2011 (10) TMI 454 - AT - Service Tax

Stay petition - Demand of Service Tax on the charges of undervaluation along with interest and penalty - The department is of the view that the appellants are liable to pay Service Tax on 100% of the service remuneration received by them, if at all the remuneration is paid to the Aptech Ltd., they could take the input service credit for the services rendered to Aptech Ltd - It is not in dispute that the Aptech Ltd. has not discharged Service Tax liability - If they have paid a certain amount as a franchise commission to their principal, they have to pay Service Tax on that and are entitled to take input service credit of the same. Therefore, in this case the appellants are liable to pay ST on 100% of the remuneration of services received by them - Decided against the assessee

Summary

Issues:
Appeal against demand of Service Tax on charges of undervaluation, liability of paying Service Tax on shared remuneration, entitlement to input service credit, applicability of Section 80 of the Finance Act, 1994.

Analysis:
The appellants, running a Computer Training Centre, appealed against an order confirming the demand of Service Tax on undervaluation charges. The issue revolved around the appellants being a franchise of a company and paying 20% of the service remuneration to the principal company, while discharging Service Tax on the remaining 80%. The department contended that Service Tax should be paid on the full remuneration received, irrespective of the payment to the principal company. A show-cause notice was issued, leading to the demand of Service Tax, interest, and penalties. The appellants argued that they believed the principal company was paying Service Tax on the shared amount, thus they were only liable for the balance received. However, as the principal company had not paid the Service Tax, the appellants were held liable to pay Service Tax on the entire remuneration.

The Tribunal noted that the appellants were obligated to pay Service Tax on the total amount received for services rendered. Any commission paid to the principal company was also subject to Service Tax, with the appellants entitled to claim input service credit. Consequently, the appellants were directed to pay Service Tax on 100% of the remuneration. Despite the appellants' genuine belief regarding their liability, they were required to settle the outstanding Service Tax along with interest. Notably, the appellants were granted relief under Section 80 of the Finance Act, 1994, resulting in the dropping of penalties imposed. The appeal and stay petition were disposed of accordingly, with the appellants instructed to comply with the Service Tax payment obligations.

This judgment clarifies the obligations of a franchise in terms of Service Tax liability, emphasizing the requirement to pay tax on the full remuneration received for services rendered. It also underscores the importance of correctly understanding and fulfilling tax obligations, even in cases where there may be confusion or misunderstanding regarding shared payments and associated tax liabilities.