2011 (1) TMI 729 - AT - Service Tax

Waiver of pre-deposit - Franchise services - Warranty fee - Since, considered the agreement between the applicant and the dealers in connection with MTV outlets - Prima facie, the applicant has granted the licence to use its proprietary system and collecting the management fee from the dealers fixed at 25% of the profit earned in resale of pre-owned cars - Prima facie, the applicants are rendering the franchise services - However, prima face, the value of warranty fee may not be part of service charges in connection with franchise services - Decided against the assessee.

Summary

Issues:
Waiver of pre-deposit of service tax, interest, and penalties under Sections 75A, 76, 77, and 78 of the Finance Act, 1994 for franchise services provided by the applicant through MTV outlets.

Analysis:
The applicant sought waiver of pre-deposit of service tax, interest, and penalties amounting to Rs.46,40,606/- imposed under various sections of the Finance Act, 1994. The applicant, along with dealers, operated MTV outlets where they provided trademark, technical know-how, and ensured compliance with standards for evaluating, refurbishing, and selling pre-owned Maruti vehicles. The applicant received a management fee of 25% of profits and a warranty fee of Rs.1,100/- per vehicle sold. The original authority confirmed the demand of service tax under franchise services, which was upheld by the Commissioner (Appeals).

The appellant argued that the MTV outlet was a joint venture with shared profits, and providing warranty did not constitute franchise services. The appellant contended that using trademarks and proprietary systems did not amount to service provision, and the warranty fee should not be considered part of franchise services. The appellant also challenged the invocation of the extended period for tax demand, stating no wilful suppression of information occurred, and penalties were unwarranted due to the issues involving interpretation of legal provisions.

The SDR supported the findings that the activities fell under franchise services based on the agreement terms and justified the invocation of the extended period for tax demand. The Tribunal examined the agreement between the applicant and dealers, noting that the applicant granted a license for proprietary systems and collected a management fee. While acknowledging the possibility of franchise services being rendered, the Tribunal found that the value of the warranty fee might not be included in service charges related to franchise services. The Tribunal directed the applicant to deposit Rs.15 lakhs within eight weeks, with a waiver of pre-deposit for the remaining amount, interest, and penalties until the appeal's disposal, considering the absence of a plea of financial hardship.

In conclusion, the Tribunal disposed of the stay petition by ordering the applicant to make a partial deposit and stay recovery of the balance pending appeal, emphasizing the need for further examination of the issues raised during the final hearing.