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8. ROYALTY

(a) Franchisee shall pay to Franchisor as a royalty five percent (5%) of the Gross Sales from the operation of the Restaurant during the term hereof. The royalty specified herein shall be calculated and shall be paid by Franchisee to Franchisor within five (5) working days after the end of each month.

9. FRANCHISE FEE. Franchisee shall pay to Franchisor a Franchise Fee for the right to operate the Restaurant in accordance with this Agreement in the amount of the Indian Rupee equivalent of twenty-two thousand five hundred United States Dollars (U.S.$ 22.500.00). Franchisor reserves the right, in case construction of the Restaurant should be abandoned, the lease assigned, or other interest in the premises be relinquished, to terminate this Agreement upon reimbursement to Franchisee of the Franchise Fee.

"They contended that the Notice does not make any cogent reasons as to why the advertisement expenses incurred by the franchisee were part of the franchisee fee paid by the franchisee to the Noticee. The onus was on the Department 41 ST/50218/16 to bring about a positive allegation in the SCN detailing the reasons supporting the allegation based on law and facts. The SCN suffered from the infirmity of neither being supported with the help of law and or facts for the purpose of the said allegations in the notice."

FOURTH ISSUE Interest on late payment of Service Tax on franchisee fees to McDonald‟s USA

64. The relevant observations of the Principal Commissioner on this issue are as follows :

"1. As regards the issue related to Interest on late payment of Service Tax, I find that on scrutiny of ST-3 returns for the period 2007-08 to 2011-12 it unearthed that although McDonald India were accruing and receiving franchisee fees from its franchisees on the monthly basis but they booked the same in the ledger of McDonald Corporation, USA in the month of September and March of every year which caused delay in the payment of service tax.

67. The Principal Commissioner has accepted the position that there is no loss to the exchequer, but failed to appreciate that the date of entry in the books of account and payment to the overseas entity for the franchisee fee are on the same day. Therefore, applying the relevant Rule 7 of the Point of Taxation Rules, 2011, the tax has to be remitted on the date of payment or entry in the books of account, whichever is earlier. In the instant case, the date of entry and payment to overseas entity are on the same day. There is, therefore, no delay and the reasoning given by the Principal Commissioner to the effect that since the payment of franchisee fee from the local entities is on monthly basis, the same should be the basis with respect to the remittances to the overseas associated enterprises is not correct. As stated above, the forward charge and reverse charge cannot be equated for the charge of interest as these are governed by different set of Rules. Therefore, the interest claim that was confirmed for the entire period deserves to be set aside.