2013 (12) TMI 1019 - AT - Service Tax

Demand of service tax - Renting of immovable property - Business Auxiliary service - Franchisee agreement entered by assessee - Held that - even though the agreement is termed as Franchise Agreement it is essential an agreement relating to letting out immoveable property for running outlet of Caf Coffee Day . Further as the properties are being taken to run Caf Coffee Day certain conditions have been enumerated so as to ensure the smooth functioning of outlets on day to day basis and cooperation by Appellants in this regard. Appellants have also been obliged to help M/s. ABCTCL in taking necessary clearance from the Co-operative Housing Societies Local bodies etc. However beyond that appellants have no role for day to day running of the outlets. Demand has been made as promotion or marketing or sale of goods or services produced by the client. We do not find that appellants have done any activity relating to promoting or marketing or sale or goods produced or provided by belonging to the client. We also do not find any auxiliary service relating to any of the clauses mentioned in the definition has been provided by the appellants. They have not provided any service of the type enumerated in the last clause of the definition - Decided in favour of assessee.

Summary

Issues:
- Classification of service under Business Auxiliary Service
- Interpretation of Franchise Agreement
- Tax liability for renting out property
- Refund claims rejection

Classification of service under Business Auxiliary Service:
The case involved five appeals where the appellants, as property owners, entered into a Franchise Agreement with a company to run cafes under a specific brand name. The issue revolved around the demand for service tax under Business Auxiliary Service. The contention was that the activity should be classified as renting out immovable property rather than business auxiliary service. The definition of Business Auxiliary Service was crucial in determining the tax liability. The Tribunal analyzed the agreements and the roles of the parties involved to conclude that the appellants were not providing any service falling under the ambit of Business Auxiliary Service. The Revenue's argument was refuted, and the appeals were successful based on the finding that the appellants did not engage in activities related to promoting, marketing, or selling goods produced by the client.

Interpretation of Franchise Agreement:
The Tribunal carefully examined the Franchise Agreement to understand the nature of the relationship between the property owners and the company running the cafes. Despite the agreement being titled as a "Franchise Agreement," it was essentially about letting out immovable property for operating the cafes. The terms of the agreement outlined conditions for smooth operations, but the appellants had minimal involvement in the day-to-day running of the outlets. The report from the Commissioner of Service Tax supported the fact that the property owners were primarily landlords receiving rent, and the cafes were entirely managed by the company. This analysis played a crucial role in determining the tax liability and differentiating between renting out property and providing business auxiliary services.

Tax liability for renting out property:
The case also addressed the tax implications of renting out immovable property. The appellants argued that their activity amounted to renting out property, which was taxable from a specific date, and they had been paying service tax accordingly. The Tribunal considered this aspect along with the nature of the services provided by the appellants to ascertain the correct tax liability. The distinction between renting out property and providing business auxiliary services was pivotal in determining the tax treatment applicable to the appellants' transactions.

Refund claims rejection:
Furthermore, the judgment highlighted that in two appeals, the appellants had paid the tax and subsequently filed refund claims, which were rejected. While the Tribunal set aside the rejection based on the merits of the case, it emphasized the need for a thorough examination of other aspects such as unjust enrichment and limitation before granting any refund. This aspect underscored the procedural requirements and considerations involved in handling refund claims in taxation matters.

In conclusion, the judgment provided a detailed analysis of the issues related to the classification of services under Business Auxiliary Service, the interpretation of the Franchise Agreement, the tax liability concerning renting out property, and the treatment of refund claims in the context of service tax. The decision favored the appellants based on the finding that they were not engaged in activities falling under Business Auxiliary Service, emphasizing the importance of accurately defining the nature of services provided in taxation matters.