Kerala High Court rules courier service not subject to franchise service tax.

The High Court of Kerala allowed the appeals of a courier service agency, setting aside the Customs, Excise & Service Tax Appellate Tribunal's decision to levy service tax on the appellant for franchisee services under the Finance Act, 1994. The Court ruled that the appellant's courier service with Franchisees did not constitute 'franchise service' as defined in the Act, thereby eliminating the basis for double taxation of the service charges. The Court directed the tax department to verify service tax remittances by Franchisees based on the appellant's submissions.

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Issues:
Challenge to levy of service tax on courier service agency for franchisee service under the Finance Act, 1994.

Analysis:
The High Court of Kerala heard appeals filed by a courier service agency against Customs, Excise & Service Tax Appellate Tribunal's orders upholding the levy of service tax on the appellant for franchisee service under the Finance Act, 1994. The appellant engaged agents named Franchisees who collected articles from customers along with service charges and remitted service tax to the Central Excise Department. The appellant shared service charges with Franchisees based on agreements. The Tribunal assessed the net amount retained by the appellant for franchise service, leading to double taxation under 'tax on courier service' and 'tax on franchise service'. The appellant approached the Court under section 35G of the Central Excise Act, 1944, challenging the Tribunal's decision.

The Court noted that while second appeals against non-compliance with pre-deposit orders are not maintainable, a connected appeal was decided on merit by the Tribunal. The appellant's primary activity was courier service involving collection and delivery of articles. The service charges collected were shared between the appellant and Franchisees. The issue was whether the net service charges retained by the appellant after payment to Franchisees were subject to further tax under 'franchise service'. The Court analyzed Section 67 and found no provision in the Finance Act, 1994 for double taxation of the same service charges. It held that the appellant's courier service with Franchisees did not fall under 'franchise' as defined in the Act.

The Court clarified that a franchise agreement involves representational rights and payments for using the franchisor's name or trademark, which was not the case with the appellant and Franchisees. The appellant was not providing services to Franchisees beyond appointing them for courier service. The only applicable tax provision was for courier service under Section 65(33) read with Section 65(105)(f) of the Act. The Court allowed the appeals, vacating the Tribunal's orders on tax and penalties, with a directive for the department to verify service tax remittances by Franchisees based on the appellant's submissions.

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