2009 (8) TMI 414 - AT - Service Tax

Appellate Tribunal CESTAT Upholds Decision on Service Tax Liability for Franchise Fees & Royalty

Commissioner of Central Excise, Indore Versus Mastermind Classes (P.) Ltd.

The Appellate Tribunal CESTAT, New Delhi, upheld the Commissioner's decision regarding service tax liability on franchise fees and royalty, emphasizing ... Service tax liability- franchise fees and royalty- whether the service tax was payable on part of royalty and franchise fees? The revenue made a demand of service tax, as the word ‘service to be provided’ has been inserted in the act w.e.f. 16.06.2005, thus service tax realized by the assessee prior to providing service needed to be deposited. Commissioner (Appeals) was of the view that franchisee fees collected during the period prior to levy of service tax on franchisee fees should not be taxed. But the evidence that had been relied by the Commissioner (Appeals) had not been disclosed except the submission of the assessee which received his consideration. Held that- the matter is remand back for thorough examination on the basis of the evidence. Issues: Revenue's appeal against the order on service tax liability, franchise fees, and penalty imposition.In this judgment by the Appellate Tribunal CESTAT, New Delhi, the Revenue appealed against the order passed by the Commissioner (Appeals) regarding the service tax liability on royalty and franchise fees, as well as the penalty imposition. The Revenue contended that service tax realized by the respondent before providing the service should have been deposited into the treasury, as per the Finance Act, 1994. The Tribunal noted that the Commissioner had held that franchise fees collected before the levy of service tax should not be taxed, a proposition with which the Tribunal agreed. However, the Tribunal emphasized the need for documentary evidence to support such decisions to apply the law accurately.Regarding royalty, the Tribunal observed that the Commissioner had granted partial relief to the respondent but had not specified the quantum of relief based on the evidence before him. The Tribunal highlighted the necessity of demonstrating the evidence supporting relief for the 'service to be provided,' emphasizing that service not provided cannot be taxed without an express provision of law at the material time. The Tribunal cited a previous case law to support this position. Consequently, the Tribunal remanded the matter to the Commissioner for a proper order based on evidence and a fair opportunity for both sides to be heard.The judgment also addressed a dispute concerning service tax on application fees, where the Commissioner had correctly distinguished them from franchise fees. The Tribunal agreed with this distinction, indicating that the Revenue did not succeed on this issue. Additionally, the Tribunal highlighted the importance of a thorough examination based on evidence, emphasizing the need for a reasoned and speaking order to avoid further litigation. As a result, the appeal was remanded to the Commissioner for further consideration on the issues of franchise fees, royalty, and penalty imposition.Lastly, the Tribunal noted that there was no grievance from the Revenue regarding the penalty aspect, but allowed the Commissioner the liberty to reconsider the penalty independently when reviewing the case. The judgment concluded by remanding the appeal to the Commissioner for a limited extent as indicated above, ensuring a fair and thorough examination of the evidence and legal considerations involved in the case.