Accreditation by ICANN cannot be treated as representing ICANN and ICANN accredited registries cannot be treated as franchisee of ICANN.
Appellant is engaged in the activity of registration of website domain names i.e. appellant is a registrar. The appellant is also accredited by International Corporation for Assigned Names and Numbers (ICANN) for certain top level domains. The appellant is registering domain names permitted by ICANN and ICANN accredited registries. The appellant is paying fee as per agreements, fixed and variable to ICANN and various registries (who are also accredited by ICANN).
The first Show Cause Notice dated 4.2.2011 is issued for the period from March 2006 to November 2010 and is in respect of the foreign remittance made by the appellant during the said period to the ICANN and ICANN accredited registries. The demand is on reverse charge basis.
The appellant has been appointing resellers for worldwide services of registration, renewal, cancellation, deletion of domain names and has been collecting charges for the services rendered.
From the mission and core values as also the agreement between ICANN and the appellant we are not able to find out any service or a process for which ICANN is associated and is being provided by the appellant. Appellants provided registrar service as per the powers under Article II of powers for ICANN, ICANN is prohibited from acting as registrar. From the agreements or from the bylaws, we are not able to find any process that has been developed by the ICANN and being used by the appellants. We find what is being done by the ICANN is to set minimum standards for the performance of registration function and recognize that the appellants are meeting those standards. Revenue has not been able to pinpoint to us either any service or any process for which ICANN is known and that process is being used or being provided by the appellants. In the absence of any such service or process we are unable to agree with the Revenue that the appellants are franchise service of ICANN. Even the agreement which permits the use of ICANN symbols clearly indicates that appellants are ICANN Accredited Registrar and nothing beyond that. We are in agreement with the appellant’s submission that accreditation and representing the ICANN are two different things and the appellants are only accredited by ICANN and they are not representing ICANN.
Resellers cannot be considered as franchisee or associate franchisor of ICANN
First of all, we observe that the resellers are specifically prohibited from using the name of ICANN. They only represent the appellant. In fact they are reselling the services of registrar being provided by the appellant. After selling the services of the registrar they remit the money to the appellant as per the agreement. We find that the agreement is of a nature of principal to principal basis and resellers cannot be considered as franchisee or associate franchisor of ICANN.
In fact, we have already held earlier that appellant cannot be considered as a franchisee of ICANN and therefore resellers cannot considered as franchisee of the associate franchisor. In view of above position, in our view the Revenue’s contention that the resellers are providing the franchisee services of the ICANN does not hold water. In view of the above analysis we do not find any strength in the second demand notices also. Accordingly we hold no service tax is leviable under the franchise service and hence demand and penalties are not sustainable.
Submitted by – Vinay Muraraka