Revenue-sharing business model not treated as Business Support Service; service tax demand and penalty were set aside.

A revenue-sharing arrangement for allowing licensees space, power supply and billing support for food and beverage operations was held not to constitute Business Support Service, because the parties were participating in the business on a composite commercial model rather than providing support to another's business; the service tax demand was therefore unsustainable. Penalty under Section 76 of the Finance Act, 1994 was also held not leviable, since the dispute involved classification uncertainty and interpretational doubt, making penalty unjustified. The demand and penalty were set aside.

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Issues: (i) Whether the revenue-sharing arrangement for permitting space, power supply and billing support to licensees constituted Business Support Service and attracted service tax; (ii) whether penalty under Section 76 of the Finance Act, 1994 was leviable.

Issue (i): Whether the revenue-sharing arrangement for permitting space, power supply and billing support to licensees constituted Business Support Service and attracted service tax.

Analysis: The arrangement showed that the licensees were allotted space to run food and beverage business on terms where consideration was linked to a percentage of net revenue rather than a fixed rent. The support facilities provided by the appellant were part of the composite commercial arrangement and the parties participated in the business on a revenue-sharing model. Such an arrangement was treated as falling outside Business Support Service, in line with the departmental circular dealing with revenue-sharing business models and the binding view followed in the appellant's own earlier case.

Conclusion: The arrangement did not amount to Business Support Service and the service tax demand was not sustainable.

Issue (ii): Whether penalty under Section 76 of the Finance Act, 1994 was leviable.

Analysis: The demand arose from a legal dispute on classification of the arrangement and the record disclosed interpretational uncertainty. In such circumstances, penalty was held to be unjustified, and the benefit of the statutory discretion against penalty was applied.

Conclusion: Penalty under Section 76 was not leviable.

Final Conclusion: The demand and penalty were set aside, and the appellant succeeded on the substantive tax and penalty issues.

Ratio Decidendi: A revenue-sharing arrangement that reflects participation in the business itself, rather than provision of support to another's business, does not constitute Business Support Service; where liability turns on such interpretational uncertainty, penalty is not warranted.

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