2010 (9) TMI 399 - AT - Service Tax

Penalty assessee, only a franchisee and their turnover was less than 4 lakhs - assessee was not aware of the tax liability on account of their using the brand name of the franchisee owner - reasonable ground for invoking provision of Section 80 of the Finance Act, 1994 - assessee appellant has paid the entire tax amount and interest thereon even though they have not collected the tax amount from the individuals/students trained by them - penalty provisions under Sections 76 and 78 need not be applied in the case of the assessee Appeal filed by assessee allowed

Summary

Issues:
1. Applicability of Service Tax on commercial coaching and training services provided by a franchisee.
2. Imposition of penalties under Sections 76, 77, and 78 of the Finance Act, 1994.
3. Invocation of Section 80 of the Finance Act, 1994 based on reasonable grounds.

Issue 1: Applicability of Service Tax on Commercial Coaching and Training Services:
The appellant, a franchisee of a computer education company, was providing teaching services on computer software. The Department contended that the appellant was liable to pay Service Tax under the category of 'Commercial Coaching and Training Service' due to their association with the franchisor. The appellant, however, believed they were eligible for small-scale exemption as their turnover was below Rs.4 lakhs. The Tribunal noted that the appellant's turnover was indeed below the threshold and that they had paid the tax amount and interest despite not collecting it from their students. Considering these factors, the Tribunal held that the penalty provisions under Sections 76 and 78 should not be applied, ultimately allowing the appeal of the appellant.

Issue 2: Imposition of Penalties under Sections 76, 77, and 78:
The original authority had imposed a penalty under Section 76 equal to the tax amount, which was subsequently dropped by the lower appellate authority. However, the jurisdictional Commissioner re-reviewed the order and imposed another penalty under Section 78. The Tribunal, after considering the appellant's status as a franchisee with turnover below the threshold and their payment of tax and interest, found reasonable grounds to invoke Section 80 of the Finance Act, 1994. Consequently, the Tribunal concluded that penalties under Sections 76 and 78 should not be applied in the appellant's case, leading to the rejection of the Department's appeal and the allowance of the appellant's appeal.

Issue 3: Invocation of Section 80 of the Finance Act, 1994 based on reasonable grounds:
The Tribunal acknowledged the appellant's lack of awareness regarding the tax liability arising from their association with the franchisor and the usage of the brand name. Additionally, the appellant had paid the tax amount and interest despite not collecting it from their students. Based on these circumstances, the Tribunal found it reasonable to invoke the provisions of Section 80 of the Finance Act, 1994, in favor of the appellant. This consideration, along with the appellant's franchisee status and turnover level, formed the basis for the Tribunal's decision to reject the penalties under Sections 76 and 78, ultimately allowing the appellant's appeal.

This comprehensive analysis of the judgment from the Appellate Tribunal CESTAT, Chennai highlights the issues related to the applicability of Service Tax, imposition of penalties, and the invocation of Section 80 of the Finance Act, 1994 based on reasonable grounds.