2017 (6) TMI 54 - AT - Service Tax

Valuation - includibility - whether amounts recovered by the assessee s towards royalty, advertising plan, cost of manual supplied and certificates issued under the franchise agreements both on account of Bachpan and Heights were part of the gross value under Section 67 for the purpose of payment of Service Tax? Whether the advertisement reimbursement charges should be included in the gross amount for charging service tax? - Held that - It is settled provision of law that any expenditure incurred by the service provider in the course of providing taxable services and reimbursed cannot be considered as consideration for taxable services - there is no justification for including reimbursable expenditure in the taxable service tax. Amounts received by the assessee towards cost of manuals and certificates supplied - levy of tax - Held that - the invoices raised for supply of manual and certificates indicate that the assessee has paid VAT for such sales covering the value of manual and certificates supplied. It is settled law that no service tax is leviable in cases where goods have been sold on payment of VAT/ Sales tax. Consequently, we conclude that no Service Tax is leviable on the amounts received for manuals and certificates. Levy of tax - Royalty Charges - Held that - such amounts have been charged for transfer of technical know-how on running of Play School by franchisees - service not taxable. There is no justification for levy of service tax on the amounts received by the assessee towards royalty, cost of manuals and certificates as well as advertisement reimbursement charges - the demand of service tax for the entire period from 01.07.2003 till 30.06.2012 is required to be set aside - appeal allowed - decided in favor of appellant.

Summary

Issues involved:
1. Taxability of franchise services under service tax for the period July 2003 to June 2012.
2. Inclusion of amounts received towards royalty, advertising, manual costs, and certificates in the gross value for service tax purposes.
3. Dispute over whether advertisement reimbursement charges should be included in the taxable amount.
4. Treatment of amounts received for manuals and certificates in relation to service tax.
5. Taxability of royalty charges for the use of the trade name "Bachpan" under service tax.

Detailed analysis:
1. The judgment addressed the taxability of franchise services under service tax for the period July 2003 to June 2012. The appellant, M/s S.K. Education Pvt. Ltd., was receiving amounts towards franchise fee, royalty, manual costs, and advertisement charges. The dispute revolved around whether these amounts fell under the category of franchise services and were subject to service tax.

2. The issue of including amounts received towards royalty, advertising, manual costs, and certificates in the gross value for service tax purposes was thoroughly examined. The appellant provided technical know-how to franchisees for setting up and running pre-schools. The judgment analyzed whether these amounts should be considered part of the taxable service value under franchise services.

3. The judgment deliberated on the inclusion of advertisement reimbursement charges in the taxable amount. It was established that reimbursable expenditures incurred by the service provider should not be considered as consideration for taxable services. Legal precedents were cited to support this view, emphasizing that reimbursed expenses should not be included in the taxable service value.

4. The treatment of amounts received for manuals and certificates concerning service tax was carefully considered. The invoices indicated that VAT had been paid for the sales of manuals and certificates, which exempted them from service tax. The judgment concluded that no service tax was applicable to amounts received for manuals and certificates due to the VAT payment.

5. The taxability of royalty charges for the use of the trade name "Bachpan" under service tax was a key issue. The Revenue contended that service tax was payable on royalties received for allowing the use of the Bachpan trade name. However, the appellant argued that these charges were for transferring technical know-how to franchisees, not for taxable services. The judgment upheld the appellant's position, stating that royalty payments for technology and know-how were not considered payments for services provided, leading to the dismissal of the Revenue's appeal.

This detailed analysis of the judgment provides a comprehensive overview of the issues involved and the legal reasoning applied to each aspect of the case.