TaxTMI 
TaxTMI 
2023 (4) TMI 322
X X X X Extracts X X X X
X X X X Extracts X X X X
....e tax due on the difference in value of catering service as declared in balance sheet and ST-3 returns, amounting to Rs. 10,26,416/- under section 73(2) of the Finance Act, along with consequential interest under section 75 of the Finance Act and 100% penalty under section 78 of the Finance Act; and c. Service tax collected in excess, but not deposited, amounting to Rs. 1,32,66,338/- under section 73A along with applicable interest under section 73B and a penalty of Rs. 1,00,000/- under section 78A of the Finance Act. 2. The demand confirmed at (a) relates to taxability of what was alleged in the notice and confirmed in the order as "support services" provided by Indian Railways to the appellant, for which the appellant is said to have paid license fee during the period July 2013 to June 2017. Service tax has been demanded on this amount under a reverse charge. The support services that have been confirmed are infrastructural support, operational support and marketing support. The demands confirmed at (b) and (c) have not been contested by the appellant. 3. It necessary to understand what services are involved and why the license fee is paid, and fo....
X X X X Extracts X X X X
X X X X Extracts X X X X
....should be enhanced/reassessed based on actual sales turnover of the unit. Licence fee will be reassessed and revised at the time of each renewal subject to a minimum of 10% increase over the prevailing licence fee of the unit. To arrive at a realistic figure zonal railways will ensure that a fresh assessment of sales turnover/revenue is conducted during the peak period and lean period i.e. with the periodicity of three months in order to assess the actual sales turnover so as to fix the revised licence fee." 6. The appellant has described the process pertaining to the license of catering service on the Dhanbad - Alappuzha Express - Train No. 13351/52. Three teams of railway officers carry out an assessment of sales turnover of pantry car on the train in both the directions. The quantity sold of each item is kept count of and the sales turnover for one ride i.e., both directions of the train is arrived at the old rates and at the revised rates. Similar exercise is carried out by two more teams and in total, three such assessments are carried out. The highest value of the three assessments is picked and is subsequently multiplied by the number of days on which the train runs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....license fee: This is the license fee quoted by a licensee including mark up over minimum license fee." 13. The bid is then awarded to the bidder who has bid the highest "quoted license fee". The relevant extract of the selection process, as stated in the bid document, is as follows: "3.5 Selection Process 3.5.1 The responsive bids shall be evaluated in the following manner: a. Scrutiny of bids for Minimum Eligibility as per Chapter 3 of Section A. Such bids that meet with the eligibility criteria will be called "eligible bids" b. The eligible bidders will be evaluated technocommercially and awarded a Techno-Commercial Score to assess the capability of the eligible bidder(s) on the basis of scrutiny of information provided in Annexure - A/4 (Tech Form 1, 3 to 5) and the scoring scale at Annexure - A/5 c. The highest Techno-Commercial score (HTS) secured by any of the bids will be the base Techno-Commercial index. d. All bids whose techno-commercial score is more than or equal to 60% of HTS will be "techno-commercially qualified" for consideration of Railway Administration. e.&nbs....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n account of the grant of License and that Railway shall not be responsible towards the same at any time during the term. Therefore, it appears that certain individual functions that caterer would carry out in ordinary course of their operations such as arranging their own equipment and spaces for carrying out, managing and supervising their business activities are, in the present case, being enabled to them by the Railway who make available the pantry car, including manifold room and washing facilities, for use of the caterer through granting right to use and right to provide additional services, including advertisement & promotion and provide the caterer with travel passes for providing the service on trains and that Railway principally render assistance to the caterer that is infrastructural, logistical, operational, marketing or of other kind in lieu of the License Fees. ***** 6.2A It appears from the foregoing that the Indian Railways provided "Support Services" to the Licensee. It further appears that these are taxable by virtue of not being covered under Section 66D. It also appears that the tax is payable by the Licensee on reverse charge basis un....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ead/misinterpreted the rights and obligations of the parties. Learned counsel pointed out that reference to some of the necessary arrangements were misinterpreted and wrongly construed by the department as providing three kinds of support services. Learned counsel referred to a table that provides the exact text of the Agreement based on which the show cause notice made the allegation, the alleged activities and why the allegations were incorrect. The table is as follows: Sl. No. Alleged activities as in the show cause notice and subsequently confirmed in the impugned order Actual text from the Master License Agreement to which the show cause notice refers Why the allegation fails when read with the actual text of the agreement? 1. Infrastructural Support: The Railway provides basic infrastructure to the Licensee as pantry car, manifold room for gas cylinders and washing facilities as mentioned in paragraphs 6.25 and 6.29 (iv) of MLA. ARTICLE 6. RIGHTS AND OBLIGATIONS OF THE LICENSEE 6.25 Provision of equipment. The licensee will arrange his own equipment and other....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he benefit of travelling passengers subject to authorization from Railway before the commencement of each campaign. The Licensee is expected to conduct appropriate market research/survey beforehand and may factor in such benefits in the price bid. It may be noted that Railway may or may not permit such campaigns. However, no audio/video material/ stickers or materials that may cause any damage to the Railway property shall be permitted under this clause. As the text clearly says these are limited and conditional rights and not guaranteed to the licensee. Again, none of these are in lieu of the license fee. 17. The identification of these activities as 'support services' for which license fee was paid is, according to the learned counsel for the appellant, factually wrong and also since these activates do not qualify the definition of 'support services', the entire service tax demand on the license fee for an amount of Rs. 11,15,69,363/- has to be set aside in its entirety. 18. Learned counsel for the appellant has, however, not contested the demand made for the differential service tax due and this amount was, according to the learned counsel for the appellant,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble to service tax before 01.04.2016 and has to be set aside. 22. The breakup of the demand based both on the normal and the extended period as also for the period prior to 01.04.2016 and post 01.04.2016 is provided in the following table: Financial Year License Fee paid (in Rs.) Service Tax demanded (in Rs.) Service Tax Demand by different criteria Extended vs. normal period Pre 01.04.2016 vs. Post 01.01.2016 2013-14 17,80,54,328 2,20,07,515 Extended period is Rs. 3,67,13,086 Pre 01.04.2016 is Rs. 8,23,86,463 2014-15 11,86,77,110 1,47,05,571 2015-16 32,40,18,260 4,56,73,377 Normal period is Rs. 7,48,56,277 2016-17 14,01,78,000 2,09,14,900 Post 01.04.2016 is Rs. 2,91,82,900 2017-18 5,51,20,000 82,68,000 81,63,47,698 11,15,69,363 23. If the demand is set aside for the period prior to 01.04.2016, then in effect the entire demand for extended period will be set aside and a partial demand of Rs. 4,56,73,377/- for the normal period will also be set aside, leaving an amount of Rs. 2,91,82,900/-. 24. For this ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ority passes on demand to the Licensee and its staff for providing services on the Train as mentioned in para 7.1 (c) of Article 7 of MLA. (c) Marketing Support: The Railway grants rights to the Licensee to commercially advertise on disposable accessories along with distribution of books, magazines and newspapers or do promotional as mentioned in para 7.2 of Article 7 read with para 1.3K of Annexure-l of MLA. The aforementioned services provided by railway to the Noticee is covered under "support services" as defined under section 65B(49) referred to above. Thus, I find that railways had provided support services to the Noticee. The said services provided by the Railways does not fall under Section 66D (Negative list of services) of the Finance Act 1994." 28. It clearly transpires that the license fee is based solely on the assessed sales turnover. It cannot be said that the license fee is quid pro quo for any support offered by the Railways. It also needs to be noted that license fee is paid as consideration for the service provided by the Railways to the appellant by way of grant of the authorization to provide catering service on the train. This ....