Franchisees Win Appeal Against Service Tax Liability

The Tribunal allowed the appeal in favor of the franchisees, setting aside the Order-in-Original confirming the service tax liability, interest, and penalty. Relying on precedents, including the decision in Martend Food & Dehydrates Pvt. Ltd., the Tribunal determined that the franchisees were not liable for service tax as BSNL had already discharged the tax liability upfront on the full value, inclusive of the commission received. Consequently, the appellants were granted consequential relief, and the Tribunal waived the pre-deposit, absolving the franchisees from the disputed service tax amount and penalties.

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Issues:
Service tax liability on franchisee for promotion and marketing services provided to BSNL without payment.

Analysis:
The case involved an appeal against an Order-in-Original confirming a service tax liability of Rs. 95,43,690 along with interest and penalty under Sections 76, 77, and 78 of the Finance Act, 1994, for the period from 1-10-2005 to 31-3-2010. The appellants, acting as franchisees of BSNL, were providing promotion, marketing, and distribution services for which they received commission but did not pay service tax. The adjudicating authority determined that the appellants provided Business Auxiliary service, making them liable for service tax and the associated penalties.

The appellants contended that BSNL had already discharged the service tax liability upfront on the full value, inclusive of the commission received by the franchisees. They argued that they were not liable to pay the disputed service tax amount. The appellants relied on various judgments of CESTAT, including one involving M/s. Martend Food and Dehydrates (P) Ltd. and Others v. CCE, Kanpur, to support their claim.

Upon reviewing the case and the judgments cited, the Tribunal referred to the decision in the case of Daya Shankar Kailash Chand v. CCE & ST, Lucknow, where it was noted that the issue before the Supreme Court regarding the value of SIM cards was different from the issue at hand. The Tribunal also highlighted the decision in the case of Martend Food & Dehydrates Pvt. Ltd., where it was held that the activity of purchase and sale of SIM cards, with BSNL discharging the service tax, did not constitute providing business auxiliary services. The Tribunal, following this precedent, set aside the impugned order and allowed the appeal in favor of the appellants, granting them consequential relief.

The Tribunal, considering the settled legal position based on the cited judgments, waived the pre-deposit, allowed the appeal, and set aside the Order-in-Original confirming the service tax liability, interest, and penalty against the franchisees.

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