2013 (8) TMI 336 - AT - Service Tax

Revenue Sharing agreement - franchise agreement - Business Auxiliary Services Section 65(105)(zzb) stay - appellant provided services of commercial training and coaching service whether the activity would attract service tax Held that - Board in its circular dated 23.2.2009 has clarified that in the revenue sharing arrangements where two contracting parties act on principal to principal basis one does not provide service for another and such activities are not covered under service tax - appellant s contract is like a revenue sharing arrangements under which the appellant operate commercial coaching and training centres and get a portion of the fee collected from the students - From the Appellant s contract with CLIL, it appears that the appellant cannot be said to be an agent of CLIL and the transaction between them are on principal to principal basis. Tuition fees - Whether appellant would be liable to pay service tax on the amount of 25% of the tuition fee being received by them held that - There is no dispute that the service tax is sought to be charged on 25% of the amount of tuition fee being received by CLIL from the students through the appellant have already paid service tax on that amount. Waiver of pre deposit - prima facie case is there in the favour of appellant waiver of pre deposit allowed stay application allowed appeal decided in the favour of assessee.

Issues:
1. Whether the appellant is liable to pay service tax on the amount received from the principal for providing business auxiliary services.
2. Whether the appellant's activity attracts service tax under the Finance Act, 1994.
3. Whether the appellant's contract with the principal constitutes a revenue-sharing arrangement.
4. Whether the appellant's liability for service tax is exempted under relevant notifications.
5. Whether the appellant's pre-deposit requirement for service tax, interest, and penalty should be waived during the appeal.

Analysis:
1. The appellant, engaged in providing commercial training services, entered into a franchise agreement with the principal company. The appellant collected fees from students on behalf of the principal and operated coaching centers. The department alleged that the appellant provided business auxiliary services taxable under the Finance Act. The Commissioner upheld the service tax demand, interest, and penalties. The appellant argued they were not liable as they operated on a principal-to-principal basis and relied on a Board circular exempting revenue-sharing arrangements from service tax. The Tribunal found the appellant's contract resembled a revenue-sharing arrangement, and even if service tax applied, the principal could claim cenvat credit. The Tribunal held in favor of the appellant, waiving the pre-deposit requirement and staying recovery pending appeal.

2. The core issue was whether the appellant's activities attracted service tax under the Finance Act. The Tribunal analyzed the nature of the contract between the appellant and the principal, emphasizing the revenue-sharing aspect and the principal-to-principal relationship. The Tribunal referenced a Board circular exempting such arrangements from service tax, concluding that the appellant's case fell within this exemption. The Tribunal also noted that the principal had already paid service tax on the full tuition fees, further supporting the appellant's position.

3. The Tribunal examined whether the appellant's contract with the principal constituted a revenue-sharing arrangement. The appellant argued they were not operating as agents but as independent contractors on a revenue-sharing basis. The Tribunal agreed with this characterization, finding that the appellant's activities did not amount to providing services on behalf of the principal, as they operated independently under the franchise agreement. This finding supported the appellant's argument against liability for service tax.

4. The issue of exemption under relevant notifications was raised by the appellant. They contended that even if service tax applied, they should be exempted under specific notifications. The Tribunal did not delve deeply into this issue as it found in favor of the appellant based on the revenue-sharing arrangement and principal-to-principal relationship, rendering the exemption argument secondary to the main analysis.

5. Lastly, the Tribunal considered whether the pre-deposit requirement for service tax, interest, and penalty should be waived during the appeal process. The appellant argued for waiver, citing a strong prima facie case and the revenue-neutral nature of the tax demand. The Tribunal agreed with the appellant's arguments, finding in their favor and granting the waiver, thereby staying the recovery of the amounts in question pending the appeal's outcome.

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