Franchise Service - levy of Service tax whether on whole amount including commission paid to Principal company?

PJ/Case Laws/2012-13/1089

Case:M. POWER (ARENA MULTIMEDIA) V/S COMMISSIONER OF CENTRAL EXCISE, PUNE-II

Citation: 2012 (25) S.T.R. 239 (Tri-Mumbai)

Issue:- Franchisee Service – 20 percent commission to principal company - Whether service tax is payable on whole amount received before giving franchisee commission or on amount actually received?

Brief Facts:- Appellants run a Computer Training Centre and pay service tax under the category of “Commercial Coaching & Training Services”. They are a franchisee of the Aptech Ltd. Out of total receipt of service remuneration, they paid 20% to the Aptech Ltd and on the balance amount of 80% they are discharging their service tax liability. M/s. Aptech Ltd. is also paying service tax on 20%, which they received from the appellant.

Department took the view that appellants are liable to pay Service Tax on 100% of service remuneration received by them, if at all the remuneration is paid to the Aptech Ltd., they could take the input service credit for the services rendered to Aptech Ltd. Therefore, Show cause notice was issued for short payment of Service tax along with interest and proposal for penalties. The Adjudicating Authority confirmed the demand for service tax along with interest and penalties. Aggrieved by the above order, appellants filed appeal before the Tribunal.

Appellant’s Contention:- Appellant submitted that they were under the impression that they are a franchisee of M/s. Aptech Ltd., the amount shared by Aptech Ltd. is discharging service tax on it, therefore, they are liable to pay service tax on balance amount, which actually they received. It is not in dispute that Aptech Ltd. has not discharged service tax liability. Therefore, there is no loss of the revenue in transaction or the services rendered by the appellant. Moreover, when they will pay the service tax on 20%, they will be entitled for Service Tax credit on same.

Reasoning of Judgment:- The Tribunal noted that it is admitted fact that assessee is liable to pay service tax on the whole amount of services rendered. If they have paid a certain amount as a franchisee commission to their principal, they have to pay service tax on that and are entitled to take input service credit of the same. As appellants were bona fide belief that the amount of services rendered by them, which has been shared by Aptech Ltd, they are not liable to pay the service tax, appellants are entitled to get benefit of provisions of Section 80 of the Finance Act, 1994. Therefore, penalty against the appellants is dropped.

Decision:- Appeal disposed off.

Comment:- The service tax is payable on the whole amount and not on the amount which is retained after paying the Franchiser. This is very landmark decision and underlines that taking of credit will not alter the position and the service tax is to be paid on the entire amount.

Comments

PJ/Case Laws/2012-13/1089

Post a Comment

Query