Chartered Accountant
Bookmark and Share
click here to subscribe our newsletter
 
 
Corporate News *   CBIC issues draft rules for Customs valuation *  Top Headlines: Threshold for Benami deals, green bond investors, and more *  Govt aims 1-hour clearance for goods at all ports *  Exporters Allowed To Use RoDTEP, RoSCTL Scrips To Pay Customs Duty, Transfer Them; Rules Amended *  Millions of labourers to be affected by brick producers’ strike over hike in GST, coal rates *  Inauguration of ‘kendriya GST parisar’ *  Transporter can seek Release of Conveyance alone, not Goods under GST Act: Madras HC *  GST: Quoting of DIN Mandatory for Responding to Notice, Govt Modifies Portal *  Firms can soon file claims for GST credits of ?400 cr *  CBIC issues modalities for filing transitional credit under GST. *  Mumbai: Man creates 36 fake GST firms, arrested for input tax credit fraud of Rs 23 cr *  Report to restructure Commerce Ministry under study; idea is to set up trade promotion body: Goyal *  Firms can soon file claims for GST credits of ?400 cr *  Gambling Alert! Govt May Levy Up To 28% GST; UP, Bengal Back Move *  EPFO backs raising retirement age to ease pressure on pension funds *  India Moving Up Power Scale, Set to Become Third Largest Economy By 2030 *  Airfares Get Expensive: What Changes for Flyers From Today? *  IRCTC Latest News: Passengers to Pay More For Cancelling Confirmed Rail Tickets Soon. *  IBC prevails over Customs Act, says Supreme Court. *  As GST enters sixth year, a time for evaluation and reassessment *  There’s GST on daily essentials as Centre needs money to buy MLAs: Arvind Kejriwal *  Now, GST on cancellation of confirmed train tickets, hotel bookings *  GST kitty for top States could rise 20% in FY23, says Crisil *  French customs officials seize another cargo vessel over Russia sanctions *  TradeLens builds on Asia momentum with Pakistan Customs deal *  Hike tax on tobacco, reduce affordability & increase revenue: Civil society organizations to GST council *  Bihar: ?10 crore tax evasion on tobacco products detected in raids *  Centre failed on GST, COVID; would it be anti-national? Rajan on Infosys row *  Service Tax not Chargeable on Income Tax TDS portion paid by recipient: CESTAT grants relief to TVS *  Foreign portfolio investors make net investment of Rs 7575cr in Sep so far
Subject News *  Run-up to Budget: Monetary threshold for GST offences may rise to Rs 25 cr *   GST (Tax) E-invoice Must For Businesses With Over Rs 5 Crore Annual Turnover *   Both Central GST and excise duty can be imposed on tobacco, rules Karnataka high court *   CBIC Issues Clarification On Extended Timelines For GST Compliance *   CBIC Issues Clarification On Extended Timelines For GST Compliance *  Budget 2023- 9.6 crore gas connections *  GST: Tamil Nadu Issues Instructions for Assessment and Adjudication Proceedings *  GST: CBIC Extends Last Date for filing of ITC *  GST collection in September surpasses Rs 1.4 lakh crore for straight seventh time *  Dollar smuggling case: Customs chargesheet names M Sivasankar as key conspirator. *  Hike in GST rates fuels inflation *  Assam: CBI arrests GST commissioner in Guwahati *  GST fraud worth ?824cr by 15 insurance Cos detected *  India proposes 15% customs duties on 22 items imported from UK *  Decriminalising certain offences under GST on cards *  Surge in GST collections more due to higher inflation: India Ratings *  MNRE Notifies BCD and Hike in GST Rates as ‘Change in Law’ Events But With a Condition | Mercom India *   Solar projects awarded before customs duty change allowed cost pass-through *  Rajasthan High Court Dismisses Writ Petitions Challenging Levy Of GST On Royalty *   GST revenue in September likely at Rs 1.45 lakh crore *  Govt working on decriminalising certain offences under GST, lower compounding charge *  Building an institution like GST Council takes time, trashing is easy: Sitharaman *  GST collections in Sept may touch ?1.5 lakh crore *  KTR asks Centre to withdraw GST on handlooms *  After Gameskraft, More Online Gaming Startups To Receive GST Tax Claims *  Madras HC: AAR Application Filed Under VAT Does Not Survive After GST Enactment *  Threshold for criminal offences under GST law may be raised *  Bengaluru: Gaming company faces biggest GST notice of Rs 21,000 crore *  CBIC clarifies Classification of Cranes for GST, Customs Duty *  Customs seize gold hidden in bicycle in Kerala airport  

Comments

Print   |    |  Comment

PJ/CASE LAW/2016-17/3217

Whether service tax has to be levied on franchise service provided prior to the introduction of condition (iv) under section 65(47) of the Finance Act 1994?

Case-SAANJ AND SAVERA EDUCATIONAL WELFARE TRUST Versus COMMR. OF S.T., DELHI
 
Citation- 2016 (41) S.T.R. 458 (Tri. - Del.)


Brief Facts- Stay application along with appeal has been filed against order-in-appeal dated 20-8-2013 which upheld the order-in-original dated 31-3-2011 in terms of which service tax demand of Rs. 6,60,338/- was confirmed along with interest and penalties and an amount of Rs. 3,42,355/- towards service tax and Rs. 36,942/- towards interest deposited by the appellant was appropriated. It is seen that the penalty imposed in this case was Rs. 3,17,983/- under Section 78 and this amount represented the difference between the total demand of Rs. 6,60,338/- confirmed and Rs. 3,42,355/- deposited and appropriated. The demand was confirmed under franchisee service.
 
Appelants Contention-The appellant has contended that :
(i)     It had entered into a franchise agreement with the franchisee in terms of which it gave right to use the name Shemrock to the franchisee for running a pre-preparatory/preparatory school.
(ii)    After the amendment to the definition of franchise with effect from 16-6-2005, it has paid service tax due along with interest which has also been appropriated.
(iii)   It contended that prior to 16-6-2005 the definition of franchise under Section 65(47) of the Finance Act, 1994 was as under :
“Franchise” means an agreement by which -
(i)     the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved;
(ii)    the franchisor provides concepts of business operation to franchisee, including know-how, method of operation, managerial expertise, marketing techniques or training and standards of quality control except passing on the ownership of all know-how to franchisee;
(iii)   the franchisee is required to pay to the franchisor, directly or indirectly, a fee; and
(iv)   the franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.”
It pleaded that its franchise agreement satisfied the conditions (i), (ii) and (iii) above, the condition (iv) was not satisfied, inasmuch as the franchise was not under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person and therefore the service tax was not leviable during the period prior to 16-6-2005.
 
Respondents Contention-The ld. DR, on the other hand, stated that under franchise agreement the franchisee was under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person and therefore service tax was leviable even prior to 16-6-2005

Reasoning Of Judgement-The tribunal has considered the contentions of both sides. It is seen that there is no dispute about leviability of service tax under franchise service with effect from 16-6-2005 and that amount has already been paid along with interest and duly appropriated. Indeed we find that while imposing penalty under Section 78 ibid only the amount of service tax leviable for the period prior to 16-6-2005 has been taken into account and no penalty was levied in relation to the amount of service tax leviable with effect from on 16-6-2005. As is evident from the forgoing the only issue involved in this case is whether condition No. (iv) of the definition of franchise given in Section 65(47) of Finance Act, 1994 was satisfied in terms of the franchise agreement entered into by the appellant. The Tribunal finds that the condition in this regard in the agreement is as under :
  “In case this franchise agreement is cancelled, the name of the school and children on rolls will be the exclusive rights of the first party and the school will be taken over by the franchisor. The franchisee will not open any school with any name in the existing premises/building operational area of the school for a period of two years after the cancellation of this agreement.”
A careful perusal of the above quoted condition reveals that franchisee was obliged not to open any school with any name in the existing premises/building operational area of the school. In other words, the franchisee was free to open any school with any name in a “different premises/building operational area of the school”. Thus in Tribunal’s view condition No. (iv) of the definition of franchise quoted above is not satisfied in the present case and consequently the agreement does not fall in the category of franchise agreement as defined under Section 65(47) ibid prior to 16-6-2005. In the case of Dewsoft Overseas Pvt. Ltd. v. CST, New Delhi - 2008 (12)S.T.R.730 (Tri.-Del.), the CESAT inter alia held as under :
 “During the period of dispute, as per the definition of the word “franchise” as given in Section 65(47) the franchise agreement, which attracted service tax was to satisfy four conditions, and if the Revenue wants to subject a person to service tax under this entry, the burden of proving that the agreement between that person and his client is a “franchise agreement” within the meaning of this term, as defined under Section 65(47) of the Finance Act, 1994, would be on the Revenue.”
  In the light of the aforesaid discussion, the Tribunal allows the appeal to the extent that no service tax is leviable under franchise service prior to 16-6-2005 and consequently the demand, interest and penalty relating to the period prior to 16-6-2005 are set aside.
 
Decision- Appeal allowed

Comment- In accordance withSection 65(47) of Finance Act, 1994 [paras 4, 5] ,since the Appellant was running schools as a franchisee , a condition in agreement only prohibited the appellant to open any other school with any other name in existing premises/building operational area of school. Appellant was free to open any school with any other name in any other premises .Since the condition (iv) to Section 65(47) of Finance Act, 1994, as it existed prior to aforesaid date is not satisfied , Appellant is not liable for Service Tax
 Therefore,the Tribunal allowed the appeal to the extent that no service tax is leviable under franchise service prior to 16-6-2005 and consequently the demand, interest and penalty relating to the period prior to 16-6-2005 are set aside.
 
Prepared By- Praniti Lalwani
 
 

Department News


Query

 
PRADEEP JAIN, F.C.A.

Head Office : -

Address :
"SUGYAN", H - 29, SHASTRI NAGAR, JODHPUR (RAJ.) - 342003

Phone No. :
0291 - 2439496, 0291 - 3258496

Mobile No. :
09314722236

Fax No. :0291 - 2439496


Branch Office : -

Address:
1008, 10th FLOOR, SUKH SAGAR COMPLEX,
NEAR FORTUNE LANDMARK HOTEL, USMANPURA,
ASHRAM ROAD, AHMEDABAD-380013

Phone No. :
079-32999496, 27560043

Mobile No. :
093777659496, 09377649496

E-mail :pradeep@capradeepjain.com