CESTAT-New Delhi : Whether since magazine was identifiable with Airlines operation and business of assessee, amount received by assessee was liable to service tax under category of ‘Franchisee Service’

CESTAT, New Delhi Bench

Air India Ltd. Vs. Commissioner of Service Tax Delhi

Section : 65(47), 65(105)(zze)

S. K. Mohanty, Judicial Member And B. Ravichandran, Technical Member

Final Order Nos. 55301- 55302/2017

Service Tax Appeal Nos. 58928-58929/2013-DB

July 20, 2017


B. Ravichandran, Technical Member – These appeals are against order dated 30.04.2013 of Commissioner of Central Excise, Delhi-III. The appellants are engaged in operation of airlines. The dispute in the present case relates to the tax liability on the amount received by them from M/s. Media Transasia (I) Ltd.(MTIL) in terms of the contract entered into by them, for publication of in-flight magazine “Swagat” , for the appellant.

2. The brief facts of the case are that the appellant entered into an agreement with MTIL, which envisaged print and delivery of “Swagat” magazine to the appellant on a monthly basis. MTIL, shall undertake print and publication and delivered magazine to the appellant as per the specifications agreed upon and giving contents approved by the Joint Editorial Board. This magazine is intended for circulation on board, the flights operated by the appellant and also in the airlines lounges. MTIL is allowed all the advertisement proceeds in the magazine. The appellant shall have the right to publish two pages of advertisements in every issue, free of cost, to generate goodwill among public and to promote travel on IA. The advertisement material are to be cleared by the Editorial Board before publication. No advertisement of competitors of appellant shall be published. MTIL shall not get any remuneration for this activity of printing and delivering the in-flight magazine to the appellant. However, MTIL shall pay Rs.8.75 lakhs per month to the appellant.

3. The Revenue entertained a view that MTIL is acting as a representative of the appellant and accordingly, the amount received by the appellant, as stated, is liable to service tax under the category of “Franchisee Service” in terms of Section 65(105)(zze) read with Section 65(47) of the Finance Act, 1994. Accordingly, proceedings were initiated against the appellant to demand and recover service tax. The Original Authority adjudicated the case and confirmed service tax liability of Rs.93,81,940/- and imposed equal amount of penalty under Section 77 of the Act. He also imposed an amount of Rs.50,000/- under Section 76 of the Act.

4. Ld. Counsel for the appellant submitted that the appellants are not liable to pay service tax under franchise service. “Swagat” magazine is published by MTIL, who collected advertisement charges from the clients. The copy right of the magazine is with MTIL. MTIL is not providing any representational service during the course of printing and publishing the said magazine. Relying on the decision of the Hon’ble Delhi High Court in the case of Delhi International Airport Pvt. Ltd. v. Union of India [2017] 60 GST 273/78 taxmann.com 243, the ld. Counsel submitted that MTIL has acted in their own capacity and cannot be called as franchisee of the appellant. He further submitted that the appellant entertained a bona fide belief regarding non-liability of the service tax on this transaction and accordingly, the demand is partly time barred. He submitted that the demand for extended period and penalties are not sustainable against the appellant as they are Government of India Enterprise and no mala fide can be attributed.

5. Ld.AR for the Revenue submitted that from the terms of the agreement, it is very clear that the appellants authorized MTIL to canvass and collect advertisement from the clients and that formed the revenue for MTIL. Out of that revenue, MTIL paid a fixed amount to the appellant, on a monthly basis. It is apparent and clear that “Swagat” magazine is associated with Air India and MTIL is only a representative of Air India in the eyes of the clients as well as the passengers, who peruse the said magazine. Regarding the demand for extended period, ld. AR submitted that even after repeated request the appellant did not make available the particulars. In fact, separate proceedings were initiated for imposing penalty under Section 77 for non-cooperation and also non-submission of the required data by the appellant.

6. We have heard both the sides and perused the appeal records.

7. The dispute is relating to service tax liability of the appellant on the amount received from MTIL, which is for the permission granted to MTIL to print and deliver in-flight magazine “Swagat” to the appellant. The statutory provisions applicable are as below:—

’65(47) Applicable from 01.07.2003 to 15.06. 2005

“Franchise” means an agreement by which —

(i) Franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved;

(ii) The franchisor provides concepts of business operation to franchisee, including knowhow, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee;

(iii) The franchisee is required to pay to the franchisor, directly or indirectly, a free; and

(iv) The franchisee is under an obligation not to engage in selling or providing similar goods or service or process, identified with any other person;

5(47) Applicable from 16.06.2005

“franchise” means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved;

65(48) “franchisor” means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term “franchisee” shall be construed accordingly;

65(105) “taxable service” means any service provided—

** ** **

(zze) to a franchisee, by the franchisor in relation to franchise;’

It can be seen from the above provisions that franchise represents wide variety of business arrangements. In the present case, a perusal of the terms of the agreement and the magazine published clearly indicate that the said magazine is identifiable with Airlines operation and business of the appellant. The publication of the in- flight magazine is one of the activities of the appellant, who is an operator of major commercial airlines. Admittedly, provision of in-flight magazine is an essential requirement for such commercial airlines. In terms of the agreement, the appellant permitted MTIL to print and deliver a fixed number of copies of the said magazine for use by passenger in flight or in the lounge. It is clear that the advertisers, who place their advertisements in the in-flight magazine, fully identified the magazine with the appellant and the target readers provided by the appellant. This fact cannot be disputed. In other words, the magazine is fully identified with the appellant and the MTIL is getting profitable advertisements revenue by representing such magazine of the appellant with various clients. In the magazine, it is clearly printed that “Swagat (meaning ‘welcome’) in-flight magazine of Air India”. Publication of in-flight magazine having logo and title of the airline company is very much part of the airlines business of the appellant. This part of the business is being represented to the advertisers through MTIL. MTIL is paying a fixed monthly amount to the appellant for permitting the usage of the appellant’s name and the magazine for generating the revenue. We find that the scope of franchisee is very wide as can be seen from the above statutory provisions. As such, we are of the considered opinion that the amount received by the appellant from MTIL is liable to be taxed under the said tax entry. We uphold the confirmation of tax liability by the Original Authority.

8. Regarding the limitation, we note that the appellant is a Government of India Undertaking. As such, a rebuttable presumption is created regarding non-existence of intention to evade payment of service tax. However, in this particular case, the Revenue has produced sufficient evidence to rebut such presumption. It is seen that in spite of a notice issued under Section 77 of the Act, the appellant did not furnish the required details for quantification of tax liability. The reasons for extended period have been recorded by the Original Authority. It is recorded that many reminders have been issued to the appellant asking for details and they have failed to provide reply to the same. We are in agreement with the Original Authority regarding sustainability of demand for extended period.

9. However, we find that the appellant also pleaded for setting aside the penalty invoking the provisions of Section 80. On careful examination of the various case laws relied upon and submissions made by the appellant in this regard, we note that the appellants had entertained a belief regarding non-liability of service tax and accordingly had not discharged the same, in time. Considering the overall facts and circumstances of the case, we find that Section 80 can be invoked for waiver of penalty imposed on the appellant. Accordingly, while upholding the tax liability, as confirmed by the Original Authority, we waive the penalty imposed on the appellant under Section 78, invoking the provisions of Section 80 of the Finance Act, 1994.

10. The appeals are disposed of in the above terms.

[Citation : 2017-Taxcaselaw-62-CESTAT-Delhi-GST]

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