2015 (12) TMI 1403 - AT - Service Tax

Demand of service tax - franchise service - presumption and arbitrary quantum while doing best judgement assessment - Suppression of facts - invocation extended period of limitation - Held that - Adjudicating authority has observed that the appellant deliberately tried to suppress the facts from the Department and then adds that M/s. Carlsberg India Pvt. Ltd. wilfully suppressed all the material facts regarding nature of service provided by them in respect of Intellectual Property Services other than Copyright and the gross amount received by them during the aforesaid period as royalty / franchisee service and at no stage did they enquire about taxability of their services . It is obvious that the paragraph has been written without application of mind because in the present case no amount was received by the appellant as royalty/franchise service ; indeed the appellant paid the amount to foreign based company. The appellant did not provide the alleged services, but was the recipient of the alleged services. In the Show Cause Notice dated 18.10.2012, the figures for 2011-12 have been taken to be 10 times those for 2010-11 under the best judgment assessment without any basis / reason which almost smacks of outright mala fide and the adjudicating authority blindly adopted those figures under best judgment assessment without even a whisper as to how such a quantum jump (tenfold) in the assessable value was justifiable as best judgement assessment under Section 72 ibid Appellant made elaborate arguments in its written submissions that the service received by it did not satisfy the definition of franchise service under Section 65 (105) (zze) ibid, but the adjudicating authority summarily states (without any analysis) that its contentions do not hold ground. Indeed, as brought out hereinabove, perusal of paragraphs 36 to 41 of the impugned order quoted above makes it so amply clear that the order fatally suffers from lack of analysis/discussion regarding the contentions and arguments of the appellant and makes a mockery of the quasi-judicial process in-as-much-as it is not merely non-speaking, but also absurd in parts. In the absence of analysis/reasoning with reference to the contentions of the appellant, the conclusions drawn in the impugned order are rendered lifeless - we set aside the impugned order and remand the case to the adjudicating authority for de novo adjudication after giving the appellant an opportunity of being heard. - Decided in favour of assessee.

Summary

Issues Involved:
1. Classification of services under the India Licence Agreement (ILA) as Franchise Service or Intellectual Property Service (IPR).
2. Taxability of royalty payments made under the ILA.
3. Invocation of the extended period of limitation.
4. Validity of best judgment assessment.
5. Applicability of interest and penalties under the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services:
The appellant contended that Carlsberg Denmark was not providing franchise services under the ILA, and hence, the demand under franchise service was not sustainable. The transaction relating to the trademark "Palone" was argued to be in the nature of permitting the use of intellectual property, which is not recognized in India, thus not liable to service tax. The adjudicating authority, however, concluded that the agreements were in the nature of temporary transfer of the use of trademarks, falling under Franchise Service as defined under Section 65 (105) (zze) of the Finance Act, 1994.

2. Taxability of Royalty Payments:
The appellant argued that the transfer of know-how was a transaction in property, not a service, and thus payments made were not liable to service tax. Additionally, it was contended that no consideration was paid to Carlsberg Denmark, and even if there was, it involved no taxable service. The adjudicating authority determined that the appellant was liable to pay service tax on the amount of royalty paid to Carlsberg Denmark, considering it as a consideration for the service provided.

3. Invocation of Extended Period of Limitation:
The appellant contended that there was no willful misstatement or suppression of facts, thus the extended period of limitation could not be invoked. The adjudicating authority, however, held that the appellant had deliberately suppressed material facts and invoked the extended period of five years under proviso to Section 73(1) of the Finance Act, 1994.

4. Validity of Best Judgment Assessment:
The appellant provided figures for the periods 2010-11 and 2011-12 but claimed that the Commissioner resorted to best judgment assessment without basis, taking figures for 2010-11 as double of the preceding year and for 2011-12 as ten times that for 2010-11. The adjudicating authority adopted these figures without justifiable reasoning, which the appellate tribunal found to be almost mala fide and lacking in proper analysis.

5. Applicability of Interest and Penalties:
The adjudicating authority confirmed the demand of service tax and imposed penalties under Sections 76, 77, and 78 of the Finance Act, 1994, for non-payment of service tax and suppression of facts. Interest on the amount determined to be payable was also charged under Section 75 of the Finance Act, 1994.

Conclusion:
The appellate tribunal found that the adjudicating authority failed to analyze the appellant's contentions and provided a non-speaking order. The tribunal observed that the order lacked proper reasoning and analysis, rendering it unsustainable. Consequently, the tribunal set aside the impugned order and remanded the case for de novo adjudication, ensuring the appellant is given an opportunity to be heard.