By Puloma Dalal, Jayesh Gogri, Mandar Telang, Chartered Accountants
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Whether agreement to provide expertise, guidance etc. for setting up an enterprise for running an educational institution along with provision of brand name without sharing any profit or loss arising from said enterprises amounts to Joint Venture Agreement and not subjected to service tax?
Facts:
The appellant having a brand image and reputation for establishing and managing schools entered into an agreement termed as “Education Joint Venture Agreement” with other parties for setting up schools for the use of their brand name and to continue to provide managerial and operational techniques and standards of imparting education against receipt of annual fees. The appellant neither had any obligation for sharing any losses arising out of this activity nor enjoyed the benefits arising out of successful running of the other party’s institutions.
The Respondent issued various show cause notices for demanding service tax on the fees received in pursuance of the said Joint Venture Agreement under the category of “Franchise Fees” and confirmed the demand along with penalties.
Held:
It was held that the financial burden of establishing and maintaining the school was solely on the other party which signalled the absence of any partnership or joint venture and that the appellant was neither supposed to contribute towards capital nor liable for any loss or profit,
the appellant provided service not to itself but to other parties to the agreement. The Hon. Tribunal held that the scope of the Appellant clearly got covered within the category of ‘Franchise’ service as the ingredients of ‘franchise’ being satisfied, however quashed the show cause notices which were beyond the normal period of limitation, as there was no case of suppression.
