2015 (7) TMI 552 - AT - Service Tax

Commercial coaching and training service - discharge of service tax only on 80% - Royalty received - Held that - The authorized representative of Aptech Ltd. is required under the terms of the franchise agreement to disburse the course fee credited into the escrow account between Aptech Ltd. and the appellant in the proportion agreed to between the parties under the said agreement. Accordingly the appellant received 80% of the course fee and 20% by Aptech Ltd. as its royalty under the franchise agreement. - Decision in the case of Kunal IT Services Pvt. Ltd. vs. C.C.E. Pune III 2015 (4) TMI 1005 - CESTAT MUMBAI followed - the appellant therein had correctly remitted service tax on the amount received for rendition of commercial coaching or training services i.e. 80% of the amount paid by students. - Decided in favour of assessee. Disallowance of cenvat credit - Denial of refund claim - Input service was received prior to registration of the appellant as a service provider - Held that - Decision in the case of mPortal India Wireless Solutions P. Ltd vs. C.S.T. Bangalore reported as 2011 (9) TMI 450 - KARNATAKA HIGH COURT followed - registration is not mandatory for the availment of credit. On the basis of this binding authority the concurrent denial by the authorities below of credit of 2000/- is also unsustainable and requires to be set aside. - Decided in favour of assessee.

Summary

Issues:
1. Service tax demand on short remittance and wrong availment of cenvat credit.
2. Interpretation of franchise agreement for service tax liability.
3. Disallowance of cenvat credit based on registration timing.

Analysis:
1. The appellant challenged the service tax demand of &8377; 76,125/- for short remittance and &8377; 3,408/- for wrong cenvat credit availment. The primary authority confirmed these demands along with penalties under Section 76 of the Act. The dispute arose from the interpretation of the franchise agreement with Aptech Limited, where the appellant was appointed as a franchisee to provide training services. The Revenue argued that the entire course fee collected by the appellant should be considered as the gross consideration for taxable services. However, the appellant contended that only 80% of the course fee was received by them, and service tax was remitted accordingly. The Tribunal analyzed the agreement and held that the appellant correctly remitted service tax on the actual consideration received, i.e., 80% of the course fee, as per the terms of the franchise agreement.

2. The Tribunal examined the franchise agreement provisions, specifically Sections 4.2 and 4.3, which detailed the operation of the escrow account and the distribution of course fees between the appellant and Aptech Ltd. It was observed that the agreement clearly outlined that the appellant provided the training services under the brand name "Arena Multimedia" and received 80% of the course fee, with the remaining 20% going to Aptech Ltd. The Tribunal referred to a similar case precedent where correct service tax remittance was upheld under comparable circumstances. Consequently, the demand of &8377; 76,125/- was quashed due to the accurate tax payment by the appellant based on the franchise agreement terms.

3. Another issue pertained to the disallowance of cenvat credit amounting to &8377; 2000/- due to the timing of input service receipt before the appellant's registration as a service provider. The authorities rejected the claim based on this ground, but the Tribunal cited a Karnataka High Court decision that registration was not mandatory for availing cenvat credit. Relying on this precedent, the Tribunal set aside the disallowance of the credit amount, stating that the denial by the lower authorities was unsustainable. Consequently, the appeal was allowed in full, and the appellant was granted consequential benefits without any costs incurred.