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2011 (4) TMI 242 - AT - Service TaxDemand - Franchise services - it can be seen that to consider an agreement as franchise agreement or the service rendered under the category of franchising service or not an assessee to satisfy all the four conditions which are enumerated herein above - Even the Board vide their Circular dt. 20/6/2003 had specifically indicated that all the ingredients mentioned from 1 to 4 need to be satisfied and then only such agreement can be considered as a franchise agreement - Held that - . The purpose of the agreement of franchisees is to enable franchisee to carry on the business in the manner desired by the franchisor. The agreement also reveals that the appellant shall provide prospectus course material brochure leaflets direct mail materials stationery etc. They shall also provide additional training to the staff franchisee request at additional cost. As such it is seen that the agreements between the appellant and their franchisees satisfy all the four requisites of the definition of Franchise as provided under Section 65(47) of the Act and the appellant is liable to pay service tax on the said services. - Appellant liable to pay service tax. Notification no. 9/03 ST dated 20-6-2003 - The services provided by the institute have to be viewed in the light of the definitions of such institute given in the notification. The same cannot be extended to franchise services given by the said institute to the franchisee. As such we hold that the benefit of the said notification is also not to be available to the appellant. Regarding penalty - invoking the provisions Section 80 of the Finance Act 1994 there being justifiable reason for non-payment of service tax we are of the considered view that appellant need not be visited with any penalties. In view of this the penalties imposed by the ld. Commissioner in the Order-in-Revision No.01/2007-Service Tax dt. 29/5/2007 is set aside.
Issues Involved:
1. Liability to pay service tax on 25% of the course fee retained by the appellant. 2. Imposition of penalties for non-payment of service tax. Detailed Analysis: 1. Liability to Pay Service Tax on 25% of the Course Fee Retained by the Appellant: The appellant, a service provider in Commissioning and Installation, Maintenance or Repair Service, and Scientific and Technical Consultancy, entered into franchising agreements for the CMC Modular DAST course. The Department argued that these agreements met the definition of Franchise services under Section 65 of Chapter V of the Finance Act, 1994, making the appellant liable for service tax from 1/7/2003. The appellant collected fees but did not register under Franchisee Services, leading to a service tax demand of Rs.4,49,825/- for the period from 1/7/2003 to 30/6/2004. The appellant contended that their activities fell under Commercial Coaching or Training service, which was exempt from service tax under Notification No.9/2003-ST until 1/7/2004. They argued that the 25% fee retained was not a franchise fee but part of the course fee. The Tribunal examined the agreement clauses and found that the 25% fee retained was labeled as royalty, fitting the definition of franchise services. The Tribunal referenced the case of Jetking Information Ltd., which supported the view that such fees are taxable under franchise services. 2. Imposition of Penalties for Non-Payment of Service Tax: The Revenue reviewed the adjudicating authority's decision not to impose penalties and subsequently imposed penalties under Sections 76 and 78 of the Act. The appellant argued that the review was invalid as the original order had merged with the appellate order and was stayed by the Tribunal. The Tribunal held that the Reviewing Authority was within its rights to impose penalties. However, it accepted that the appellant might have had a bona fide belief that their services were exempt under Notification No.9/2003-ST, as their courses were related to computer education. Invoking Section 80 of the Finance Act, 1994, the Tribunal found justifiable reasons for non-payment of service tax and set aside the penalties. Conclusion: - Appeal No.ST/70/2006: The Tribunal rejected the appeal, affirming the service tax liability on the 25% course fee retained by the appellant. - Appeal No.ST/332/2007: The Tribunal allowed the appeal, setting aside the penalties imposed by the Reviewing Authority. Both appeals were disposed of as indicated.
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