Appellant Liable for Service Tax on Franchise Royalty

The Commissioner held that the appellant's activity constituted "Franchise Service," requiring payment of Service tax on royalty to a foreign company. The appellant's engagement in training programs using materials from the foreign company, as the sole franchisee in India, fell under the definition of franchise service. Despite the appellant's argument of profit-sharing and prior tax payment, the lack of evidence led to the rejection of their appeal. The decision affirmed the Lower Adjudicating Authority's ruling, establishing the appellant's liability for Service tax on the royalty amount paid.

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Issues involved:
1. Whether the appellant's activity is taxable under the category "Franchise Service."
2. Whether the appellant is liable to pay Service tax on the Royalty amount paid to the foreign company during the disputed period.

Detailed Analysis:

Issue 1: Whether the appellant's activity is taxable under the category "Franchise Service."
The appellant, engaged in providing Commercial Training and Coaching Services, paid royalty to a USA-based Franchiser for the use of logo and study materials. The Department issued a Show Cause Notice proposing Service Tax on the royalty. The appellant argued that no services were received from the foreign company and that the payments were profit-sharing. However, the Commissioner found that the appellant's activity fell under the definition of "franchise service" as per the agreement with the foreign company. The appellant was the only franchisee in India, conducting training programs using the foreign company's materials, making the activity taxable under franchise service.

Issue 2: Whether the appellant is liable to pay Service tax on the Royalty amount paid to the foreign company.
The Commissioner examined the agreement between the appellant and the foreign company, which defined the roles of franchisor and franchisee. The agreement indicated that the appellant acted as the Master distributor, marketing the training program and paying royalty to the foreign company. The Commissioner concluded that the appellant was liable to pay Service tax on the royalty charges under "Franchise Service." Despite the appellant's claim of already collecting and paying Service tax on fees, no evidence was provided to support this, leading the Commissioner to reject the appellant's contention. Consequently, the Commissioner upheld the Lower Adjudicating Authority's Order-in-Original and rejected the appeal.

In summary, the Commissioner determined that the appellant's activity qualified as "Franchise Service," making them liable to pay Service tax on the royalty amount paid to the foreign company. The decision was based on the agreement terms and lack of evidence supporting the appellant's claim of already paying Service tax on the fees collected.

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