Revenue wins in franchise service dispute, demand for service tax upheld. Extended limitation period applied.

The tribunal upheld the Revenue's contention that the appellant provided franchise service to its subsidiary, GTBPL, by transferring rights to collect toll and maintain a bridge, despite the appellant's argument that GTBPL was an associate, not a franchisee. The demand for service tax and Education Cess, along with interest, was confirmed. The tribunal found the extended period of limitation rightly invoked due to the appellant's suppression of facts. The matter was remanded for computing service tax based on cum-tax value, with penalties upheld.

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Issues Involved:
1. Classification of service provided by the appellant to GTBPL as franchise service under section 65(105)(zze) of the Finance Act, 1994.
2. Demand for service tax and Education Cess along with interest and penalties.
3. Validity of invoking the extended period of limitation.
4. Determination of cum-tax value for the computation of service tax.

Detailed Analysis:

Issue 1: Classification of Service as Franchise Service
The appellant, a Multi-disciplinary Engineering & Construction firm, entered into an agreement with the Government of Andhra Pradesh to construct and maintain a bridge on a Build-Operate-Transfer (BOT) basis. The appellant was prohibited from assigning their rights under the agreement to any party other than financial institutions. Despite this, the appellant formed a 100% subsidiary, GTBPL, and transferred the rights to collect toll and maintain the bridge to GTBPL for a consideration. The Revenue contended that this arrangement fell under the definition of "franchise service" as per section 65(105)(zze) of the Finance Act, 1994. The appellant argued that there was no franchisor-franchisee relationship and that GTBPL was their associate, not a franchisee. However, the tribunal found that the appellant had provided franchise service to GTBPL as GTBPL was rendering services in the name of the appellant and collecting toll fees, which falls under the definition of franchise service.

Issue 2: Demand for Service Tax and Education Cess
The Commissioner confirmed the demand of service tax amounting to Rs. 12,50,00,000/- and Education Cess of Rs. 25,00,000/- along with interest under section 75 of the Finance Act, 1994. The appellant argued that the consideration received for the construction of bridges is exempted from service tax under the taxable category of works contract and that the right to collect toll is not a representational right. The tribunal, however, upheld the demand, stating that the appellant had indeed received consideration for providing franchise service.

Issue 3: Validity of Invoking the Extended Period of Limitation
The appellant contended that the demand was time-barred and that there was no evidence of fraud, collusion, wilful misstatement, or suppression of facts. The tribunal found that the arrangement between the appellant and GTBPL was not disclosed to the Revenue and was done through internal Board resolutions. The tribunal held that the extended period of limitation was rightly invoked due to the suppression of facts and intent to evade payment of service tax.

Issue 4: Determination of Cum-Tax Value
The appellant argued that if the case is decided against them on merits, the value of the service should be taken as cum-tax value. The tribunal agreed with this argument and remanded the matter back to the original authority for the limited purpose of computing the service tax, taking the amounts received as cum-tax value and making corresponding changes in the interest and penalty amounts.

Conclusion:
The appeal was disposed of with the following directions:
a) The demand of service tax invoking the extended period of limitation along with interest was upheld.
b) The service tax must be computed taking the amounts received as cum-tax value.
c) The imposition of penalty under section 78 was upheld.
d) The matter was remanded to the original authority for the limited purpose of computation of the service tax, taking the amounts received as cum-tax values and corresponding changes in the interest and penalty amounts.

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