2019 (12) TMI 943 - AT - Service Tax

Tribunal rules VSAT fee not a franchise service for tax purposes, sets aside order on limitation and merits.

M/s. Manipal Universal Learning Pvt. Limited Versus The Commissioner of Central Excise

M/s. Manipal Universal Learning Pvt. Limited Versus The Commissioner of Central Excise - 2020 (372) E.L.T. 408 (Tri. - Bang.) Issues Involved:1. Whether VSAT (Very Small Aperture Terminal) fee (both one-time fee for supply of goods and actual usage charges) charged for supply of VSAT equipment is liable for service tax under 'franchise service' under sections 65 (105) (zze) read with Sections 65(47) & (48) of the Finance Act, 1994.2. Whether demands are wholly barred by limitation.Issue-wise Detailed Analysis:1. Liability of VSAT Fee under 'Franchise Service':The appellant argued that the agreements with Sikkim Manipal University (SMU) and the Learning Centres were for providing auxiliary education services and not “franchise services” as defined in section 65(105)(zze) read with Section 65(47) & (48) of the Finance Act, 1994. The appellant believed that the VSAT equipment hire charges were related to chattel hire, falling within the definition of sale under Article 366 of the Constitution, and not a service.The tribunal agreed with the appellant, noting that the agreements did not grant any 'representational right' to the appellant or the Learning Centres. The agreements were primarily for providing infrastructure and services related to distance education programs. The tribunal found no evidence in the agreements indicating that the Learning Centres were given a franchise by providing the VSAT. The tribunal also noted that the appellant did not receive any royalty towards the alleged franchise service.The tribunal referred to CBEC Circular No.59/8/2003 dated 20-6-2003, which clarified that for an agreement to be considered a franchise, it must satisfy certain ingredients, including the grant of representational rights and payment of a fee to the franchiser. The tribunal found that these ingredients were not present in the appellant's case.The tribunal concluded that the agreements could not be termed as 'franchise' agreements, and therefore, service tax under that head was not leviable. The tribunal also cited the case of IMA Mental Arithmetic Academy Pvt Ltd Vs CST, 2019 (22) GSTL 234 (Tri-Che.), which held that only amounts directly related to the representational right granted by the franchisor to the franchisee were taxable under 'franchise' service.2. Limitation:The appellant contended that the department was not justified in invoking the extended period of limitation since all facts were on record and within the knowledge of the department. The appellant had been in continuous correspondence with the department and had been subjected to periodic visits and adjudication proceedings on several issues in the past.The tribunal found that the department had issued an earlier Show Cause Notice (SCN) dated 11.3.08 for the same period based on the same set of contracts and documents. Therefore, the department could not allege suppression of facts or any ingredients envisaged in the proviso to Section 73 to saddle the appellant with charges of a quasi-criminal nature once again.The tribunal referred to the Apex Court's judgment in the case of Nizam Sugar Factory (Supra), which held that the department could not issue a second SCN for the same period based on the same facts. The tribunal concluded that the SCN and the Order-in-Original (OIO) were liable to be set aside on the grounds of limitation.Conclusion:The tribunal held that the impugned order did not survive both on limitation and merits and was therefore set aside. The appeal was allowed with consequential relief, if any, as per law. The tribunal noted that the activity of supplying VSAT could at best come under the activity of 'supply of tangible goods' vide Section 65(105)(zzzzj) of the Act w.e.f. 16.5.2008, but the SCN had not demanded duty under this category, so discussion on the same was not warranted. The tribunal also found that the VSAT usage fee was in the nature of telecommunication costs apportioned and recovered as reimbursement, and such charges were not liable to service tax.