2016 (10) TMI 958 - AT - Service Tax

Levy of tax - Franchise Service - imparting training in graphic animation - obligation not to share the services provided by the appellant with any other person - Held that - the appellant has provided service to M/s Digital Puppet Animation Studio in regard to right to use of course material in imparting training in graphic animation for indicating computer education in training programme in Graphic Animation and Cinematics as per the agreement, the service recipient as per the agreement the Franchise i.e. service recipient is under an obligation not to share the services provided by the appellant with any other person, therefore the condition of the definition of Franchise also stand fulfilled. As regards the submission of the appellant that the said condition is not fulfills for the reason that the Franchise has liberty to provide the training in graphic animation for indicating computer education on their own. In this case it is clear that course material provided by the appellant is Franchise cannot be used for providing services to any other person on their own. The Franchise can provide service other than MAAC brand course materials this should not affect to Franchiser . Therefore in our considered view the service of the appellant clearly covered under the Franchise Service , hence the same is taxable. Imposition of penalty u/s 78 - Held that - the data of the services value was taken from the Balance Sheet of the appellant which shows that the appellant has no intention to hide the service value. The issue involved is of interpretation of definition of the Franchise Service , therefore for this reason also malafide intention cannot be alleged. - the appellant has been able to show the reasonable cause for non-payment of Service Tax in time. - No penalty The appellant s service is chargeable to Service Tax under the category of Franchise Service - However the quantification of Service Tax has been disputed by the appellant therefore the same needs to be examined by the adjudicating authority. The appeal is disposed of by way of remand to the adjudicating authority to reconsider the issue of re-quantification of Service Tax afresh, after following the principles of natural justice.

Summary

Issues:
Interpretation of "Franchise Service" for Service Tax liability and correct quantification of demand.

Analysis:
1. The appellant was registered for various services and received a show-cause notice proposing a Service Tax demand on "Franchise Service" from 01.07.2003 to 31.03.2006. The Revenue contended that the appellant's service fell under the "Franchise Service" category. The appellant challenged this classification, arguing that the service did not meet the criteria for a "Franchise Service" as per the definition, specifically clause (iv) regarding the obligation not to engage in similar services with others. The appellant also disputed the quantification of the demand, claiming certain amounts were non-taxable. The appellant had already deposited a higher amount than the recalculated tax liability.

2. The Assistant Commissioner representing the Revenue reiterated the findings of the impugned order, supporting the classification of the service as a "Franchise Service" and the quantification of the demand.

3. The Tribunal analyzed the definitions related to "Franchise Service" and examined the agreement between the appellant and M/s Digital Puppet Animation Studio. It was found that the appellant's service fulfilled the conditions of a "Franchise Service" as the recipient was obligated not to share the services provided by the appellant with others. The Tribunal disagreed with the appellant's argument that the recipient could provide similar services independently. The Tribunal also reviewed the quantification of the Service Tax demand and noted discrepancies in the calculations, leading to a remand for re-examination.

4. The Tribunal found that while the appellant's service was taxable under the "Franchise Service" category, the quantification of the Service Tax required further scrutiny. The penalty under Section 78 was set aside due to the appellant's demonstration of reasonable cause for delayed payment. The appeal was disposed of by remanding the case to the adjudicating authority for a fresh assessment of the Service Tax quantification following principles of natural justice.

This detailed analysis highlights the key arguments, legal interpretations, and conclusions drawn by the Tribunal regarding the classification of the appellant's service as a "Franchise Service" for Service Tax liability and the subsequent quantification of the demand.