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Consult Construction

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  • Delhi HC holds that upfront and annual fees payable by International Airports (assessees) to Airports Authority of India (AAI) under “Operations, Management and Development Agreements” (OMDAs) are not taxable as 'Franchise Services' u/s 65(47) r/w Section 65(105)(zze) of Finance Act, 1994 (Act);
  • Notes that in terms of policy decision of Govt. of India and respective OMDAs executed between assessees & AAI, assessees have been granted exclusive right and authority to undertake some of the functions of AAI i.e. operation, maintenance, development, design, construction upgradation, modernization, finance and management of airport;
  • Accepts assessees’ contentions that they run their own operations using own processes, policies, methods, design, techniques etc., that OMDA is not Franchise Agreement but a statutory divestation of rights (other than reserved activities) in favour of assessee-co., which is a joint venture where AAI holds 26% shares and hence,  there is no question of representing AAI in performance of those functions;
  • Referring to Section 65(47) of Act which defines “franchise”, HC states that merely because by an agreement, a right is conferred on a party to sell or manufacture goods or provide services or undertake a process, it would not ipso facto bring the same within ambit of a 'franchise', it is required to be established that the right conferred is a ‘representational right’ which should necessarily qualify all 3 possibilities  - (i) sell or manufacture goods, (ii) provide service, and (iii) undertake any process identified with franchisor;
  • Remarks, “A representational right would mean that a right is available with the franchisee to represent 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”;  Holds, from perusal of terms and conditions of OMDA, it is clear that no representational right has been granted by AAI to the assessees and a JV agreement (OMDA) has been entered into by AAI so that functions entrusted to it under AAI Act, can be effectively carried out by assessees;
  • Finds Revenue’s reliance upon decision in Home Solutions to contend that since transaction between parties leads to value addition to overall services being offered at airport premises, it is amenable to imposition of service tax, as misplaced; Consequently, since Revenue categorically found transaction not taxable under “Renting of Immovable Property Services”, HC quashes AAI’s action of blocking assessees’ Escrow accounts : Delhi HC
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CESTAT, BANGLORE BENCH

Phoenix IT Solutions Ltd. (vs) Commissioner of Central Excise*, Visakhapatnam

Section 65(104c) of the Finance Act, 1994 - Business - Support services - Period 1-7-2003 to 30-9-2006 - Assessee under agreements with electricity companies provided billing and accounting services - In terms of contract, electricity department had to provide meter reading books on prescribed dates and assessee was required to enter data of meter readings, verify same, incorporate it in computer master and process bills - Whether above activity was classifiable under 'support services of business or commerce' - Held, yes [Para 18]

Section 65(104c) of the Finance Act, 1994 - Business - Support service - Period 1-7-2003 to 30-9-2006 - Assessee provided consumer indexing services to electricity companies which included identifying matters like, transformers connected to feeders, poles to be connected to distribution transformers, customers, making inventory, painting identification marks and numbers on these transformers and poles, etc.- Whether since above services provided by assessee solved logistics problems when complaints were received, services provided by assessee would be classifiable under 'support service of business or commerce' - Held, yes [Para 20]

Section 65(104c) of the Finance Act, 1994 - Business - Support service - Period 1-7-2003 to 30-9-2006 - Assessee provided energy audit service to electricity companies - Said energy audit was to find out difference between energy received and supplied to customers - Whether since by doing energy audit, assesse was assisting electricity companies in finding out whether all electricity received had been sold and if not, where was problem, what assessee was doing was nothing but management of distribution and logistics of electricity supplies which would be covered under support service of business or commerce - Held, yes[Para18]

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