2012 (10) TMI 489 - Commissioner - Service Tax

Franchise Service - appellants are engaged in providing Commercial Training and Coaching Services alleged that appellant had paid an amount towards royalty to their USA based Franchiser for the use of logo and study materials - held that - It is evident from the records and the internet details that the appellant termed as Master distributor in the agreement is marketing the Bullet proof manager course as the only franchisee in India for M/s. Crest Com International Ltd. USA and that he is paying royalty to the foreign company for marketing the course. Thus, I hold that the appellant is engaged in franchise service and he is liable to pay Service tax on the Royalty charges paid to the foreign company under Franchise Service . Payment of service tax - Held that - it is evident that the appellant had collected service tax while charging the above fees from their distributors but they had not produced any evidence whether the collected service tax was paid to the Department - onus is on the appellant to substantiate their contention that the royalty paid by them to the Foreign service provider had already suffered Service tax and the same had been paid to the Department. In the absence of any documentary evidence it cannot be said that he had paid service tax to the department on the fees collected which includes royalty charges, which is shared by the appellant and the foreign company as per their agreement demand upheld

Summary

Issues involved:
1. Whether the appellant's activity is taxable under the category "Franchise Service."
2. Whether the appellant is liable to pay Service tax on the Royalty amount paid to the foreign company during the disputed period.

Detailed Analysis:

Issue 1: Whether the appellant's activity is taxable under the category "Franchise Service."
The appellant, engaged in providing Commercial Training and Coaching Services, paid royalty to a USA-based Franchiser for the use of logo and study materials. The Department issued a Show Cause Notice proposing Service Tax on the royalty. The appellant argued that no services were received from the foreign company and that the payments were profit-sharing. However, the Commissioner found that the appellant's activity fell under the definition of "franchise service" as per the agreement with the foreign company. The appellant was the only franchisee in India, conducting training programs using the foreign company's materials, making the activity taxable under franchise service.

Issue 2: Whether the appellant is liable to pay Service tax on the Royalty amount paid to the foreign company.
The Commissioner examined the agreement between the appellant and the foreign company, which defined the roles of franchisor and franchisee. The agreement indicated that the appellant acted as the Master distributor, marketing the training program and paying royalty to the foreign company. The Commissioner concluded that the appellant was liable to pay Service tax on the royalty charges under "Franchise Service." Despite the appellant's claim of already collecting and paying Service tax on fees, no evidence was provided to support this, leading the Commissioner to reject the appellant's contention. Consequently, the Commissioner upheld the Lower Adjudicating Authority's Order-in-Original and rejected the appeal.

In summary, the Commissioner determined that the appellant's activity qualified as "Franchise Service," making them liable to pay Service tax on the royalty amount paid to the foreign company. The decision was based on the agreement terms and lack of evidence supporting the appellant's claim of already paying Service tax on the fees collected.