Facts of the Case:

Appellants were rendering 'Courier Services'. They have also entered into an agreement with various persons for rendering courier services in different parts of Kerala independently. For this purpose, they entered into 'Franchise Agreement'. Appellants submitted that in terms of the agreement, the franchisees were rendering courier services and as a consideration, they were actually paying certain percentage collected by the franchisee for rendering courier service as their commission. Further, when the franchisees who are already registered with the Service Tax Department collect the amounts for rendering courier services from their clients, they discharge the appropriate service tax after taking their commission in terms of the agreement between the appellants and the franchisees remit the balance amount to the appellants.

Appellants has contended that, when an amount is collected from a customer for rendering courier service, the service tax has already been paid on it. Therefore demanding service tax from the appellants under the category of 'Franchise Service' amounts to double taxation

Discussions and findings:

Honorable tribunal (CESTAT), after detailed study of the facts and provisions, held that:

While it is not denied that the franchisees were paying tax on courier services rendered by them to various customers, it is wrong to correlate the payment of tax under this category to the tax payable on the franchise commissions received by the assessee. Both are different services under the statute and what was alleged to have escaped assessment to tax was the commission received by the franchisor (assessee) from the franchisees concerned and this has nothing to do with the courier services. Double taxation can be alleged only if the same service has been subjected to tax two times. CESTAT has confirmed the demand and interest but reduced the penalty to Rs. 5,00,000

(For full text of judgment - visit 2008 -TMI - 4174 - CESTAT, BANGALORE)

Service tax on franchise commission remains a separate liability even if franchisees pay tax on courier services. The legal determination is that the Franchise Commission received by the franchisor is a separate taxable service distinct from the provision of Courier Services by franchisees; tax paid by franchisees on courier operations does not automatically extinguish the franchisor's liability on commissions, and double taxation can be alleged only if the same service has been taxed twice.