CESTAT,
Speed and Safe Courier Service
v.
Commissioner of Central Excise,
Dr. S.L. Peeran,
Judicial Member
and T.K. Jayaraman, Technical
Member
Final
Order No. 1384 of 2007
Service
Tax Appeal No. 323 of 2006
December 6, 2007
FRANCHISE SERVICE
Section 65 of the Finance Act, 1994 -
Franchise service - Period 1-7-2003 to 31-12-2004 - Assessee
was providing ‘courier service’ through its designated franchisees - Service
tax was demanded from it on amounts received from franchisees under category of
‘Franchise service’ - Assessee contended agreement
between it and franchisees could not be strictly called Franchise agreement;
and its franchisees had collected amounts for rendering courier service from
their clients, and discharged appropriate service tax liability after taking
their commission in terms of agreement with it and remitted balance to it and,
therefore, demanding service tax from it under category of ‘Franchise service’
amounted to double taxation - On reading of Franchise agreement in question, it
was found that assessee had entered into franchise
agreement with various clients for providing courier service; and amount which
was received by assessee as franchiser was obviously
receipt for rendering franchise service - Whether in circumstances assessee was clearly liable for discharging service tax
liability on this service - Held, yes
>> Facts
The assessee was
engaged in providing ‘Courier Service’ in different parts of the country
through its own branches as well as through its designated franchisees. The
revenue proceeded against the assessee on the ground
that it had not discharged the service tax liability in respect of the amounts
collected by it towards ‘Franchise Service’ which became a taxable service with
effect from 1-7-2003. The Commissioner confirmed the demand along with interest
and penalties.
On appeal, the assessee
contended that the franchisees were actually the agents of the assessee and the agreement between the assessee
and the franchisees could not be strictly called the ‘Franchise Agreement’ and
therefore, it was not liable for payment of service tax under the category of
‘Franchise Service’. The assessee further contended
that the franchisees were already registered with the Service Tax Department
they collected the amounts for rendering courier services from their clients
and they discharged the appropriate service tax after taking their commission
in terms of the agreement and thereafter remitted the balance amount to it and,
therefore, demanding service tax from it under the
category of ‘Franchise Service’ amounted to double taxation.
>> Held
The Commissioner had examined the issue with
reference to the agreement entered into by the assessee
with various franchisees. The agreement was described as ‘Franchise Agreement’.
On a reading of the ingredients of ‘Franchise Services’ as given in section 65,
and also in the ‘Franchise Agreement’ in question, it was very clear that the assessee had entered into franchise agreement with various
clients for providing courier service. It was difficult to hold that such
franchisees were agents of the assessee. No doubt,
the franchisees were rendering courier services and service tax liability had
been discharged by them on the amounts collected. However, in terms of the
agreement, the commission which was to be given to the franchisees was
mentioned and the balance of the amount collected by them was payable to the
franchiser. This amount which was received by the franchiser was obviously
receipt for rendering the franchise service. Since franchise service had been
brought under the service tax net, the assessee was
clearly liable for discharging the service tax liability on this service and
demanding this amount from it could not be objected to by the assessee on the ground that it amounted to double taxation.
There was no double taxation at all. What was sought to be taxed at the instant
stage was the gross receipt of the assessee for the
franchise services rendered. In fact, the adjudicating authority’s finding had
clearly dealt with this point. Therefore the demand of service tax under the
category of ‘Franchise Service’ was in order. The decision of the Commissioner
in demanding the service tax and imposing penalty could not be interfered with.
However, having regard to the facts and circumstances of the case, the penalty
imposed on assessee under section 78 was to be
reduced to Rs. 5,00,000. The
impugned order was to be modified to that extent only. [
Ms. Sreelatha
Nair for the Appellant. K. Sambi Reddy
for the Respondent.
nn