Tribunal upholds service tax on Franchise Advertisement Fund & balance sheet amount, dismisses appeals

The Tribunal upheld the service tax liability on the Franchise Advertisement Fund and the unaccounted amount in the balance sheet. It dismissed the appeals, confirming that the Franchise Advertisement Fund is taxable as part of the gross value of the franchise service. The Tribunal also upheld the extended period for issuing the show cause notice, deeming it timely due to misrepresentation in the bifurcation of weekly gross sales to evade tax liability. The original adjudication was affirmed, and the appellant's arguments were found to lack merit.

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Issues Involved:
1. Service tax liability on the amount received as Franchise Advertisement Fund.
2. Service tax liability on the unaccounted amount shown as liability in the balance sheet.
3. Applicability of extended period for issuing the show cause notice.

Detailed Analysis:

1. Service Tax Liability on Franchise Advertisement Fund:
The primary issue revolves around whether the amount collected as Franchise Advertisement Fund (4.5% of weekly gross sales) should be included in the taxable value of the franchise service. The appellant argued that this amount does not qualify as a franchise service under Section 65(47) of the Finance Act, 1944, and should be excluded from the taxable value as it was collected as a pure agent without providing any service.

The Tribunal, however, held that the Franchise Advertisement Fund is an integral part of the gross value received for providing franchise services. The Tribunal emphasized that Section 67 of the Finance Act mandates that the value of taxable services includes the gross amount charged by the service provider. The Tribunal concluded that the bifurcation of the weekly gross sales into royalty (8%) and Franchise Advertisement Fund (4.5%) does not exclude the latter from the taxable value. The Tribunal supported this conclusion by referring to the master license agreement and the definition of franchise service, which includes any process identified with the franchiser, including advertising.

2. Service Tax Liability on Unaccounted Amount in Balance Sheet:
The appellant conceded the liability regarding the unaccounted amount shown as a liability in the balance sheet and confirmed that the tax along with interest and proportionate penalties had been paid. Therefore, this issue was not contested further.

3. Applicability of Extended Period for Issuing the Show Cause Notice:
The appellant contended that the show cause notice was barred by time. The Tribunal rejected this argument, stating that the bifurcation of weekly gross sales was a strategy to evade tax liability, constituting misrepresentation. Consequently, the Department was justified in invoking the extended period under proviso to Section 73(3) of the Finance Act. The show cause notice dated 13 February 2009 for the period April 2007 to March 2008 was deemed timely.

Conclusion:
The Tribunal upheld the original adjudication confirming the service tax demands on the Franchise Advertisement Fund and the unaccounted amount in the balance sheet. The Tribunal dismissed the appeals, affirming that the Franchise Advertisement Fund forms part of the gross value of the franchise service and is taxable. The invocation of the extended period for the show cause notice was also upheld. The Tribunal found no merit in the appellant's arguments and maintained the order under challenge.

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