AUTHORITY FOR ADVANCE RULINGS
(CUSTOMS & CENTRAL EXCISE)

PRESENT

O R D E R
(By  Mr. Justice Syed Shah Mohammed Quadri)

            In this application under Section 96C of the Finance Act, 1994 (hereinafter referred to as the Finance Act), the applicant seeks an advance ruling from this Authority on the question:

            "Applicability of service tax on agreements executed for franchise services prior to the date of introduction of service tax i.e. 1st July, 2003."

          Having regard to the provisions of sub-Section 2 of Section 96D of the Finance Act, we have perused the application, the comments received from the Commissioner and having perused the technical note tentatively we are of the opinion that the application is liable to be rejected. A notice in terms of the second proviso to sub-Section 2 of Section 96D shall be issued to the applicant to explain as to why the application should not be rejected on the grounds:

(a) that the activity has already been commenced and therefore is not the one which is proposed to be undertaken.

(b) that the question now raised before the Authority is pending  consideration of the Central Excise Officer.

2. Mr. Sridharan, learned Counsel, appearing for the applicant takes notice and requests for waiver of issuing of written notice to the applicant. He proposes to argue the point in regard to the maintainability of the application.

3. We have heard the learned counsel and the learned Departmental representative.

4. To appreciate the question of maintainability of the application on the first ground, it will be useful to refer to certain provisions of the Finance Act. Section 96D which deals with the procedure on receipt of application, inter alia, provides:

          "(2) The Authority may, after examining the application and the records called for, by order, either allow or reject the application;

            Provided that the Authority shall not allow the application where the question raised in the application is, -

          (a) already pending in the applicant's case before any Central Excise    Officer, the Appellate Tribunal or any Court;  

          (b) the same as in a matter already decided by the Appellate Tribunal    or any Court;  

          Provided also that where the application is rejected, reasons for such   rejection shall be given in the order"

5.  A perusal of the main provision requires the Authority to examine the application as to whether it should be allowed in the sense of entertaining or admitting the application so as to pronounce an advance ruling under the provisions of the Act or whether it should be rejected. Here, it would be relevant to notice the meaning of the expressions " advance ruling" defined in clause (a) and "applicant" contained in clause (b) of Section 96A of the Finance Act. The said clauses are quoted below:

           (a) "advance ruling" means the determination by the Authority of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided, by the applicant;

          (b) "applicant" means -

(i) a non-resident setting up a joint venture in India in  collaboration with a non-resident or a resident; or

(ii) a resident setting up a joint venture in India in collaboration  with a non-resident; or

(iii) a wholly owned subsidiary Indian Company, of which  the    holding company is a foreign company,  who proposes to undertake any business activity in India and makes    application for advance ruling"

6.   Now adverting to the expression "advance ruling", referred to above, it means the determination of a question of law or fact specified in the application regarding the liability to pay service tax in relation to a service proposed to be provided by the applicant. Of the afore-mentioned 3 sub- clauses of sub-Section (b) which defines the term "applicant", the applicant falls under sub-clause (iii) which refers to a wholly owned subsidiary Indian company, of which the holding company is a foreign company. A combined reading of the afore-mentioned provisions in the light of the scheme of the Act suggests that an applicant who is yet to commence his business activity can, if he so desires, avail the benefit of seeking advance ruling from the Authority on a question of law or fact regarding his liability to pay service tax in relation to a service proposed to be provided by him. Obviously, the benefit of seeking advance ruling from the Authority would not apply in the case of an ongoing business or undertaking which has already commenced the business.

7.      The contention of Mr. Sridharan, learned counsel of the applicant, is that inasmuch as the applicant is a wholly owned subsidiary Indian company which postulates existence of the company as well as carrying on the business by such a company, so it is end to seek advance ruling from the Authority, therefore, preliminary objection is not tenable. We are afraid, we cannot accept the contention of the learned counsel.  The reading of the said provision suggested by the learned counsel, would amount to ignoring the latter part of sub-clause (b) of Section 96A which says that the  applicant "who proposes to undertake any business activity in India and makes application for advance ruling". The words 'proposes to undertake'    read with sub-clause (iii) afore-mentioned unmistakeably indicates that the activity ought not have been begun as on the date of filing of the application.

8. In the instant case, the applicant, MIs. McDonald's India Private Ltd., entered into Franchise Agreement with Hardcastle Restarurants Private Ltd. and Amit Jatia, a citizen of India, and with Connaught  Plaza Restaurants Pvt. Ltd. and Vikram Bakshi, under which Franchise, the right, licence and privilege were granted for a period of 20 years from the date of opening of restaurant. The Franchise Agreements were executed on 24.11.1998 and on 7.02.2000 respectively for a period of 20 years from the date of opening of restaurant and the business had already commenced. While so, by notification No. 7/2003 application of service-tax was notified in respect of franchise services category from 1.7.2003. Admittedly, in this case, the petitioner's business was continuing when the provisions of the Act were brought in force in respect of franchise service category as on 1 July, 2003.

9. The application would, therefore, be not maintainable for the afore- mentioned reasons. The application is rejected on the first ground. In this view of the matter we do not consider it necessary to go into the question of validity of the second ground of rejection.

NEW DELHI
DATED: 23.02.2004
 

F.N. AAR/44/103/2003