Commercial right to each of the league matches
and player auctions were owned and controlled by
BCCI.
16 ST/87578-87581/2015,85038/2016
ii. As per Para 2.1 of the agreement exclusive right to
broadcast had been granted by BCCI.
iii. Para 2.9 also grants to the licensee non exclusive
royalty free license for exploitation of the league
logos.
iv. As per para 2.14 of the agreement licensee shall
have right to refer to it as 'official broadcaster' of
the Indian Premier League. Commissioner
observed that it was mandatory for the licensees
to display the sponsored logos of BCCI during the
time when important details of tournament were
flashed on the screen display (para 8.10 of the
agreement).
v. Commissioner has also observed that IPL title or
its logo marks were under exclusive control of
BCCI. He further, observes that license to exploit
league logos, league marks and team logos are
nothing but representational rights and such
services will be correctly classified under
Franchisee Services.
vi. Since World Sports Group is an organization
having its office in India, the question of benefit of
export of service does not arise.
vii. So far as MSM was concerned, Commissioner held
that through several services were concurrently
performed during the live telecast of IPL match,
17 ST/87578-87581/2015,85038/2016
the actual service of providing the representational
rights along with the media rights were performed
in India since the matches were played in India.
He also observed that the benefit of services has
accrued in India and even the service was
consumed in India.
b. During the course of hearing had stated that the
service is correctly classifiable under 'Exploitation
of Commercial Events' to be covered under the
scope of Commercial Use or Exploitation of any
event organized by any person or the organization
which became taxable from 2010. Appellants had
submitted that they were filing returns from 2010
onwards under the above category as the services
provided by them is more appropriately covered
under the above said category. While the appellants
have sought to classify their activities under the
above said services, this was not the stand of the
Department. All the SCNs (including the last SCN
which covers the period after 2010 also and is in
appeal before the Tribunal) have asked the
appellants to show cause as to why the service
should not be classified under Franchisee Service.
Commissioner has also, in para 34 of his Order (in
respect of SCN No. V/ST/Dn-II/Gr
VIII/TBCCI/59/10/1689 dated 13.3.13) held that
18 ST/87578-87581/2015,85038/2016
the service provided by BCCI is covered under
Franchisee Service.
c. TRU has issued Circular dated 26.2.2010 when the
service of "Commercial use or Exploitation of any
event" was introduced. Circular clearly states that
the rights covered under this service is only limited
to the commercial exploitation of the event and
does not give any representational rights. The grant
of representational rights is totally different than
those of commercial exploitation of an event, in so
far as the latter does not have any grant equated
to it or does not represent any grant. The
commercial exploitation of the event services is
thus totally different from the franchise services in
so far as the former only provides for one time
commercial exploitation without providing any
rights to the person.
d. A perusal of the conditions of the agreement dated
25.6.2010 made in supersession of Agreement
dated 25.3.2009 between BCCI and various parties
bring forth following :
i. That BCCI controls the commercial right to each
of the league.
ii. That there is official league marks and there are
licensor logos and licensor marks. (as detailed in
19 ST/87578-87581/2015,85038/2016
the definitions and interpretation) which clearly
gives a brand identity to the licensor.
iii. That the right has been granted on exclusive
basis and licensor will not enter into agreement
with any other person except as qualified in the
agreement (para 2.2)
iv. The licensor (BCCI) granted to the licensee (MSM)
"a non-exclusive royalty free license to exploit,
during the Rights Period and within the Territory
the Licensor Logos, League Marks and Team Logos
(collectively the "Licensor Marks") together with
those materials provided to Licensee pursuant to
Clause 2.11 below.................". (Para 2.9)
v. The said rights clearly show that (a)there are
Logos and Marks; (b) that licensee has given the
rights of exploitation to these Logos and Marks
and (c) the same has to be done in accordance
with the brand guidelines.
vi. The above said rights are to be used in
connection with licensee exploitation of the media
rights and thus the use of Logos and Marks
owned by BCCI have been granted to MSM,
especially when they had to be used in
accordance with the brand guidelines, squarely
covers the services under the scope of franchise
service.
20 ST/87578-87581/2015,85038/2016
vii. The licensee can refer to itself as 'Official
Broadcaster of the IPL'. (Para 2.14)
viii. Para 5 of the Agreement specifically provides that
the licensor shall make the feed available to the
licensee, licensor has the right to insert graphics
package at its own discretion which may
integrate copyright notices, trademark legends,
etc. which the licensor may specify and / or
require. Specifically para 5.3 obligates the
licensee to carry the sponsored logo on the top
left hand side of the screen. The quality of the
programme, is monitored by the licensor and
they also ensure that their logo is displayed at
top of screen in the Feed given by them. Thus, at
no stage, the programme and the logo associated
with it becomes the exclusive right or property of
MSM (licensee) but the ownership of the same
vests with the licensor which is also displayed on
the TV screen.
ix. Para 5.5 of the Agreement also prescribes that
the licensee cannot tamper with the integrity of
the Feed. It was submitted that all the above
clauses clearly show that BCCI has rights over
the programme, these rights are enforceable, and
they are exercising their right through various
21 ST/87578-87581/2015,85038/2016
methods which include the display of their brand
logos and marks on the screen.
x. As per para 8 of the Agreement the licensee has
to obtain permission of licensor for various
services. Most importantly the licensee is
prohibited from any modification of the Feed.
Para 8.3 of the Agreement provides "Licensee
agrees that it will not alter or add to the content of
the Feed whether electronically or otherwise so as
to remove, change or obscure any in-Venue
advertising any Graphics Package or Live Feed
Insertions incorporated into the Feed by or on
behalf of Licensor in accordance with this
Agreement, same and to the extent as may be
required to comply with applicable Law."
e. In the case of Subway, Hon'ble Bombay High Court
had referred to the Franchise agreement and had
looked into the definition of Franchise. Hon'ble
High Court had referred to the Black's Law
Dictionary to define the Franchisee in the context
of a commercial transaction "as the sole right
granted by the owner of a trademark or a trade
name to engage in business or to sell goods or
service in a certain area". In terms of the test laid
down by the Hon'ble High Court, the transaction
between BCCI and MSM fulfilled all the conditions
22 ST/87578-87581/2015,85038/2016
of the definition, as the Team Logo and Marks are
owned by the BCCI, the Feed of the cricket matches
is also owned and produced by BCCI and MSM is
given exclusive right to engage in the business of
telecasting the same in the area specified in the
contract.
f. The activities undertaken by the BCCI fits into the
above judgment of Hon'ble High Court as well as the
Tribunal in the case of Shoppers Stop.
g. Hon'ble Tribunal in the case of Amway India
Enterprises Pvt. Ltd. as upheld by Hon'ble Supreme
Court [2016-TIOL-221-SC-T] to establish that it is
not necessary for all the activities to be undertaken
by franchisee for the services to be held as franchise
service. In the instant case is as M/s. MSM Satellite
and Ors have been given the right to represent
themselves as final broad caster of the IPL.
h. In the case of Podar Jumbo Kids Vs. Commr. Service
Tax, Mumbai-I {2017-TIOL-3317-CESTAT-Mum.},
wherein the Hon'ble Tribunal held that a franchise is
given representational right to provide service(refer
to 2.1, 5.5, 5.1 & 2).
i. In essence the gist of the agreement can be
summarized as the fact that BCCI owns a Brand
under which they conduct the matches, they could
have marketed the matches themselves but instead
23 ST/87578-87581/2015,85038/2016
given the rights including the representational rights
of these matches as BCCI matches.
j. To claim the benefit of export of the service is
concerned, Appellant's have submitted that as the
service receiver is located outside India and as they
have received the money in foreign exchange, the
service provided by them should be treated as
export. Apparent Fallacies in the said submission of
the Appellants are as listed below.
i.The export of service Rules till 2010, categorically
stated that the service should be used outside
India. In the instant case, the franchise service
has not used at all outside India. The services
provided by BCCI regarding the representational
rights of IPL and BCCI so far as it relates to the
telecast of IPL matches was for recipients in India.
franchisee has used these services to broad cast
the matches in India and thus service has not
used outside India, which is one of the cardinal
tests for export of services. The Rule in the
provision cannot be read in isolation. This position
has also clarified by the Board in Circular dtd.
24.02.2009, Board had clarified "Keeping principal
in view, the meaning of the term used outside India
has to be understood in the context with the
characteristics of a particular category of services
24 ST/87578-87581/2015,85038/2016
as mentioned in sub-rule 1 of Rule 3". Similarly,
while talking sub-rule 3 (category 3) the Board had
stated that "in this context the phrase outside India
is to be interpreted to mean that the benefit of the
service should be accrue outside India". Similarly,
while further clarifying the above mentioned
Circular, vide Circular No. 141/10/2011-TRU dtd
13th May 2011, the Board had clarified that in
respect of Rule 3(i)(iii) had specifically stated that
"it may be noted that the words 'accrual of benefit'
are not restricted to mere impact on the bottom-line
of the person who pays for the service". It was
further, stated that "for example effective use of
advertising services shall be place where the
advertising material is disseminated to the
audience though actually the benefit may finally
accrue to the buyer who is located at another
place". This situation is exactly the case decider.
ii.The subscriptions in the form of advertisements
also was collected by the subsidiary of MSM viz.
Sony Television India in India itself, from which,
they may have remitted the funds MSM to BCCI.
Attention in this regard was invited to Paragraph 5
of the Show Cause Notice No. 747/Commr/2012-
13, wherein it was stated "97% of the payment
received of Rs. 498,38,0,769/- payment received
25 ST/87578-87581/2015,85038/2016
at Sr. No. 2 & 3 table below has been received
from M/s. Sony Pictures Entertainment on behalf
of MSM Satellite Ltd.
iii.Condition 5.1 of the agreement dtd. 25.06.200
which reads "Licensor shall make the Feed
available to the licensee (from not later than 10
minutes before the start and until not earlier than
10 minutes after the end of the relevant Match/
Player Auction). At the Host Broadcaster's truck or
facility at or in the vicinity of the Venue, without
any charge levied by or on behalf of licensor or any
third party for the production of the Feed or for such
access".
iv.The feed is delivered to M/s. MSM in India only as
the Host broadcaster truck or facility is to be
located at or in vicinity of the venue.
k. It was thus submitted that considering the fact that
the service has been provided in India only and used
in India the simple act of signing contract with an
overseas party does not make it an export of service.
The payment of a certain sum of money by M/s.
Sony Entertainment also corroborates the issue. The
simple act of signing a contract with an entity
located abroad will not render the service as exports
but will need to be examined in light of the
provisions of the relevant rules in the regard.
26 ST/87578-87581/2015,85038/2016
l. So far as the imposition of the penalty is concerned
appellants had deliberately suppressed the facts of
the case and had failed to declare the media right
income in their Service Tax Returns. No extended
period has been invoked in three of the four Show
Cause Notices.
m. Even after the issuance of first Show Cause Notice
appellants had not declared their turnover in their
S.T. Returns in any of the categories. The appellants
are thus liable for penal action which has been
correctly imposed by the Commissioner in his
adjudication order.
5.0 We have considered the submissions made by the
appellants in the appeal memo and by the Counsel
during the course of hearing of the Appeals, along with
the submissions made by the learned Authorized
representative. The issues that need to be deliberated in
this appeal are as listed below:
i. Whether the services as provided by the appellants
to M/s MSM Singapore & M/s WSG qualify to be
Franchisee Services as defined by the Section 65
(47) read with Section 65(48) and Section 65 (105)
(zze) of the Finance Act, 1994.
ii. Whether the services as provided by the Appellant
qualify to be Export of Service as defined in terms
27 ST/87578-87581/2015,85038/2016
of Export of Services Rules, 2005 as amended
from time to time.
iii. Whether the extended period of limitation can be
invoked in the facts and circumstances of this
case.
iv. Whether penalties imposed under Section 76, 77
& 78 of Finance Act, 1994 justified in the facts
and circumstances of this case.
6.1 The issue is in reference to the Franchise services
which have been defined under Finance Act, 1994 as
amended as following:
"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 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.
Section 65 (48) "franchisor" means any person who
enters into franchise with a franchisee & includes any
associate of franchisor or a person designated by
franchisor to enter into franchise on his behalf & the term
franchisee shall be construed accordingly.
Section 65 (105) (zze) the "taxable service" means any
service provided or to be provided to a franchisee, by the
franchisor in relation to franchise."
6.2 Hon'ble Bombay High Court in the case of Mahyco
Monsanto Biotech [2016 (44) STR 161 (BOM)] has
observed as follows:
28 ST/87578-87581/2015,85038/2016
"Para 42. In our opinion, the most fundamental
aspect of permissive use of goods is that at the
end of the period for which the use is granted, the
goods must be returned to the transferor. Let us
consider this in the context of a car hire service, a
book library service, Amazon Kindle Unlimited and
ITunes Radio. When a car is taken on hire, a fee is
paid and the car can be used for a certain period of
time. During this time, the person renting the car
can only use it. He cannot part with it and certainly
cannot destroy it. Once the period of hire comes to
an end, the car must be returned to the transferor.
Therefore, the effective control over the car remains
with the transferor. Likewise, in the case of a book
library, the books must be returned to the library.
With the Kindle Unlimited, one must pay a
subscription fee to gain access to an unlimited
number of books in the proprietary AZW format.
When the subscription expires, all the books are
repossessed. ITunes Radio too is a similar concept.
A subscription fee is paid, which allows access to
music. Once this expires, access to the music is
denied. These, in our opinion, are cases of
permissive use. The Monsanto India sub-licensing
transaction could only be a service in one
circumstance, i.e., if the seed companies gave
Monsanto India a bag of seeds to mutate and
improve with the Bollgard Technology which would,
thereafter, be returned to the seed companies. That
might perhaps be a service".
Para 70. "We do not mean to suggest that every
franchise agreement will necessarily fall outside
the purview of the amended MVAT Act. There is
conceivably a class of franchise agreements that
29 ST/87578-87581/2015,85038/2016
would have all the incidents of a 'sale' or a
'deemed sale' (i.e., a transfer of the right to use).
Black's Law Dictionary defines a franchise, in the
context of a commercial transaction as (Black's Law
Dictionary, 8th Ed.) :
The sole right granted by the owner of a trade mark
or a trade name to engage in business or to sell a
good or service in a certain area".
Para 71. "Chambers' Dictionary (Chambers'
Dictionary, 1983 Ed.) too describes it as a -
a commercial concession by which a retailer is
granted by a company the exclusive right of
retailing its goods in a specified area ..."
The test laid down by Hon'ble Bombay High Court
regarding Franchise is one where there is transfer of the
right by the owner of a trade mark is temporary.
6.3 Delhi Bench of Tribunal has in case of Delhi
Public School Society, has interpreted the said franchise
service as following:-
"4. Salient clauses of the agreement between the
assessee and the Franchisee :
The assessee entered into agreements with distinct
entities which intended to establish schools in different
areas (within India and overseas as well) in collaboration
with the assessee. The assessee apparently has
experience in establishing and managing schools that
provide quality education and has a brand image in the
said area. We are informed by learned counsel for the
assessee; and this assertion is not disputed by Revenue,
that the several agreements, insofar as are relevant for
the purposes of these appeals, are substantially similar
30 ST/87578-87581/2015,85038/2016
and have identical provisions, relevant to consideration of
this lis. We therefore advert to relevant provisions of the
agreement dated 20-1-2004 entered into between the
assessee and Maharaja Hari Singh Social and
Educational Foundation, Jammu (hereinafter referred to
as Society). This agreement and another was considered
in the adjudication order dated 30-3-2006, the subject of
Appeal No. 248 of 2006. Now, to the relevant provisions
of the agreement dated 20-1-2004 :
(i) the agreement bears the heading Education Joint
Venture;
(ii) the preamble to the agreement states that as the
Society is desirous of setting up an English Medium
School at Leh (Ladakh) it approached the assessee for an
educational joint venture and the parties agreed to set up
an English Medium School at Leh. Clause 1 provides that
the parties would collaborate to set up the school at Leh.
Clause 2, sets out that the assessee permits, allows and
grants a revocable license to the Society to use the name
DPS, its Logo and motto for the purpose of the school to
be established at Leh, during currency of the agreement.
Under Clause 3, the Society is required to pay the
assessee rupees one lakh, in advance commencing from
the year the school starts functioning.
(iii) Clause 4, provides that the assessee shall be at
liberty to grant license for or open more schools in the
area of Leh (Ladakh), in collaboration with any other
society/organization or on its own.
(iv) Clause 5, states that the school shall be
established, managed and run by a Board of
Management (BOM). Other sub-clauses in this Clause set
out the composition of the BOM. Suffice it to notice, that
the Chairman of the BOM shall be the Chairman of the
31 ST/87578-87581/2015,85038/2016
assessee or any other nominee of it; and the Vice-
Chairman is also a nominee of the assessee; and three of
the other six members of the BOM would also be
nominees of the assessee. The pro Vice-Chairman and
three of the ordinary members of the Board would be
nominees of the head of the Society and the pro Vice-
Chairman could exercise powers of the Chairman or the
Vice-Chairman only in their absence. Thus, of the nine
members of the BOM, five are representatives of the
assessee and four of the Society.
(v) Clause 6, enumerates powers, functions and
authority of the BOM. The BOM is responsible for the
management, control and running of the school; all rights
in relation to the school (save as excepted); the liabilities
in relation to the BOM or the school shall however be to
the account of the Society (not the assessee or the BOM);
and the BOM is obligated to fulfill the assessee's (DPSS)
policies. Apart from (specified) academic responsibility,
the BOM is entrusted the duty to appoint the Principal,
teachers and staff of the school, to be selected by a
Selection Committee constituted by the assessee which
shall comprise one member of the Society. The clause
sets out other powers and functions of the BOM which
are of a house-keeping nature and incidental to
management.
(vi) Clause 7, enumerates the obligations of the Society
under the agreement. The Society (not the assessee) has
extensive and exclusive obligations, in respect of
providing land, buildings, all infrastructural amenities for
the school including residential accommodation for the
Principal, teachers and staff; and the entire financial
responsibility towards these provisions. The Society is
also responsible for meeting the deficit in the revenue
budgeted expenditure, to raise loans for all establishment
32 ST/87578-87581/2015,85038/2016
and running expenditure and to meet the consequent
financial liability. The assessee is specifically immunized
any liability or responsibility in this area and the Society
undertakes to indemnify the assessee from any claims in
this regard. Sub-clause (p) enjoins the Society to ensure
that the school will be in a single campus and that no
other educational or other institution (unconnected with
the assessee) purports to claim any association with the
school. The Society is also required to contest all litigation
against the assessee by third parties, arising out of the
agreement (under instructions from the assessee) and to
bear all the expenses in this behalf.
(vii) Obligations of the assessee are spelt out in Clause
8. Included are academic, managerial, supervisory and
mentoring obligations, integral to transfer of the
assessee's academic, operational and managerial
expertise in the area of establishing and running of
schools. Sub-clause (g) enjoins that the assessee will
allow and permit use of the name (DPS), its motto/logo,
during currency of the agreement; however without any
right/title/interest acquiring thereto to the Society or the
school. It is specifically stipulated that the rights in the
name/motto/logo are the absolute property of the
assessee and use of the name (DPS), the motto or the logo
is limited for the purposes of the Leh school; and use of
these is prohibited for establishing branches or granting
sub-licenses [sub-clause (h)].
(viii) Clause 9, sets out the further agreed terms and
conditions between the parties. Accordingly, the school
building, furniture, fittings, laboratory, library and sports
materials etc., shall be provided by the Society; the
Society shall bear the expenditure of the staff and the
assessee shall not be liable for the same; and on
determination of the agreement all assets will stand
33 ST/87578-87581/2015,85038/2016
transferred to the Society. The entire liability arising out
of termination of the faculty, staff shall be to the sole
account of the Society, to the total exclusion of the
assessee.
(ix) Clauses 10 and 11 of the agreement set out
provisions relating to the tenure of the agreement,
extension of the same and for termination thereof.
(x) Clause 12, stipulates that on termination of the
agreement and closure of the school, all moveable and
immoveable properties of the school will be returned to
the Society, after settlement of the liabilities owing to the
assessee; and on dissolution, the Society shall be
exclusively liable for all claims against the school, its
BOM or the assessee in respect of the management
thereof; and the assessee will not in any manner be
liable. Clause 13, stipulates that on termination of the
agreement, the Society will not use the name/logo/motto
of DPS or identical/similar or deceptively similar
name/logo/motto, even if it desires to run a school in the
same premises or elsewhere.
20. Issues 'C' and 'D'
With effect from 16-6-2005, 'franchise' is defined (to the
extent relevant and material for the lis ), to mean an
agreement where the other party is granted a
representational right to provide service or undertake any
process identified with the franchisor. Ingredients (2) and
(4) of the earlier definition are omitted. In the light of our
analysis on issues 'A' and 'B' and for reasons recorded
therein the assessee must be considered as having
provided the taxable "franchise" service subsequent to
16-6-2005 as well.
The appellant has contended that w.e.f. 10-9-2004 a new
taxable service was introduced vide Section 65(105)(zzr)
34 ST/87578-87581/2015,85038/2016
which is enacted to be a service provided to any person
by the holder of Intellectual Property Right (IPR) in
relation to Intellectual Property Service (IPS). IPR is
defined in Section 65(55a) and IPS in Section 65(55b). IPR
is defined to mean any right to intangible property,
namely, trademarks, designs, patents or any other
similar intangible property, under any other law for the
time being in force, but excluding copyright IPS is defined
to mean transferring, temporarily or permitting the use or
enjoyment of, any intellectual property right. The
assessee argues that w.e.f. 10-9-2004 the agreements,
on a true and fair construction of their terms, constitute
the taxable service falling under Section 65(105)(zzr) and
therefore subsequent to 10-9-2004 the assessee could
not have been assessed to service tax for having
provided 'franchise' service. The assessee cannot also be
assessed to service tax for having provided the taxable
IPS, since even from the show cause notice stage and
thereafter as well, the assessee was never put on notice
that it would be assessed to tax as the provider of IPS.
In this connection, Shri Sahu referred to a Board Circular
dated 27-10-2008 which is a clarification of service tax
liability in relation to production of alcoholic beverages
under a brand licensing arrangement. Para 2.1 of the
circular clarifies that wherever licensee/manufacturers
alcoholic beverages under the authority to use a brand
name granted by the owner of such brand name - the
brand owner; and even where the brand owner provides
technical staff/assistance to maintain the required
quality, alcoholic beverages so manufactured on the user
of such brand name and technical know-how would come
within the taxable IPS, even where the property, risk and
reward of products so manufactured in here with the
manufacturer and not the brand owner. We are not
35 ST/87578-87581/2015,85038/2016
inclined to lay much credit on this Board Circular,
particularly since there is no apparent analyses in the
circular on whether such activity would not comprise the
other taxable category namely "franchise" service. In any
event, in the agreements under consideration in the
present lis, apart from receiving remuneration for services
provided by the assessee and inherence of risk and
reward of the enterprise solely and exclusively on the
other parties and not on the assessee, there is also a
more regular engagement between the assessee and the
other party under the agreements for the purpose of
ensuring integration of the assessee academic and
managerial experience; operational inputs and its
concepts of the business of establishing and running
quality English Medium Schools. Further, there is no
transfer of the right in the name/logo/motto from the
assessee to the other party.
Another contention of the appellant requires to be
considered. According to Shri Sahu, the adjudicating
authority had assessed the demand on the analysis of
sample agreements between the assessee and other
parties and concluded that the assessee is administering
schools in collaboration with the others; is actively
participating in management of the schools with a
dominant role thereat vis-à-vis the other parties. The role
of the CESTAT is therefore confined to the issue as to
whether the conclusion by the adjudicating authority that
the assessee had given representational rights to the
other parties, in terms of the agreements, is valid and
sustainable; this Tribunal cannot in the circumstances
arrive at a conclusion as to the taxability of the assessee
contrary to the conclusions recorded by the adjudicating
authority. Shri Sahu referred to several decisions on this
aspect including Hukum Chand Mills Ltd. v. CIT - (1967)
36 ST/87578-87581/2015,85038/2016
63 ITR 232 SC, Karnataka State Forest Industries
Corporation Ltd. v. CIT - (1993) 201 ITR 674 (Karn.); Ciba
of India Ltd. v. CIT - (1993) 202 ITR 18 (Bom.); CIT v.
Indira Balkrishna - (1960) 39 ITR 546 (SC); Hindustan
Ferodo Ltd. v. C.C.E. - (1997) 106 STC 214 (SC) = 1997
(89) E.L.T. 16 (S.C.); Saci Allied Products Ltd. v. C.C.E.,
Meerut - 2005 (183) E.L.T. 225 (S.C.); Warner Hindustan
Ltd. v. C.C.E., Hyderabad - 1999 (113) E.L.T. 24 (S.C.);
and Reckitt & Colman of India Ltd. v. C.C.E. - (1997) 10
SCC 379 SC = 1996 (88) E.L.T. 641 (S.C.).
The above citations, in our respectful view, do not assist
the appellant. In paragraphs 5.3 to 5.5 (of the
adjudication order dated 30-3-2006 - the subject matter
of ST Appeal No. 248/20006), the adjudicating authority
analysed the claim of the assessee that it was not
expected to have a mere passive role, of receiving money
for allowing the franchisee to exploit its goodwill and had
in fact a dominant role in running the school's and
anybody having a dominant role is the master of the
situation and has a definitive role in managing the
organisation by applying its know-how and expertise in
running the schools and therefore the assessee cannot be
said to have fulfilled the second ingredient of the
definition of "franchise" (prior to 16-6-2005). In our
analysis, the adjudicating authority in the
abovementioned paragraphs while setting out the
contentions of the assessee concluded nevertheless that
the second ingredient of "franchise" is also fulfilled. The
adjudicating authority concluded that in order to
internalise the know-how expertise etc. of the assessee
into the enterprise (the schools), a regular engagement of
the assessee with the enterprise is essential and such
engagement is not inconsistent with the provision of
franchise service, insofar as the second ingredient thereof
37 ST/87578-87581/2015,85038/2016
is concerned. In our considered view, the extent of
engagement of the assessee with the enterprise (school)
as provided by the terms of the agreement is in
furtherance of effective execution of the franchise service
provided by it and would not tantamount to the assessee
being a joint venturer with the other parties to the
agreements. The several decisions referred to by Shri
Sahu, in the circumstances do not apply to the facts and
circumstances of the present appeals.
On a careful analysis of the transactions engendered
pursuant to the agreements between the assessee and
other parties, we are of the considered view that these
fall more appropriately and clearly within the framework
of the taxable 'franchise' service rather than the other,
namely IPS. Pursuant to the agreements in issue there is
not a mere temporal transfer or permitting of the use or
enjoyment of IPR, as defined in Section 65(55a). There is
a raft and bouquet of other services provided by the
assessee [apart from a mere temporal transfer of
intangible property, even assuming that permitting the
other party to use the assessee's name (IPS), motto and
logo, constitute transfer of intangible property]. Under the
agreements, the assessee provides its established
concepts of business; operational expertise in
establishing and administering English Medium Schools;
standards of academic quality and the assessee
undertakes to supervise, evaluate and mandate
academic and other activities of the School through
periodic deputing of visiting teams, ensuring that reports
of findings of such teams are considered and adopted by
the school and the staff. The terms of the relevant
agreements considered holistically bring the transactions
more wholesomely within the fold of 'franchise' service
rather than 'IPS'. The essential character of the services
38 ST/87578-87581/2015,85038/2016
provided by the assessee fall overwhelmingly within
'franchise' service. We are compelled to the conclusion
that the services provided by the assessee do not fall
within IPS since except the temporal permitting of the use
or enjoinment of the assessee's intangible property (in its
name/motto/logo), other services performed under the
agreements are outside the purview of IPS. The
temporary permission to use or enjoy the assessee's
intangible property right in its name/motto/logo also falls
within franchise service as an ingredient thereof; and the
agreements fulfil the other requirements of franchise
service as well, in a more comprehensive sense, than in
the case of IPS.
It may also be noticed that in accordance with the
interpretive principles for classification of services set out
in Section 65A of the Act, where composite services
consisting of a combination of different services which
cannot be classified in the manner specified in clause (a)
are in issue, these are required to be classified as if they
consisted of a service which gives them their essential
character, insofar as this criterion is applicable.
Considered on the touchstone of this principle, the raft of
services provided by the assessee under the several
agreements, in their essential character fall within
"franchise" service.
On the aforesaid analysis we hold against the assessee
on issue 'C'. Since the aspects for determination set out
as Issue 'D' are dovetailed into our analysis on issue 'C',
answered as above, issue 'D' is also answered against
the assessee and in favour of Revenue."
6.4 In light of the above decisions the activities
undertaken by the Appellant in respect of the
39 ST/87578-87581/2015,85038/2016
agreements with M/s MSM Singapore and M/s WSG
need to be analyzed. There is no dispute in respect of
the activities undertaken by the Appellant. The role and
activities undertaken by the Appellant, in respect of the
grant of media rights have been summarized by the
Hon'ble Apex Court, in Union of India Vs Board of
Control for Cricket in India [Order dated 22.08.2017 in
Civil Appeal No 10732 to 10739/2017]
"2. The precise origin of the game of cricket, though
largely unknown, has been traced, at least, to late 15th
Century England. With the expansion of British Empire
the game of cricket travelled to different parts of the globe
including India. Today, if there has to be a national game
in India, cricket would certainly be a front-runner. The
packed stands in all cricketing venues is certainly not the
full picture. Live telecast of all major cricketing events,
domestic and international, is beamed to millions of
homes in the country. Telecasting/Broadcasting rights
are leased out by the organizing body 2 i.e. Board of
Control for Cricket in India (hereinafter referred as the
"BCCI") through competitive bidding. ......
3. BCCI is the "approved" national level body holding
virtually monopoly rights to organize cricketing events in
the country. Grant of telecasting rights of these events is,
therefore, a major source of revenue for the BCCI. ......"
6.5 Hon'ble Supreme Court of India in Secretary,
Ministry of Information and Broadcasting (MoI&B),
Govt. of India (GoI) and Others Vs. Cricket Association
of Bengal and Others [1995 2 SCC 161], held, "...It
40 ST/87578-87581/2015,85038/2016
must further be remembered that sporting organizations
such as BCCI/CAB in the present case, have not been
established only to organize the sports events or to
broadcast or telecast them. The organization of sports
events is only a part of their various objects, as pointed
out earlier and even when they organize the events, they
are primarily to educate the sportsmen, to promote and
popularize the sports and also to inform and entertain the
viewers." Thus Appellants essentially organize matches
so that the same can be viewed by people, either by
visiting the stadium or through the telecast of the same.
6.6 from the above decisions and the observations of
the Apex Court, it is quite evident that appellants are
not only responsible for organizing the cricket matches
but also to educate, promote, popularize, inform and
entertain the viewers. For the said purpose appellants
allow entry into the stadium for viewing the match and
also ensure the telecast of the match for the purpose of
those who cannot visit the stadium for viewing the said
matches. For taking the live telecast of the matches to
the home of viewers, Appellant grant media rights to
selected party on exclusive basis. The party granted
such media rights represents the BCCI, and is
designated in terms of the agreement as "Official
Broadcaster". In light of the above decisions we take
note of the observations made by the Commissioner on
41 ST/87578-87581/2015,85038/2016
the terms of agreements entered into by Appellants with
the M/s MSM, Singapore and M/s WSG.
6.7 On the basis of the terms of agreements as
discussed above when compared with the terms of
agreement as considered by the tribunal in case of Delhi
Public School Society, supra, we find striking
similarities. Commissioner has in his order examined
the terms of agreement and has observed as follows:
"a) On perusal of the various definitions & clauses I sub-clauses
given in the agreements dt 21.01.2008 between BCCI & MSM /
WSG, interalia, the following is observed:
(i) The licensor (BCCI) as per para 2.1 of the agreement,
granted to MIs MSM Satellite, Singapore & M/s World Sports Group
(both licensees), media rights such as television rights, licensee
mobile rights on an exclusive basis, the right to make available
Interactive services to viewers of the footage & the right to produce
unilateral coverage & unilateral commentary for transmission &
delivery by means of the permitted delivery system & the exclusive
right to Broadcast etc. BCCI has granted royalty-free license to the
licensee.
(ii) As per para 2.2 of the agreement it is inter alia observed
that the Licensor grants exclusive media rights to the Licensee.
One of the clauses of these rights is that the right or license
granted to the Licensee is on an "Exclusive" basis which means
that the Licensor will not enter into agreements with any other
person to license to such other person the rights as qualified in this
agreement.
Here I observe that BCCI granted the media rights to their
licensees on exclusive basis & undertook that they will not enter
42 ST/87578-87581/2015,85038/2016
into agreements with any other persons for licensing of such media
tights.
(iii) As per para 2.9 of the Agreement the Licensor grants to the
Licensee a non-exclusive royalty- free license to exploit during the
rights period, the League Logos, League Marks & Team Logos
(collectively called the Licensor's Marks) together with those
materials provided to Licensee solely in connection with the
Licensee's exploitation of the media rights.
(iv) As per para 2.14 of the Agreement, the Licensee shall have
the right to refer to itself & to authorize third parties to refer to it as
the "Official Broadcaster of the Indian Premier League" &
Licensor hereby confirms that it shall not authorize any third party
to use any such designation in or in relation to the territory.
(v) In the agreement under the major paras 2, 3, 4, 5, 6, 8 & 9
the franchisor inter alia laid down terms & conditions regarding
grant of media rights, access & additional licensee production, over
spilling of satellite transmissions, availability of live feeds,
licensee's general obligations etc.
(vi) In consideration for the grant of the media rights, the Licensees
had to pay BCCI the rights fee. Under para 7 of the Agreement the
details of the rights fees, payment schedule, bank guarantees etc
was given. As per the para 7.3(i) of the Agreement, all amounts
(including the rights fee) due under the agreement must be paid by
the Licensee into the designated account in Indian Rupees (INR).
(vii) Under para 8 of the Agreement the Licensee's general
obligations were mentioned. The licensee was obliged to follow the
terms & conditions mentioned in para 8 which were as follows:-
Para 8.1 - Interactive Services - "Licensee shall be entitled to
launch Interactive Services in connection with the exercise of the
media rights provided that such Interactive Services shall not (i)
offer to make available any gambling service without prior written
agreement of Licensor or (ii) be exercised in such manner as to
suggest an endorsement by Licensor, IPL, or by any individual or
43 ST/87578-87581/2015,85038/2016
team participating in the IPL of any goods, games or services
without the consent, authorization & approval of (as applicable) the
Licensor, IPL or such individual or team .....
Para 8.2 - Virtual Advertising - Licensee agrees that it will not alter
or add to the content of the Feeds whether electronically or
otherwise so as to remove, change or obscure any in-venue
advertising, any graphics package or live feed Insertions
incorporated into the feed by or on behalf of Licensor in accordance
with this agreement. ...
Para 8.3- Quality & Integrity of Broadcast - Licensee shall ensure
that all of its transmission of Footage & the transmissions of any
sub-licensee shall be of a quality & standard generally to be
expected of a leading broadcaster...
Para 8.4- Licensee shall comply & shall procure that all Sub-
licensee comply, at all times with the prevailing Broadcaster's
guidelines & Brand guidelines as may be issued by licensor from
time to time during the rights period...
Para 8.6 - Licensee shall ensure that the league & the teams are
each referred to by their full titles (as notified by Licensor from
time to time & including any Title Sponsor) in all transmissions of
the Feed or footage, it being agreed that no inadvertent failure to
comply with the provisions of this clause shall amount to a
breach of this agreement....
Para 8.7 - It is agreed that the licensee shall be entitled to retain
all revenues that it derives from the graphics, advertising and/or
sponsorship that it incorporates within its transmissions of Feed,
footage and/or unilateral footage .
Para 8.8 - Broadcast sponsors - Licensee shall be permitted to
appoint & to permit its sub-licensee to appoint broadcast sponsors
subject to the terms & conditions of this agreement & in particular
the provisions of clause 8.9.... .
Para 8.10 - Sponsored Title & Logos - In all transmissions,
broadcasts & exhibitions of matches, Licensee shall:
44 ST/87578-87581/2015,85038/2016
Ensure that the sponsored title & the relevant sponsored logo shall
appear in the opening & closing titles, together with a verbal
mention of the sponsored title immediately afterwards,
Ensure that the sponsored title & the sponsored logo shall
prominently appear on the screen display of any fixture/league
table(s)or team lineup, all trailers & other on air and/or off air
publicity and/or promotional material in relation to the league or
any match, Licensee's broadcasts of any service (including news
bulletins)....
Ensure that whenever the sponsored title & the relevant logo so
appear, they shall not be diluted by juxtaposition with a name,
brand name or logo of any third party .....
16. In this regard I clearly observe that it was mandatory for
the licensees to majorly display the sponsored titles & logos of
BCCI during the time when important details of the tournament
were flashed on the screen display.
Para 8.13 - Licensee acknowledges that all Intellectual Property
rights in each of the sponsored logo & sponsored title together with
any goodwill attached to each of them shall remain as between
the parties, the sole property of the Licensor & shall inure solely
for the benefit of the Licensor....
(viii) Para 12.4 - Any & all Intellectual Property Rights that
subsisted in the feed & footage (including transmissions &
recordings thereof by Licensees & any sub-licensees) shall be
owned by the Licensor for the full term of copyright including all
renewals, reversions & extensions thereof & thereafter in
perpetuity.
17. On perusal of the contents of the Agreement I observe that the
Indian Premier League (IPL) represented the Twenty 20 cricket
corn petition / tournament in India. It is a cricket tournament with
a unique identity of its own, in the sense that the IPL title or its
logos, marks etc cannot be used for any other Twenty 20 cricket
tournaments anywhere else in the world. The cricket matches in
45 ST/87578-87581/2015,85038/2016
the tournament are played only among the fixed set of teams
which have their own distinct identity & are a part of IPL league.
Only the BCCI has the authority to admit the teams & to hold the
players auction for the IPL league. BCCI holds the commercial
rights to each of the league teams, the league matches & the
player auctions. The IPL league & the sponsored teams have their
own exclusive league logos, league marks, team logos. As per
para 2.9 of the Agreement, BCCI granted to their licensees, a non-
exclusive royalty-free license to exploit the league logos, league
marks & team logos (all collectively called as the licensor's marks)
solely in connection to exploitation of media rights by the
licensees. I find that such licensor's marks are actually a sort of
brand identities which are owned by BCCI & BCCI has given to
the licensees the rights to exploit them in the media. Here I also
find that while telecasting the tournament on the television or
through mobile / internet medium, the licensees only portray such
brand identities of the IPL tournament & do not show their own
involvement while telecasting of the matches. It is thus clear that
the IPL tournament is a product of BCCI & the broad cast or
telecast of such product through the media would infer as
marketing of the product. When the media rights are given to the
licensees, it allows them to telecast the matches under the brand
identities or licensor's marks' of the BCCI."
6.8 In our view accordingly the services as provided by
the Appellants to the M/s MSM, Singapore and M/s
WSG are squarely covered by the definition of franchise
services as defined by the Section 65(47), 65(48) & 65
(105) (zze) of the Finance Act, 1994.
6.9 Appellants have in their submissions referred to
the decision of Global Transgene, supra to argue that
"5.4 ....... Admittedly, in a franchisee transaction the
46 ST/87578-87581/2015,85038/2016
franchisee loses his individual identity and represent the
identity of franchisor to the outside world, as in the case
of 'McDonald' the customers are not concerned with who
owns the 'McDonald's restaurant (franchisee). The
customers identify it with 'McDonald (the franchisor)."
The said argument needs to be considered in the light of
observations made by the tribunal in case of Amway as
follows:
"11. As regards franchise service, the contentions that
no word in a statute is to be treated as redundant, that
legislature is deemed not to waste its words and that
each word in a statute has to be given proper meaning is
unexceptionable and accepted. Consequently, we are not
making any reference to various judicial pronouncements
cited by the appellant in support of the said contentions.
The appellant also tried to explain to us as to how the
word "franchise" is understood in some other countries.
These sources may be useful for interpretational
purposes in case of ambiguity in the statue, However, the
word franchise is defined in Section 65(47) of Finance
Act, 1994 and therefore any reference to the meaning of
the said word in other countries is of no direct relevance,
because for the purpose of this case, we have to go only
and only by the definition of franchise given in Section 65
(47) ibid. Therefore, it will be pointless to indulge in any
analysis with regard to the meaning of the word
franchise in other countries (and in relation to any other
Indian law for that matter). In this regard it is useful to
extract below the portion of para 9 from the judgment in
the case of UOI and Another v. Hansoli Devi and Others
(supra):
47 ST/87578-87581/2015,85038/2016
"A provision is not ambiguous merely because it contains
a word which in different contexts is capable of different
meanings. It would be hard to find anywhere a sentence
of any length which does not contain such a word. A
provision is, in my judgment, ambiguous only if it
contains a word or phrase which in that particular
context is capable of having more than one meaning".
12. It is evident that the only issue involved in the
present case to the extent it relates to the impugned
demand under franchise service is whether the appellant
gave to the distributors representational right to sell its
products i.e. products identified with it; the appellant
does not dispute that it gave right to sell products
identified with it to the distributors. To decide this issue,
one necessarily has to refer to Amway's Business Starter
Guide" and "Distributor Application and Terms and
Conditions". As per the terms and conditions of
distributors, an Amway distributor is also governed by
Rules of Conduct. According to the Business Starter
Guide, a distributor is also known as an Amway
Business Owner (ABO). Top 10 Rules prescribed for
ABOs inter alia stipulate that the ABO is to be "truthful
and accurate in offering Amway business opportunity or
selling Amway products". In other words, an ABO does
not merely sell Amway product but also offers Amway
business opportunity. In terms of Code of Ethics of
Amway distributors, the ABO inter alia agrees to.
(i) present Amway products and Amway Sales and
Marketing Plan to all prospective distributors. Amway
Sales and Marketing Plan as defined in para 2.1.5 of
Business Starter Guide means "the plan provided in the
Amway Business Starter Guide detailing Amway's
performance incentive systems, sponsoring procedures
and guidelines, requirements, systems, procedures, and
48 ST/87578-87581/2015,85038/2016
policies regarding the presentation of Amway products,
the Amway business and the management of an Amway
organization, as amended from time to time by Amway
and of which these Rules are a part.
(ii) be courteous and prompt in handling of any and all
claims for exchange and return.
(iii) conduct himself in such a manner as to reflect only
the highest standards of integrity, frankness and
responsibility because he recognizes that his conduct as
an Amway Distributor has far reaching effects.
As per para 4.1 of the said Guide, a Distributor must
adhere strictly to the guidelines, systems, procedures
and policies mentioned in the Amway literature, the
Amway Business Starter Guide of which these Code of
Ethics and Rules of Conduct and Amway Sales &
Marketing Plan are a part. Para 4.8 of the Guide, inter
alia, stipulates that Distributor shall comply with all law,
regulations and codes that apply to the operation of their
Amway business wherever said Amway business may
be conducted within the market and they must not
conduct any activity that could jeopardize the reputation
of the Distributor and/or Amway. Thus the ABO is not
merely having right to sell Amway product; he also does
presentation of Amway's Sales & Marketing Plan which
inter alia also includes Amway's system, procedures and
policies regarding presentation of Amway's products, the
Amway's business and Amway's organization. The ABO
is also required to conduct and behave in the manner
prescribed so as not to jeopardize the reputation of
Amway.
As per para 4.13 of the Guide, no distributor shall
represent to anyone that there are exclusive franchises or
territories available under the Amway Sales and
49 ST/87578-87581/2015,85038/2016
Marketing Plan. No distributor shall represent that he or
she or anyone else has the authority to grant, sell, assign
or transfer such franchises or to assign or designate
territories. Thus the Business Starter Guide clearly
delineates as to in what respects/aspects the ABO
cannot represent. In other words, it follows that it is
incorrect to claim that a distributor has not been granted
representational rights to sell products identified with
Amway It becomes further evident from para 8.2 of the
said Guide which states that, "At the first contact with
prospective customers and Distributors, a Distributor
should (8.2.1) Introduce himself by name; (8.2.3) As soon
as practicable, he should make himself known in a
suitable fashion as an Amway Distributor and should
provide information concerning his name and address as
well as concerning Amway; (8.2.3) Indicate purpose of
contact, namely the sale of Amway Products and/or the
introduction of the prospect to the Amway business"
(emphasis added).
Thus, at the first contact, the distributor is expected to
make himself known is a suitable fashion as an Amway
distributor and provide information concerning his name
and address as well as concerning Amway and the
purpose of contact, including introduction of the prospect
to the Amway business. Thus it again becomes evident
that the ABO has been given right to represent Amway
business. Para 12.12 of the Guide also clearly states that
"if the distributor makes a serious misrepresentation of
Amway or the Amway business which in Amway's
opinion, is not likely to be satisfactorily remedied by
corrective actions", then Amway can terminate the
authorization to operate as a distributor. Thus only
serious misrepresentation of Amway or Amway business
can lead to termination of distributorship. In other words,
50 ST/87578-87581/2015,85038/2016
he can, indeed should/is expected to, represent Amway
in accordance with and to the extent allowed as per the
Amway's Business Starter Guide and Distributor
Application and Terms and Conditions. In the Sections of
the Starter Guide dealing with Social Media Policy, it is
stated (referring to the ABOs) that "Remember, what you
say reflects upon your and Amway's reputation". Now
Amway's reputation can be affected by what the ABOs
says only when he is taken to represent Amway in some
(however limited) capacity.
From the aforesaid analysis of the Amway "Business
Starter Guide" and "Distributor Application and Terms
and Conditions", it becomes evident that ABO/distributor
is not merely granted right to sell Amway products but he
has the representational rights to sell such products."
In light of the above observations, the phrase
representational right would not mean, extinguishing
the identity of the franchisee, but is only to grant
representational right in respect of the transaction in
relation to the services that is being provided by the
franchisor. In terms of para 2.14 of the agreement,
appellant have authorized the licensee to refer
themselves as "Official Broadcasters of the IPL". Thus
the activity of the telecast or broadcast of the IPL
matches which as noted by the Apex Court, in decisions
referred earlier, has been assigned for a consideration to
the licensee, and they have been permitted in terms of
the agreement as "official broadcasters of the IPL".
Thus it is quite evident that the appellants have
51 ST/87578-87581/2015,85038/2016
granted representational rights to the licensee, in
relation to the telecast/ broadcast of the IPL
matches.
6.10 The decision of tribunal in case of Direct Internet
Solution Pvt Ltd, supra referred to by the Appellant, in
their submissions, is also distinguishable, because in
that case the ICANN which was proposed to be the
franchisor, was not required to provide any services
which it got provided through the franchisee. The para
35, 36 & 39 of the said decision where the issue has
been considered are reproduced below:
"35. It would be seen from the above-mentioned sub-
clauses, ICANN Accredits the appellant after identifying
and setting minimum standards for the purpose of
registration functions. Further, Clause 2.2 permits the
appellant to use a symbol which indicates that ICANN
has accredited the appellant. We have also gone through
and seen the said symbol which is reproduced below :
36. From the mission and core values as also the
agreement between ICANN and the appellant we are not
able to find out any service or a process for which ICANN
is associated and is being provided by the appellant.
Appellants provided registrar service and as per the
powers under Article II of powers for ICANN, ICANN is
prohibited from acting as registrar. From the agreements
or from the by-laws, we are not able to find any process
that has been developed by the ICANN and being used
by the appellants. We find what is being done by the
ICANN is to set minimum standards for the performance
of registration function and recognize that the appellants
52 ST/87578-87581/2015,85038/2016
are meeting those standards. Revenue has not been able
to pinpoint to us either any service or any process for
which ICANN is known and that process is being used or
being provided by the appellants. In the absence of any
such service or process we are unable to agree with the
Revenue that the appellants are providing franchise
service of ICANN. Even the agreement which permits the
use of ICANN symbols clearly indicates that appellants
are ICANN Accredited Registrar and nothing beyond that.
We are in agreement with the appellant's submission
that accreditation and representing the ICANN are two
different things and the appellants are only accredited by
ICANN and they are not representing ICANN.
39. We find that agreement between ICANN and
Registry has not been produced either by Revenue or the
appellant. We find that Revenue have not been able to
bring on record any service or process identified with
ICANN which is required to be provided by various
registries accredited by ICANN. It appears that registries
are also accredited like registrars. ICANN might have
provided minimum standards for registries but that does
not imply that registries are providing any service or
process identified with ICANN. A reading of the above
mentioned agreement clearly indicates that this is an
agreement between registry and the appellant and has
nothing to do with ICANN and under the circumstances
we are not able to persuade ourselves that the appellants
are providing franchise service of the associate franchisor
of ICANN (i.e. registries)."
The facts in that case are clearly distinguishable from
the facts of the present case. In terms of the decisions of
the Apex Court referred by us earlier, the functions
53 ST/87578-87581/2015,85038/2016
performed by the appellants are not restricted to
organizing the match but are much beyond that.
Telecasting/ broadcasting of the match for the purpose
of viewers who are not in position to visit the venue of
match for watching the match is also the function being
performed by them.
6.11 The decision of the Delhi High Court in case of
Delhi international Airport P Ltd, referred by the
Appellant was considered by the tribunal in case of
Godfrey Phillips India Ltd [2018 (10) GSTL 467 (T-
Mum)]
"5.2 In the instant case the appellants are giving
machine containing their company logo, which may be
illuminated, affixed on the said machine. The said
machine in terms of agreement is required to be placed in
such manner that the logo/illuminated logo is clearly
visible. Ld. CA have relied on the decision of Hon'ble
Delhi High Court in case of Delhi International Airport P.
Ltd. v. Union of India [2017 (50) S.T.R. 275 (Del.)]. In the
said case the appellants were appointed by Airport
Authority of India (AAI) for long term operation,
management and development of Delhi Airport. This was
done under policy decision of Government of India to
privatize Airport for their better management. In the said
case facts were as follows:
8. The consortium led by the GMR Group was
selected by the AAI as the successful bidder to design,
construct, operate, maintain, upgrade, modernize,
finance, manage and develop the Delhi airport and the
consortium led by the GVK Group was selected by the
54 ST/87578-87581/2015,85038/2016
AAI as the successful bidder to design, construct,
operate, maintain, upgrade, modernize, finance, manage
and develop the Mumbai airport.
9. As per the policy decision of the Government of
India and in terms of the respective OMDAs, both dated
4-4-2006, executed between the AAI and the petitioners,
the petitioners have been granted the exclusive right and
authority to undertake some of the functions of the AAI
being the functions of operation, maintenance,
development, design, construction, upgradation,
modernization, finance and management of the
respective Airports.
10. Article 2.1.1 of the OMDA reads as under:
"AAI hereby grants to the JVC, the exclusive right and
authority during the term to undertake some of the
functions of the AAI being the functions of operation,
maintenance, development, design, construction,
upgradation, modernization, finance and management of
the Airport and to perform services and activities
constituting Aeronautical Services, and Non-Aeronautical
Services (but excluding Reserved Activities) at the Airport
and the JVC hereby agrees to undertake the functions of
operation, maintenance, development, design,
construction, upgradation, modernization, finance and
management of the Airport and at all times keep in good
repair and operating condition the Airport and to perform
service and activities constituting Aeronautical Services
and Non-Aeronautical Services (but excluding Reserved
Activities) at the Airport in accordance with the terms and
conditions of this Agreement (the "Grant")."
11. The petitioners provide various Aeronautical
Services and Non-Aeronautical Services as mentioned in
Schedule 5 and Schedule 6 of the OMDA respectively to
55 ST/87578-87581/2015,85038/2016
various consumers. For the services provided, the
petitioners charge from the users of the services.
12. Under Article 11.1 of the OMDA, in consideration
of the Grant of Rights granted under Article 2.1.1 of the
OMDA, the petitioners have to, inter alia, pay an Annual
Fee to AAI. The Annual Fees payable to AAI is @ 45.99%
in the case of DIAL & @ 38.7% in the case of MIAL, of the
projected Revenue to be received by the petitioners.
13. The Revenue's share payable to AAI is paid
through an escrow bank account. Under the escrow
mechanism, all receipts from various sources received by
the petitioners are deposited into a Receivable Account
from which they are transferred to a Proceeds Account.
From the Proceeds Account, payments are first made
towards statutory dues and out of the balance, AAI is
paid the Annual Fees and any other amounts due to it
under the OMDA. The balance is transferred to a Surplus
Account, which comes to the petitioners as their
respective share of the Revenue.
In the said case the defence of the appellant was what
they are recovering is only share of the Revenue and
DIAL is not paying to Airport Authority of India. In paras
28 and 29 of the said order following has been observed.
28. It is further submitted that the AAI's share is not
relatable to any Franchise but is a 'revenue share' and
the Annual Fees is paid out to the AAI through an escrow
mechanism even before any portion of the gross revenue
is received by the petitioners. It is contended that the
Annual Fees is not a 'consideration' paid by the petitioner
to AAI for any service, but is an appropriation of Revenue
by AAI even before any part of the Revenue is received by
the petitioners.
56 ST/87578-87581/2015,85038/2016
29. It is contended that the AAI has a right to receive its
specified revenue share. The gross revenue is
appropriated by AAI at its very source and the petitioner
receives only the balance of the gross revenue. There is
no payment by the petitioner to AAI from its funds but
AAI appropriates its share from the escrow account as
per the priority mentioned in the escrow mechanism. It is
submitted that AAI renders no service to the petitioners
for earning this share of the revenue on which the
petitioners have already paid Service Tax under the
taxing entry 'Airport Services'.
In the said case after examining terms of the
agreement Hon'ble High Court reached to the
conclusion that no representational rights granted
by Airport Authority of India to Delhi International
Airport P. Ltd. The facts are clearly
distinguishable. There is no revenue sharing in the
instant case.
5.3 Examination of terms of the contract reproduced in
the para 60 of the said order clearly shows that DIAL
was not required to prominently show the logo/mark to
AAI anywhere while providing the said service. The
perusal of the Article 2.1.1. of the Agreement in the said
case (reproduced above) clearly shows that specified
activities were sub-contracted to DIAL without any
representational rights. However in the present case the
appellant are receiving money from clients. The clients
are required to place the machine provided by the
appellant at prominent place in their premises. The
clients are required to display the logo/mark/illuminated
signs of the appellant prominently displayed. In view of
the above it is seen that agreement in the impugned case
is different than the agreement in case of DIAL. In paras
55 to 58 Hon'ble High Court has observed as under :
57 ST/87578-87581/2015,85038/2016
55. For OMDA to constitute a franchise, it would have to
satisfy the requirements of Section 65(47) of the Finance
Act, which inter alia requires that the franchisees
(Petitioners) should have been granted representational
right by franchisor (AAI).
56. Merely because, by an agreement, a right is
conferred on a party to sell or manufacture goods or
provide services or undertake a process, would not ipso
facto bring the agreement within the ambit of a franchise.
What is also required is to establish that the right
conferred is a "representational right".
57. The term "representational right" would necessarily
qualify all the three possibilities i.e., (i) to sell or
manufacture goods, (ii) to provide service, and (iii)
undertake any process identified with the franchisor.
58. A representational right would mean that a right is
available with the franchisee to represent the franchisor.
When the Franchisee represents the franchisor, for all
practical purposes, the franchisee loses its individual
identity and would be known by the identity of the
franchisor. The individual identity of the franchisee is
subsumed in the identity of the franchisor. In the case of
a franchise, anyone dealing with the franchisee would
get an impression as if he were dealing with the
franchisor.
The above observations essentially summarized the test
for existence of franchisee.
5.4The appellant also relied on the Tribunal in case of
Global Transgene Ltd. v. CCE [2013-TIOL-1259-CESTAT-
MUM = 2013 (32) S.T.R. 86 (Tri. - Mumbai)]. In the said
case facts are as under:
3.1 The contention of the appellant is that they have
entered into a Commercial Agreement dated 14-10-2001
58 ST/87578-87581/2015,85038/2016
with M/s. Biocentury Transgene (China) Co. Ltd. (BTC) to
multiply cotton seeds containing 'Fusion Bt. Technology'
for transferring the technology to the sub-licensees.
Under this contract, they are liable to pay royalty to BTC.
This transaction is not under dispute in this appeal.
3.2 Pursuant to this agreement, the appellant entered
into sub-licensing agreement with various seed procuring
companies to transfer the technology obtained from BTC
for a consideration in the form of sub-license fee and the
Revenue seeks to levy service tax on this fee under
'Franchisee services'.
3.3 The contention of the appellant is that before the
amendment on 16-6-2005 or thereafter, one of the key
requisitions for the transaction to quality as taxable
franchise service was that the franchisee should have
been granted 'representational right' to sell or
manufacture goods or to provide service or undertake any
process identified with franchisee, whether or not a
trademark, service mark, trade name or logo or any such
symbol.
3.4 The appellant produced sample of product-package
labels from and contended that no logo or hallmark
belonging to the appellant is put on the package. The
package only contains a remark 'Fusion BT' which
denotes that the seeds being sold contain Fusion BT
genes, which is neither a logo, nor a trademark or
hallmark of the appellant. It only indicates the technology
contained in the seeds under sale.
3.5 The contention is that the said product-package
label clearly indicates that the seeds are manufactured
and marketed in by the sub-licensees in their own name.
There is no representation on the package either of the
Appellant or the Licensor (owner of the technology). The
59 ST/87578-87581/2015,85038/2016
label on the package shows beyond reasonable doubt the
sub-licensees do not claim to represent anybody but
effect the production, sale, and marketing on their own
name.
3.6 The contention is that the said style of the
presentation of the product-package label is synonymous
with the practice being followed by other manufacturers.
For example, a laptop containing a label of "Intel" or
"Windows" only denotes that the processor or the
operating system/software, as the case may be, in the
said laptop is that of Intel or Microsoft. By putting such
label, the laptop manufacturing company does not
represent either "Intel" or "Microsoft" or become the
franchisee of "Intel" or "Microsoft" or become the
franchisee of "Intel" or "Microsoft".
We find that in the said case there is no logo or mark of
the Global Transgene Ltd. on the product being marked.
In the instant case product being marked and the
machine used for making the product, both contained
logo/mark/eliminated signs of the appellant. In view of
this fact in case are different. In the instant case the
agreement contains following clause.
WHEREAS GPI is in the business of selling beverage
ingredients (for hot and cold beverages) of different
flavours, premixes and syrups (hereinafter called "Raw
Materials") as well as placement and maintenance of its
branded beverage vending machines.
WHEREAS the Franchisee has approached GPI and
represented that it has the required location and requisite
infrastructure and has offered to run and operate GPI's
vending Machine at this location using GPI Raw Materials
and as per technical assistance and guidance of GPI at
its premises.
60 ST/87578-87581/2015,85038/2016
AND WHEREAS relying upon the aforesaid
representations of the Franchisee, GPI has agreed to
enter into this agreement on such terms and conditions
as mentioned hereinafter.
NOW THIS AGREEMENT WITNESSETH and it is hereby
mutually agreed between the parties hereto as follows:
--
ARTICLE 2 INSTALLATION : GPI shall install __No. of Beverages Vending machines (hereinafter referred as the said machine/s) along with accessories more particularly described in Annexure-A attached herewith, at the premises of the Franchisee located at______(complete address). To meet the expenses incurred in installation, the Franchisee shall make a onetime payment of Rs. 5,000/- as installation charges at the time of entering into this agreement.
ARTICLE 3 SCOPE OF SERVICES AND OBLIGATIONS OF THE FRANCHISEE:
The Franchisee hereby agrees and undertakes that it shall at all times;
(a) Run and operate the said vending machine/s and sell beverages prepared from GPI "Raw Materials"
mentioned in Annexure-A (attached herewith) or as modified by GP from time to time,
(b) Franchisee shall not sell any other beverages from vending machine other than as specified by GPI from time to time and shall follow the operating instructions for the machine at all times for proper and consistent functioning.
(c) Provide at its own expenses the entire infrastructure, facilities (including electricity, BMC water, 61 ST/87578-87581/2015,85038/2016 etc.) and manpower necessary for the aforesaid activities/services.
(d) Purchase the requisite quantities of the aforesaid "Raw Materials" from GPI/its authorized nominee and shall maintain adequate stock of the same at all times during the term of this agreement.
(e) GPI/its nominee only shall have the right to re-
fill/reload the said Raw Materials in the said machine.
(f) Under no circumstances and in no manner use the said Raw Materials for any other purpose than as agreed under this agreement
(g) ------------------
(h) Store the said raw materials in perfectly sealed condition and shall not change the original composition of the same without the written approval from GPI and shall at all times be liable for any misuse, tampering, adulteration of the said same either by itself or by any other person and in any manner whatso-ever.
(i) Use the fresh and can unexpired stock of the said raw materials for the preparation of the said beverages and undertaken/bear all the liabilities/fines/penalties, etc., as may be brought against/imposed on GPI in case of any violation in this regard.
(j) Maintain and keep intact the original logo advertisement and/or any other indication/mark affixed on the said machine and shall neither obstruct, deface or remove the same nor shall add any other logo, advertisement, mark, etc. (other than the ones agreed/approved by GPI) to the said machine. It shall not obstruct, move or remove the said machine from its original place of installation without prior written approval of GPI. In the event the machine contains an 62 ST/87578-87581/2015,85038/2016 illuminated signs, shall keep such sign illuminated at all times.
ARTICLE 6 : INTELLECTUAL AND PROPRIETARY RIGHTS : The Franchisee shall not have any rights, titles or interests including intellectual/ proprietary rights or otherwise in or to the GPI trademarks, trade names, logos, said raw materials, machines, etc., supplies by GPI.
ARTICLE 7: OWNERSHIP AND TITLES: The ownership rights, titles, interests, etc., in the said Vending Machine shall always vest with GPI. The Franchisee hereby agrees to hold the same as a Bailee in trust for GPI without any right, title or interest in or to the same and shall neither sell, alienate, mortgage, withhold the same in any manner whatsoever nor it shall create any charge or encumbrance on the same. It shall not have any right of unpaid vender lien in respect of the said Vending Machine. The said Vending Machine is and shall at all times remain sole property of GPI and GPI shall have the absolute rights to take away, remove, renovate, replace and or to deal with it in any manner and at any time as it may deem fit and proper.
Perusal of the above terms and condition of the agreement shows that significant importance has been given to the display of logo/advertisement and other indication/mark affixed on the machine. There are clauses that prohibit appellant from the obstructing/defacing or removing the same from the said machine. The agreement also prohibits adding any other logo, mark (other than agreed and approved by the appellant). Agreement also prohibits the appellant's clients from moving or removing machine from its original place of installation without prior approval of the appellant. Clause in agreement shows that clients are 63 ST/87578-87581/2015,85038/2016 required to keep illuminated signs on the machine, if any, illuminated all the times. The article 6 of the said agreement prescribed that franchisee shall not have any right, title or interest in the appellant's trade mark/trade name/logo. Aforesaid agreement also prohibits franchisee from selling any other beverages from the vending machines in terms of clause (b) of Article 3 of agreement. In fact as per clause (e) of Article 3, the appellant or its nominee only have right to refill, reload the raw material in the vending machine. In terms of above condition of the agreement itself apparent that the appellant have granted representational right to the franchisee. To any person wishing to have beverages, it would appear that he is buying beverages from the appellant and not from the franchisee as it is the appellant's name that appears on the machine and same is prominently displayed on the machine. The raw material used also appearing the brand name of the appellant. To a person purchasing the beverage from the said vending machine it would appear that he has buying the same from the appellant through franchisee. In this circumstance, it cannot be denied representational rights have been granted to the franchisee by the appellant."
In the media rights agreement under consideration we find that similar conditions as to those in the case of Godfrey Phillips, we are inclined to follow the said decision distinguishing the decision Global Transgene & Delhi International Airport Authority.
6.12 Since we are holding that the services provided by the appellant in terms of media rights agreement to the 64 ST/87578-87581/2015,85038/2016 licensee to fall within the category of Franchise Services, we do not examine the claim for classification under the category of "Commercial Use or Exploitation of Event."
In our view, the category of "Commercial Use or Exploitation of Event" refers to the services being in relation to the Commercial Use or Exploitation of the Event for one time and is not in relation to grant of representational rights to perform a particular function over period of time.
7.1 Now coming to the second issue framed by us i.e. "Whether the Services Provided by the Appellant will qualify as Export of Services for the purpose of Export of Service Rules, 2005 as amended from time to time." The relevant provisions of the said rules are reproduced below:
3. Export of taxable service.-
(1) The export of taxable service shall mean,-
(i) specified in sub-clauses (d), (p), (q), (v), (zzq), (zzza), (zzzb), (zzzc), (zzzh), (zzzr), (zzzy), (zzzz) and (zzzza) of clause (105) of section 65 of the Act, be provision of such services as are provided in relation to an immovable property situated outside India;
(ii) specified in sub-clauses (a), (f), (h), (i), (j), (l), (m), (n),
(o), (s), (t), (u), (w), (x), (y), (z), (zb), (zc), (zi), (zj), (zn), (zo), (zq), (zr), (zt), (zu), (zv), (zw), (zza), (zzc), (zzd), (zzf), (zzg), (zzh), (zzi), (zzl), (zzm), (zzn), (zzo), (zzp), (zzs), (zzt), (zzv), (zzw), (zzx), (zzy), (zzzd), (zzze), (zzzf) and (zzzp) of clause 65 ST/87578-87581/2015,85038/2016 (105) of section 65 of the Act, be provision of such services as are performed outside India:
Provided that where such taxable service is partly performed outside India, it shall be treated as performed outside India;
(iii) specified in clause (105) of section 65 of the Act, but excluding, -
(a) sub-clauses (zzzo) and (zzzv);
(b) those specified in clause (i) of this rule except when the provision of taxable services specified in sub-clauses (d), (zzzc) and (zzzr) does not relate to immovable property; and
(c) those specified in clause (ii) of this rule, when provided in relation to business or commerce, be provision of such services to a recipient located outside India and when provided otherwise, be provision of such services to a recipient located outside India at the time of provision of such service:
Provided that where such recipient has commercial establishment or any office relating thereto, in India, such taxable services provided shall be treated as export of service only when order for provision of such service is made from any of his commercial establishment or office located outside India.
(2) The provision of any taxable service specified in sub-rule (1) shall be treated as export of service when the following conditions are satisfied, namely:-
(a) such service is provided from India and used outside India; and 66 ST/87578-87581/2015,85038/2016
(b) payment for such service provided outside India is received by the service provider in convertible foreign exchange.
Explanation.- For the purposes of this rule "India" includes the designated areas in the continental shelf and Exclusive Economic Zone of India as declared by the notifications of the Government of India in the Ministry of External Affairs numbers S.O. 429(E), dated the 18th July, 1986 and S.O.643(E), dated the 19th September, 1996."
Amendments were made to the said Export of Service Rules, 2005 from time to time, however the amendment made by Notification No 6/2010-ST, dated 27.02.2010 omitted the clause (a) in sub rule 2 to Rule 3 of the said rules. Thus in their submission of Appellant have stated that by the said amendment that service has been provided from India and used outside India is no longer relevant for treating the services provided as export of service.
7.2 Before the issue is further discussed, manner of provision of the service needs to be examined. In their submissions in para C.8, Appellants have stated-
"C.8 The first condition says that the service should be provided from India and should be used outside India. In the instant case, media rights are provided to M/s MSM who in turn provide rights to TV channels and other digital media. The appellant engages the services of Programme Producers such as M/s IMG and M/s 67 ST/87578-87581/2015,85038/2016 Hawkeye to produce the TV programme for them. The footage or live feed is then provided to M/s MSM which has its location outside India (copy of agreement shows that M/s MSM is located outside India). Thus from the above facts, it is clear that the services are used outside India by M/s MSM. Just because of the fact that the match is being played in India, it cannot be said that the services are used in India. Thus the first condition is satisfied."
In the entire para appellants do not state the place where the service is provided and the manner of provision of the service. However in para A.19 they have explained the process as follows:
"A.19 The appellants have given media rights to M/s MSM/ WSG. In turn, MSM & WSG broadcast the signals to the consumers. The process of broadcasting can be broadly described as follows:-
a) Satellite uplink setup is placed at the stadium where the match is held near the television production control room.
b) Satellite uplink setup receives video and audio signal.
c) Satellite uplink setup processes and encrypts this audio video signal and uplinks it to designated transponder in a designated satellite.
d) The signals are then received by the earth stations or through antenna direct to home.
e) Signals are then transmitted through cable or through network of TV channels to individual viewers.
68 ST/87578-87581/2015,85038/2016 A.20 The appellants does not carry out any of the process mentioned above. The appellants are engaged in conducting matches and providing signals to the broadcasters."
7.3 From the above submissions made by the appellant, it is undisputedly admitted that appellants have provided the program feed to the M/s MSM Singapore at the venue of match which is in India and not outside. The programme feed as provided by the appellant, is encrypted and then uplinked by the said M/s MSM/ WSG to the designated transponder in designated satellite. The satellite beams back the uplinked signal, for transmission through cable or network of TV Channels to the individual viewers. In the entire process at no stage the feed, provided by the appellant is routed through any place outside India.
Thus service provided by the appellants are provided in India and used in India. The service provided by the appellant is in form of the feed for the live broadcast of match, and not for transfer of media right. The recipient of service carries the said feed to the individual viewers.
Transfer of media right is only to exclusively authorize the M/s MSM Singapore or M/s WSG to broadcast the said feed as Official Broadcaster for the IPL. Thus we are not convinced by the argument advanced by the appellant that in para C.8 that location of the person to 69 ST/87578-87581/2015,85038/2016 whom the media rights have been transferred will determine the place where the service has been provided, and since in the present case the person to whom the media rights have been transferred is located in Singapore, the service should be treated as export of service..
7.4 Appellants have heavily relied upon the decision of Tribunal in case of Balaji Telefilms Ltd. [2016 (43) STR 98 (T Mum)]. However in the said case the programmes were exported to Hongkong and uplinked from there for beaming back to viewers in India. Reference is made to para 6 and 7 of the said decision which are reproduced below:
"6. In the impugned order, it was held that the appellant provides 'programme production service' to M/s. SGL Entertainment Ltd. while the uplinking from Hong Kong by M/s. SGL Entertainment Ltd. for beaming to the distributors in India was in the course of rendering 'broadcasting service' taxable under Section 65(105)(zk) of Finance Act, 1994; that the service rendered by the assessee being different from the service rendered by the overseas entity, it was held that the inference in the show cause notice that the destination of the service exported from India was ultimately to be India is not acceptable. Relying on the 'master circulars' of the Reserve Bank of India and Paragraph 2.40 of the Foreign Trade Policy, the adjudicating authority also held that the consideration had been received in freely convertible currency. Revenue, aggrieved by the dropping of proceedings, is in appeal before us having reviewed the 70 ST/87578-87581/2015,85038/2016 impugned order in exercise of powers under Section 86(2) of Finance Act, 1994.
7. According to the appeal of Revenue, the adjudicating authority is in error and failed to appreciate that the programmes that were exported to Hong Kong were beamed back to India. This, in our considered opinion, is a fallacy that Revenue authorities, steeped as they are in the legacy of tax on 'visibles', are susceptible to. The reviewing authority appears to have ignored the fundamental aspect that the proceedings were initiated under Finance Act, 1994 and that the tax was sought to be levied on taxable services and any adjudication thereon shall necessarily be circumscribed by such. The findings cannot go beyond the services that are taxable under Section 65(105) to focus on the manifest form of the service for determination of the usage. Prima facie, we do not find any merit in this line of appeal. We, however, do not fail to consider this in detail."
Thus the said case is distinguishable on facts. For the same reason the decision of the E P W Da Costa vs UOI [1980 (121) ITR 751 (Delhi)] is distinguishable. In para 5 & 6 the Hon'ble High Court has held-
"(1) Where the gross total income of an assessed, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by the assessed from the Government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available 71 ST/87578-87581/2015,85038/2016 or provided or agreed to be made available or provided to such Government or enterprise by the assessed, or in consideration of technical services rendered or agreed to be rendered outside India to such Government or enterprise by the assessed, under an agreement approved by the Board in this behalf, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessed in accordance with any law for the time being in force for regulating payments and dealings in foreign exchange, there shall be allowed, in accordance with and subject to the provisions of this section, a deduction of the whole of the income so received in, of brought into, India in computing the total income of the assessed,"
6. The question for consideration is whether the petitioner has received payment from the BBC in consideration for the use outside India of information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available to the BBC. The BBC is a commercial corporation interested in knowing how the BBC broadcasts are received by the listeners in India. For that purpose they engaged the petitioner to conduct a public opinion survey. The petitioner has stated in his rejoinder that the information supplied by the petitioner is used by the BBC in its audience research organisation and, inter alia, helps the said organisation in planning its programme. Apparently the BBC would make modifications in its programmes after knowing 72 ST/87578-87581/2015,85038/2016 from the information supplied by the petitioner as to how its broadcasts are received in India."
7.5 Since prior to amendments made in Rule 3, with effect from 27.02.2010, the requirement of "providing the services from India for use outside India was mandatory and is not satisfied in the present case, we hold that benefit of Export of Services Rules, 2005 will not be available to the appellants.
7.6 Appellants have also relied upon the decisions of tribunal in case Paul Merchants Microsoft Corp (I) Ltd Vodafone Essar Cellular Ltd & Ate Enterprises in their support. However we do not find any merit in such reliance for the period prior to 27.02.2010 and the said decisions are clearly distinguishable.
i. In case of Paul Merchants, the tribunal was considering the case of money transfer from foreign land to the recipient in India. Paul Merchants were acting as agent for the Western Union, who was approached by the person intending to transfer money to recipient in India. Paul Merchants were responsible for delivery of the said money to the Indian recipient. For rendering this service Paul Merchants received certain commission from the Western Union. Demand was made in respect of the service provided by the Paul Merchants for delivery of to Indian recipient. In the said Paul Merchant 73 ST/87578-87581/2015,85038/2016 provided the service to the Western Union, which has been held to be Export of Service. In this case the service has been provided by the Paul Merchants to entity located outside India for delivery of money to Indian recipient. Since the service has been provided by Paul Merchant for use outside India the same has been held to be Export of Service. In the present case the appellants have provided the feed to the recipient in India and the service has been provided in India and also used in India hence the case of Paul Merchants distinguishable.
ii. Similarly in case of Microsoft, they were providing services as per Market Development Agreement dated 1- 7-2005 entered into by the them with the Microsoft Operations Pvt. Ltd. of Singapore required the appellant to identify the consumers in Indian Territory to provide marketing and technical support services on behalf of the foreign principal while making sale of Microsoft Products in India and maintaining the same. In the said case Microsoft (India) was providing services of market development to their principal located in Singapore for development of their market in India. The case of the department for not allowing the benefit of export of services was that the said market development was to happen in India and hence the services were being used in India. Tribunal has after examination of the facts 74 ST/87578-87581/2015,85038/2016 found that market development was for the sale of the products of the foreign entity and hence cannot be said to be used in India. Accordingly the benefit of export of services was extended.
iii) Similarly in case of Vodafone, the services were provided in case of international roaming to service provider providing telecom services to its consumers while they were in India. The services which were being provided were provided to the service providers located outside India and were used by them for providing the services to their customers when they were in India, same is not the case in present case, hence the said decision is clearly distinguishable.
iv) Similarly the case of Ate Enterprises too can be distinguished.
7.7 In the present case the grant of media rights is not the service but the delivery of the feed to the person to whom the media rights have been granted for telecast is the service provided. Since this service feed has been provided by the appellant to the person holding media rights in India the service has been provided in India and all the activities in relation to the consumption of the said feed for broad cast of the match have been performed in India, the claim for the appellants in respect of the said feed as export of Service cannot be 75 ST/87578-87581/2015,85038/2016 agreed to. The same view has been expressed by Bombay High Court in case of Tech Mahindra [2014 (36) STR 241 (Bom)]. The relevant excerpts of the said decision are reproduced below:
"58. In that context, a closer look at these Rules would be necessary. The Export of Services Rules, 2005 were notified by Notification No. 9/2005S.T., dated 3-3-2005. Rule 3 defines what is export of taxable service. The definition was substituted with effect from 19-4-2006. The export of taxable service in relation to taxable services which have been referred to in clause (i) of sub- rule (1) of Rule 3 is in relation to an immovable property situated outside India.
59. Then comes Rule 3(1)(ii) and which relates to taxable service specified in sub-clauses of clause (105) of Section 65 of the Finance Act, 1994. However, the services referred therein are those which are performed outside India. The first proviso below this was stating that if such taxable service is partly performed outside India it shall be considered to be performed outside India. Then, there is a further proviso of this sub-rule wherein it was stated that any taxable service provided shall be treated as export of service only if such service is delivered outside India and used in the business or any other purposes outside India and payment for such service provided is received by the service provider in convertible foreign exchange. [see Rule 3(2)].
60. Rule 3(1)(iii) refers to all such taxable services specified in clause (105) of Section 65 of the Finance Act, 1994, but excluding those in sub-clauses (zzzo) and (zzzv) and those specified in clause (i) of this Rule except when the provision of taxable services specified in sub-clauses
76 ST/87578-87581/2015,85038/2016
(d), (zzzc), (zzzr) and (zzzzm) does not relate to immovable property. Thus, the classification appears to be of taxable service in relation to immovable property which is situated outside India and if it satisfies the conditions in the proviso below sub-rule (1) of Rule 3, then, there is stipulation in relation to taxable services referred to in several sub-clauses of clause (105) of Section 65 of the Finance Act, 1994 and specified in Rule 3(1)(ii). That is in relation to taxable services, specified in these sub- clauses of clause (105) of Section 65 of the Finance Act, 1994 which sub-clauses have been specified in Rule 3(1)(ii), as are performed outside India. However, in relation to that also if such taxable service is performed partly outside India it shall be considered to have been performed outside India. The further proviso below sub- rule (2) as it then stood stated that for the purpose of sub- rule (2) of Rule 3 of the Export of Services Rules, 2005 any taxable service provided shall be treated as export of service only if such service is delivered outside India and used in the business or any other purpose outside India and payment for such service provided is received by the service provider in convertible foreign exchange. Rule 3(1)(iii) takes within its fold the services other than those part of Rule 3(1)(i) and (ii) and stipulates that such taxable services which are provided and used in and in relation to commerce or industry and the recipient of such services is located outside India provided that such recipient has commercial or industrial establishment or any office relating thereto in India, then, such taxable services shall be treated as export of service only if the order for provision of such service is made from any of its commercial or industrial establishment or any office located outside India. The service so ordered is delivered outside India and used in the business 77 ST/87578-87581/2015,85038/2016 outside India and payment of such service provided is received by the service provider in convertible foreign exchange. Then, there is broad category referring to such taxable services which are provided and used other than in or in relation to commerce or industry, if the recipient of taxable services is located outside India at the time when such services are received.
61. There is substitution as we have said above and what we find is that below Rule 3(1) and it's clauses, Rule 3(2) has been substituted with effect from 1-3-2007 by Notification No. 2/2007ST, dated 1-3-2007. Rule 3(2)(a) has been omitted with effect from 27-2-2010. The words "such service is provided from India and used outside India; and" were omitted with effect from 27-2- 2010 by Notification No. 6/2010ST, dated 27-2-2010. Thereafter, the only condition remained to be satisfied and for the purpose of being qualified or termed as export of taxable service is that any taxable service specified in sub-rule (1) of Rule 3 shall be treated as such when the payment for such service is received by the service provider in convertible foreign exchange. We are concerned with the situation prior to this omission. We are of the view that if Mr. Sridharan's submissions have to be accepted, then, we must ignore this omission."
7.8 With effect from 27.02.2010, when the condition relating to receipt place of provision and use have been omitted, the situation changes. Since the service provided falls within category (iii) service the location of the service recipient, determines whether the service can be treated as export of service, subject to the requirement that the consideration for the said services 78 ST/87578-87581/2015,85038/2016 are received in convertible foreign exchange. In the show cause notice for the period post 27.02.2010, the benefit of export of service has been allowed to the extent of payment received in convertible foreign exchange from M/s MSM Singapore. It is uncontroverted fact that entire consideration in respect of media rights agreement was not received in convertible foreign exchange. Quiet substantial amount in terms of the said agreement was paid by M/s Sony Picture Entertainment Limited a subsidiary of M/s MSM Singapore from its advertisement revenues to appellant as a consideration for the service provided by the appellant. In para 5, of the adjudication order, the mode of payment has been explained, and is reproduced in table below:
Invoice Amount in Date of Document No Amount in INR No INR Receipt Before TDS After TDS deduction deduction MSM-IPL- 4983810769 07.03.11 SCSQ063001 2351690000 2116521000 2011-12 30.06.11 IT36701106270984 280430770 252387693 dtd 29.09.11 IT3671109270985 2351690000 2116521000 28.02.11 4983810770 448542969 3 Out of the total payments received payments mentioned on 30.06.11 and 07.03.11 has been received M/s Sony Pictures Entertainment on behalf of MSM Singapore.
The net amount after TDS deduction has been credited in the Appellant Bank Account with HDFC Bank.
79 ST/87578-87581/2015,85038/2016 Further income of Rs 34,64,40,768/- has been received from sub licensees M/s WSG. It is admitted fact that appellant has themselves claimed benefit of export of service in respect of certain part of the income from media rights agreement. However they have not claimed the said benefit in respect of entire amount. This would be for the reason that entire income from media rights is not received in convertible foreign exchange. (Para C.12 of the submissions).
7.9 From the para 7 of show cause notice dated 13.03.2013 it is quite evident in respect of the payments received from M/s MSM Singapore demand has been made in respect of those amounts which are not in convertible foreign exchange and cannot be treated as export of service. The said para of Show Cause Notice dated 13.03.2013 is reproduced below:
"7. On scrutiny of ST-3 Returns for 2011-12 filed under 'Commercial use and Exploitation of events', it is observed that BCCI has claimed amount received against export of service of Rs.416,98,88,398/- (i.e. Rs.175,46,33,398/- plus Rs.241,52,55,000/-). Under Franchisee Services BCCI has not claimed any amount received against export of service. Department has already issued various SCNs under 'franchisee services' on the issue as mentioned in Para-03 above which are pending for adjudication.
BCCI has claimed export of service on media right income in ST-3 for 2011-12 for Rs.416,98,88,398/-. The representative of BCCI has clarified that out of the said 80 ST/87578-87581/2015,85038/2016 amount, the amount of Rs.256,83,00,000/- pertains to ESPN Singapore and remaining amount of Rs.160,15,88,396/- pertains to MSM Singapore. However, on going through the balance-sheet for 2011- 12, it was noticed that out of the total export income from media right of Rs.533,92,51,537/-, the income of Rs.498,38,10,769/- pertain to M/s. MSM Singapore, as mentioned in para 05 and 06 above. However, as against the export income of Rs.498,38,10,769/-, they have claimed only Rs.160,15,88,396/- from M/s. MSM Singapore, in their ST-3 Returns. For the balance amount of Rs.338,23,00,002/- they could not offer any explanations or documentations. In the absence of any explanation, the said income of Rs.338,23,00,002/- appears to be liable for payment of service tax. As such on the balance amount of Rs.338,23,00,002/- BCCI is required to pay service tax at the rate of 10.30% which works out to Rs.34,83,76,900/-.
In view of this, the BCCI is not entitled to claim export of services on the following amount:-
Name of the Export of Service Service tax party Amount Disallowed Payable 10.30% M/s. MSM, Rs.338,23,00,002/- Rs.34,83,76,900/- Singapore M/s. World Rs.34,64,40,768/- Rs.3,56,83,399/-
Sport Group India Pvt. Ltd. Total Rs.372,87,40,770/- Rs.38,40,60,299/-
7.10 Thus in view of the discussions as above and the decisions referred we are of the view that benefit under Export of Service Rules, 2005 could not have been extended to the appellant, for the period prior to 81 ST/87578-87581/2015,85038/2016 27.02.2010. For the period after 27.02.2010, the said benefit has been extended to the appellant, to the extent they have shown that the payment against the said services was received in convertible foreign exchange.
8.1 Now coming to the issue of limitation. In table below, the date of issue of show cause notice along with the period of demand is indicated.
Table 1 Details of Show Cause Notices
SN SCN No Date Period Amount
1 V/ ST/ HQ/ AE/ E/ 47/ 09 14.10.2009 2007-08 36,52,38,000
& 2008-
09
2 V/ ST/ HQ/ AE/ E/ 47/ 09 19.04.2011 2009-10 37,53,77,320
3 174/ Commr/ 2011-12 24.10.2011 2010-11 41,10,17,933
4 V/ ST/ Dn-II/ Gr VIII/ 13.03.2013 2011-12 38,40,60,229
TBCCI/59/ 10
From the perusal of the above table it is quite evident, show cause notices at S No. 2, 3 & 4 have been issued in normal period of limitation. Also the show cause notice at Sl No 1, has quite substantial period within normal period of limitation. However some period pertaining to 2007-08, may be beyond the normal period of limitation.
8.2 Appellants have claimed that they have not suppressed anything and department was fully aware that appellant is providing media rights to various 82 ST/87578-87581/2015,85038/2016 broadcaster. Department had tried to tax the said income from media rights, by classifying the income received under said agreements under various categories, i.e. Advertising services, Intellectual Property Right Service etc. The appellants entertained a bonafide belief that the services under the said media right agreement were not classifiable under the category of "franchise service." When the service tax was introduced under the category of "Commercial Use or exploitation of any event" they started discharging service tax liability under the said category. Thus the invocation of extended period of limitation cannot be justified, for the reason that there was no suppression of facts with intention to evade payment of tax. The issue involved in the matter was that of interpretation.
8.3 It is fact that appellants had not been declaring the income from media right agreements in the ST-3 return filed by them. Further appellants have not in any case brought out any reason for entertaining the bonafide belief to effect that the services rendered by them will not be classifiable under the category of "franchise service."
8.4 The tribunal has in case of L'OREAL India Pvt Ltd Vs Commissioner of Central Excise Pune [2015 (330) ELT 253 (T-MUM)] has held-
83 ST/87578-87581/2015,85038/2016 "5.11 Reliance is placed on the decision of the Hon'ble Gujarat High Court in the case of Neminath Fabrics Pvt. Ltd. [2011-TIOL-10-HC-AHM-CX = 2010 (256) E.L.T. 369 (Guj.)] and the Larger Bench decision in Union Quality Plastic Ltd. [2013-TIOL-1072-CESTAT-AHM-LB = 2013 (294) E.L.T. 222 (Tri.-LB)] wherein it has been held that knowledge and awareness of the department is not a relevant factor for invocation of extended period of time. In these decisions, it was ruled that whenever there is non-levy or short-levy of duty with an intention to evade payment of duty or any of the circumstances enumerated in the proviso to Section 11A(1) of the Central Excise Act, such suppression or wilful omission is either admitted or demonstrated, invocation of the extended period of limitation would be justified."
8.5 In case of Continental Drugs Company Pvt Ltd. Vs Commissioner Service Tax Mumbai [2015 (39) STR 154 (T-MUM)], tribunal held-
"5.2 ....... As regards the claim of the appellant that they had not suppressed any facts and therefore, extended period time cannot be invoked, the appellant has not brought on record any evidence to prove their bona fides. Bona fide belief is not blind belief but has to be based on reasonable measures taken to entertain such belief. There is nothing in the records to show that the appellant consulted either the department or obtained any legal opinion as their liability towards service tax. In the absence of any such evidence, it is difficult to accept this contention. Inasmuch as the appellant did not obtain any registration nor did they follow any of the statutory procedures, the appellant had clearly suppressed the facts from the department with an intent to evade service 84 ST/87578-87581/2015,85038/2016 tax. In these circumstances, the confirmation of duty demand invoking the extended period of time along with interest thereon cannot be faulted. Consequently, the appellant is also liable to penalty under the provisions of the Finance Act, 1994."
8.6 In case of SUNIL HI-TECH ENGINEERS LTD vs Commissioner Central Excise Nagpur [2014 (36) ELT 408 (T-Mum)] it was held that "7.7 The next question for consideration is whether extended period of time could be invoked for confirmation of service tax demand. The argument adduced is that the appellant was under the bona fide belief that they were not liable to pay service tax since the main contractor was discharging service tax. This claim of the appellant is quite hollow and misleading. The appellant had been discharging service tax on the services rendered by them prior to 1-3-2006 as a subcontractor. In their reply to the show cause notice dated 29-12-2010 vide reply dated 19th September, 2011, in para 4.1, the appellant has stated as follows :-
"4.1 But, with effect from 1-3-2006, the said Notification 15/2004 has been replaced by Notification 1/2006, which also prohibited availment of Cenvat credit on input services. Hence with effect from 1-3-2006, we have stopped paying service tax and sought the benefit of various circulars and judicial pronouncements to the effect that no service tax is payable by the sub- contractors, if the main contractor pays service tax."
This averment of the appellant clearly shows that the reason for non-payment service tax was not because of any bona fide belief but because Notification 1/2006-S.T. 85 ST/87578-87581/2015,85038/2016 which provided for abatement in value of taxable service stipulated a condition that no Cenvat credit of excise duty paid on inputs and capital goods and service tax paid on input services shall be availed. Since the main contractor was prohibited from availing input service tax credit, the appellant stopped paying service tax on input services. Under the previous Notification 15/2004-S.T., the restriction on non-availment of credit applied only on inputs and capital goods and not on input services. With the change in the tax regime, the appellant resorted to non-payment of service tax on input services. Thus the non-payment was a deliberate ploy on the part of the appellant to minimize tax liability. Consequently, the appellant also stopped filing service tax returns and did not furnish any information to the department in respect of the taxable services rendered by them as a sub- contractor. This action on the part of the appellant was deliberate and is a clear admitted position. After the case was made out against the appellant on the basis of investigation conducted, in order to wriggle out of the tax liability, the appellant feigned bona fide belief by placing reliance on non-applicable circulars and decisions. In the light of these glaring evidences available on record and the clear admission on the part of the appellant, we reject the contention of the appellant that extended period of time cannot be invoked. The appellant has taken a weak plea that their records were audited in March, 2008 by the department and therefore, the department had knowledge of the appellant's transactions since 27-3- 2008, this plea cannot be accepted for the following reason. In Neminath Fabrics case [2010 (256) E.L.T. 369 (Guj.)], the Hon'ble High Court of Gujarat held that if any of the ingredients for invoking extended period of limitation is present, then extended period of limitation 86 ST/87578-87581/2015,85038/2016 can be invoked for confirmation of demand and knowledge of the department is not relevant. A larger bench of this Tribunal in Union Quality Plastics Ltd. case [2013-TIOL-1072-CESTAT-AHM-LB = 2013 (294) E.L.T. 222 (Tri.-LB)] also held the same view. The relevant extracts from the Neminath Fabrics case is reproduced below :-
"17. The proviso cannot be read to mean that because there is knowledge the suppression which stands established disappears. Similarly the concept of reasonable period of limitation which is sought to be read into the provision by some of the orders of the Tribunal also cannot be permitted in law when the statute itself has provided for a fixed period of limitation. It is equally well settled that it is not open to the Court while reading a provision to either rewrite the period of limitation or curtail the prescribed period of limitation.
18. The Proviso comes into play only when suppression etc. is established or stands admitted. It would differ from a case where fraud, etc. are merely alleged and are disputed by an assessee. Hence, by no stretch of imagination the concept of knowledge can be read into the provisions because that would tantamount to rendering the defined term relevant date nugatory and such an interpretation is not permissible.
19. The language employed in the proviso to sub-section (1) of Section 11A, is clear and unambiguous and makes it abundantly clear that moment there is non-levy or short levy etc. of central excise duty with intention to evade payment of duty for any of the reasons specified thereunder, the proviso would come into operation and the period of limitation would stand extended from one year to five years. This is the only requirement of the provision. Once it is found that the ingredients of the 87 ST/87578-87581/2015,85038/2016 proviso are satisfied, all that has to be seen as to what is the relevant date and as to whether the show cause notice has been served within a period of five years therefrom."
Section 73 of the Finance Act, 1994 is pari materia to Section 11A of the Central Excise Act and therefore, the ratio of the above decision applies squarely to the facts of the present case. Thus we are of the considered view that extended period of time has been correctly invoked to demand and confirm service tax in the present case."
8.7 Thus in view of the above decisions and the fact that appellants had not been declaring the income from media right agreement in their ST-3 returns, the appellants have suppressed the same with intention to evade payment of service tax. Thus extended period of limitation as provided for by the proviso to Section 73(1) has been rightly invoked for demanding Service Tax in the notice dated 14.10.2009.
9.1 Now coming to the issue of penalty. Though in each of the show cause notices, penalties have been proposed under Section 76, 77 and 78 of the Finance Act, 1994. While adjudicating Commissioner has imposed penalties as indicated in table below:
SN SCN Date Section 76 Section 77 Section 78 Total 1 14.10.2009 0 5000 259608402 259613402 2 19.04.2011 331504986 5000 0 331509986 3 24.10.2011 372636385 5000 0 372641385 88 ST/87578-87581/2015,85038/2016 4 13.03.2013 174098050 10000 0 174108050 Total 878239421 25000 259608402 113787282 3 9.2 Since we have held that extended period of limitation has been rightly invoked in the present case, the provisions of section 78 will get attracted automatically and hence the penalty as imposed in respect of the Show Cause Notice dated 14.10.2009 has to follow. In case of Rajasthan spinning and Weaving Mills Hon'ble APEX Court has held as follows:
"16. The other provision with which we are concerned in this case is Section 11AC relating to penalty. It is as follows :
11AC. Penalty for short-levy or non-levy of duty in certain cases.- where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined :
[Provided that where such duty as determined under sub- section (2) of section 11A, and the interest payable thereon under section 11AB, is paid within thirty days from the date of communication of the order of the Central Excise Officer determining such duty, the amount of penalty liable to be paid by such person under this section shall be twenty-five per cent of the duty so determined :
89 ST/87578-87581/2015,85038/2016 Provided further that the benefit of reduced penalty under the first proviso shall be available if the amount of penalty so determined has also been paid within the period of thirty days referred to in that proviso :
Provided also that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, for the purpose of this section, the duty as reduced or increased, as the case may be, shall be taken into account :
Provided also that in case where the duty determined to be payable is increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the court, then, the benefit of reduced penalty under the first proviso shall be available, if the amount of duty so increased, the interest payable thereon and twenty-five per cent of the consequential increase of penalty have also been paid within thirty days of the communication of the order by which such increase in the duty takes effect
-
Explanation. - For the removal of doubts, it is hereby declared that -
(1) the provisions of this section shall also apply to cases in which the order determining the duty under sub-
section (2) of section 11A relates to notices issued prior to the date on which the Finance Act, 2000 receives the assent of the President;
(1) any amount paid to the credit of the Central Government prior to the date of communication of the order referred to in the first proviso or the fourth proviso shall be adjusted against the total amount due from such person.] 90 ST/87578-87581/2015,85038/2016
17. The main body of Section 11AC lays down the conditions and circumstances that would attract penalty and the various provisos enumerate the conditions, subject to which and the extent to which the penalty may be reduced.
18. One cannot fail to notice that both the proviso to sub-section 1 of Section 11A and Section 11AC use the same expressions : "....by reasons of fraud, collusion or any wilful mis-statement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty,...". In other words the conditions that would extend the normal period of one year to five years would also attract the imposition of penalty. It, therefore, follows that if the notice under Section 11A(1) states that the escaped duty was the result of any conscious and deliberate wrong doing and in the order passed under Section 11A(2) there is a legally tenable finding to that effect then the provision of Section 11AC would also get attracted. The converse of this, equally true, is that in the absence of such an allegation in the notice the period for which the escaped duty may be reclaimed would be confined to one year and in the absence of such a finding in the order passed under Section 11A(2) there would be no application of the penalty provision in Section 11AC of the Act. On behalf of the assessees it was also submitted that Sections 11A and 11AC not only operate in different fields but the two provisions are also separated by time. The penalty provision of Section 11AC would come into play only after an order is passed under Section 11A(2) with the finding that the escaped duty was the result of deception by the assessee by adopting a means as indicated in Section 11AC.
91 ST/87578-87581/2015,85038/2016
19. From the aforesaid discussion it is clear that penalty under Section 11AC, as the word suggests, is punishment for an act of deliberate deception by the assessee with the intent to evade duty by adopting any of the means mentioned in the section.
20. At this stage, we need to examine the recent decision of this Court in Dharamendra Textile (supra). In almost every case relating to penalty, the decision is referred to on behalf of the Revenue as if it laid down that in every case of non-payment or short payment of duty the penalty clause would automatically get attracted and the authority had no discretion in the matter. One of us (Aftab Alam, J.) was a party to the decision in Dharamendra Textile and we see no reason to understand or read that decision in that manner. In Dharamendra Textile the court framed the issues before it, in paragraph 2 of the decision, as follows :
"2. A Division Bench of this Court has referred the controversy involved in these appeals to a larger Bench doubting the correctness of the view expressed in Dilip N. Shroff v. Joint Commissioner of Income Tax, Mumbai & Anr. [2007 (8) SCALE 304]. The question which arises for determination in all these appeals is whether Section 11AC of the Central Excise Act, 1944 (in short the "Act') inserted by Finance Act, 1996 with the intention of imposing mandatory penalty on persons who evaded payment of tax should be read to contain mens rea as an essential ingredient and whether there is a scope for levying penalty below the prescribed minimum. Before the Division Bench, stand of the revenue was that said section should be read as penalty for statutory offence and the authority imposing penalty has no discretion in the matter of imposition of penalty and the adjudicating authority in such cases was duty bound to impose 92 ST/87578-87581/2015,85038/2016 penalty equal to the duties so determined. The assessee on the other hand referred to Section 271(1)(c) of the Income Tax Act, 1961 (in short the IT Act') taking the stand that Section 11AC of the Act is identically worded and in a given case it was open to the assessing officer not to impose any penalty. The Division Bench made reference to Rule 96ZQ and Rule 96ZO of the Central Excise Rules, 1944 (in short the "Rules') and a decision of this Court in Chairman, SEBI v. Shriram Mutual Fund & Anr. [2006 (5) SCC 361] and was of the view that the basic scheme for imposition of penalty under section 271(1)(c) of IT Act, Section 11AC of the Act and Rule 96ZQ(5) of the Rules is common. According to the Division Bench the correct position in law was laid down in Chairman, SEBI's case (supra) and not in Dilip Shroff's case (supra). Therefore, the matter was referred to a larger Bench."
After referring to a number of decisions on interpretation and construction of statutory provisions, in paragraphs 26 and 27 of the decision, the court observed and held as follows :
"26. In Union Budget of 1996-97, Section 11AC of the Act was introduced. It has made the position clear that there is no scope for any discretion. In para 136 of the Union Budget reference has been made to the provision stating that the levy of penalty is a mandatory penalty. In the Notes on Clauses also the similar indication has been given.
"27. Above being the position, the plea that the Rules 96ZQ and 96ZO have a concept of discretion inbuilt cannot be sustained. Dilip Shroff's case (supra) was not correctly decided but Chairman, SEBI's case (supra) has analysed the legal position in the correct perspectives. The reference is answered.........".
93 ST/87578-87581/2015,85038/2016
21. From the above, we fail to see how the decision in Dharamendra Textile can be said to hold that Section 11AC would apply to every case of non-payment or short payment of duty regardless of the conditions expressly mentioned in the section for its application.
22. There is another very strong reason for holding that Dharamendra Textile could not have interpreted Section 11AC in the manner as suggested because in that case that was not even the stand of the revenue. In paragraph 5 of the decision the court noted the submission made on behalf of the revenue as follows :
"5. Mr. Chandrashekharan, Additional Solicitor General submitted that in Rules 96ZQ and 96ZO there is no reference to any mens rea as in section 11AC where mens rea is prescribed statutorily. This is clear from the extended period of limitation permissible under Section 11A of the Act. It is in essence submitted that the penalty is for statutory offence. It is pointed out that the proviso to Section 11A deals with the time for initiation of action. Section 11AC is only a mechanism for computation and the quantum of penalty. It is stated that the consequences of fraud etc. relate to the extended period of limitation and the onus is on the revenue to establish that the extended period of limitation is applicable. Once that hurdle is crossed by the revenue, the assessee is exposed to penalty and the quantum of penalty is fixed. It is pointed out that even if in some statues mens rea is specifically provided for, so is the limit or imposition of penalty, that is the maximum fixed or the quantum has to be between two limits fixed. In the cases at hand, there is no variable and, therefore, no discretion. It is pointed out that prior to insertion of Section 11AC, Rule 173Q was in vogue in which no mens rea was provided for. It only stated "which he knows or has reason to believe". The 94 ST/87578-87581/2015,85038/2016 said clause referred to wilful action. According to learned counsel what was inferentially provided in some respects in Rule 173Q, now stands explicitly provided in Section 11AC. Where the outer limit of penalty is fixed and the statute provides that it should not exceed a particular limit, that itself indicates scope for discretion but that is not the case here."
23. The decision in Dharamendra Textile must, therefore, be understood to mean that though the application of Section 11AC would depend upon the existence or otherwise of the conditions expressly stated in the section, once the section is applicable in a case the concerned authority would have no discretion in quantifying the amount and penalty must be imposed equal to the duty determined under sub-section (2) of Section 11A. That is what Dharamendra Textile decides."
9.3 Penalties under Section 76 and Section 77, are for the reason of contraventions of various provisions and acts of omission to perform the task as required to be performed under the provisions of the act. Such penalties are in nature of Civil Liabilities and do not require any contumacious conduct on the behalf of the defaulter. Hon'ble Supreme Court has in case of Gujarat Travancore Agency held as follows:
"4.Learned Counsel for the assessee has addressed an exhaustive argument before us on the question whether a penalty imposed under Section 271(1)(a) of the Act involves the element of mens rea and in support of his submission that it does he has placed before us several cases decided by this Court and the High Courts in order 95 ST/87578-87581/2015,85038/2016 to demonstrate that the proceedings by way of penalty under Section 271(1)(a) of the Act are quasi criminal in nature and that, therefore, the element of mens rea is a mandatory requirement before a penalty can be imposed under Section 271(1)(a). We are relieved of the necessity of referring to all those decisions. Indeed, many of them were considered by the High Court and are referred to in the judgment under appeal. It is sufficient for us to refer to Section 271(1)(a), which provides that a penalty may be imposed if the Income Tax Officer is satisfied that any person has without reasonable cause failed to furnish the return of total income, and to Section 276C which provides that if a person wilfully fails to furnish in due time the return of income required under Section 139(1), he shall be punishable with rigorous imprisonment for a term which may extend to one year or with fine. It is clear that in the former case what it intended is a civil obligation while in the latter what is imposed is a criminal sentence. There can be no dispute that having regard to the provisions of Section 276C, which speaks of wilful failure on the part of the defaulter and taking into consideration the nature of the penalty, which is punitive, no sentence can be imposed under that provision unless the element of mens rea is established. In most cases of criminal liability, the intention of the Legislature is that the penalty should serve as a deterrent. The creation of an offence by Statute proceeds on the assumption that society suffers injury by and the act or omission of the defaulter and that a deterrent must be imposed to discourage the repetition of the offence. In the case of a proceeding under Section 271(1)(a), however, it seems that the intention of the legislature is to emphasise the fact of loss of Revenue and to provide a remedy for such loss, although no doubt an element of coercion is present 96 ST/87578-87581/2015,85038/2016 in the penalty. In this connection the terms in which the penalty falls to be measured is significant. Unless there is something in the language of the statute indicating the need to establish the element of mens rea it is generally sufficient to prove that a default in complying with the statute has occurred. In our opinion, there is nothing in Section 271(1)(a) which requires that mens rea must be proved before penalty can be levied under that provision. We are supported by the statement in Corpus Juris Secundum Volume 85, page 580, Paragraph 1023 :
"A penalty imposed for a tax delinquency is a civil obligation, remedial and coercive in its nature, and is far different from the penalty for a crime or a fine or forfeiture provided as punishment for the violation of criminal or penal laws.""
Hence we uphold the penalties imposed under the provisions of Section 76 and 77 of the Finance Act, 1994.
10.1 Since the demand of tax has been upheld the demand for interest will follow> It is now settled law that interest under Section 75, is for delay in the payment of tax from the date when it was due. Since appellants have failed to pay the said Service Tax by the due date interest demanded cannot be faulted.
11.1 Appellants have in their submissions claimed that benefit of CENVAT Credit of the service tax paid on input services used for providing the output services should be allowed to them. The said preposition is well 97 ST/87578-87581/2015,85038/2016 founded and they should be entitled to the admissible CENVAT Credit on the input services.
12.1 Commissioner has while adjudicating the matter allowed the benefit of cum tax value, while determining the Service Tax payable. The said benefit allowed is well supported by the decision of Tribunal in case of CCE Patna Vs Advantage Media Consultant {[2008 (10) STR 449 (T-Kol)] maintained by the Apex Court in {2009 914) STR J49 (SC)]. Accordingly we are in agreement with the benefit allowed. Accordingly the appeal filed by the revenue also needs to be dismissed.
13.1 Commissioner has while adjudicating the demand in respect of the development of website developed and maintained by M/s. Live Current Media (SCN F.No.V/ST/HQ/AE/E/47/09/1190 dtd 19.4.2011) has held that services provided to M/s Live Current Media were taxable services but for the reason that appellants had not received the consideration against the provisioning of the said service till the time of adjudication dropped the demand and has ordered that the same should be paid as soon as the amount is recovered. Appellants have in their submissions have not challenged this part of the order or the order confirming the demand in respect of the services provided by them to Pioneer Digisys Pvt. Ltd.
98 ST/87578-87581/2015,85038/2016 14.1 In result we modify the order of the Commissioner to the extent that appellants should be allowed to avail the CENVAT Credit in respect of input services used for providing the output services if otherwise admissible.
But for the above modification the appeals filed by the Appellants are dismissed and the cross objections disposed accordingly.
14.2 The appeal filed by the revenue is also dismissed and the cross objections filed by the appellants in respect of the said appeal stand disposed accordingly.
(Pronounced in court on 10.12.2018)
(Dr. D.M. Misra) (Sanjiv Srivastava)
Member (Judicial) Member (Technical)
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