2017 (6) TMI 719 - AT - Service Tax

Classification of services - agency commission - whether the services provided by the appellants are Business Auxiliary Services as alleged in the show cause notice or renting of immovable property service as contended by the appellant? - Held that - there is nothing to show that there is a transfer of right in the property either by way of lease, sub-lease or license. In fact, it is specifically stipulated that nothing in the Franchise Agreement shall be construed as creating any right, title, interest or easement tenancy or sub-tenancy in favour of M/s. PRIL in or over the said showroom premises for transferring any interest in favour of M/s. PRIL other than entitling PRILs products being put up for sale from the said showroom premises through the franchisee - the agreement is not lease agreement. Valuation - electricity charges - diesel charges - includibility - Held that - Such reimbursable expenses cannot be included in the gross value of taxable services as held in the case of Intercontinental Consultants and Technocrats Pvt. Ltd. 2012 (12) TMI 150 - DELHI HIGH COURT - the electricity and diesel charges have to be deducted from the gross value to arrive at the net value of taxable services - For this limited purpose, the matter will be required to be remanded to the adjudicating authority who shall re-quantify the demand of service tax after deducting the electricity and diesel expenses - appeal allowed by way of remand. Parking income - shooting income - Held that - It is very much clear that the appellant has received the parking income from the vehicles parked in the area allotted for parking. Similarly, the shooting income is received while the premises are let out by the appellant for the shooting purposes - demand upheld. Appeal allowed in part by way of remand - other matters decided against appellant.

Issues Involved:
1. Classification of the services provided by the appellant.
2. Applicability of service tax on agency commission, parking income, and shooting income.
3. Invocation of the extended period for demand.
4. Inclusion of reimbursable expenses in the taxable value.

Detailed Analysis:

1. Classification of the Services Provided by the Appellant:
The primary issue is whether the services provided by the appellants fall under "Business Auxiliary Services" or "Renting of Immovable Property Service." The appellants argued that despite the agreement being named a Franchise Agreement, it essentially constituted a lease agreement for renting immovable property. They contended that the fixed monthly amount received was rent and not commission based on sales, as there was no variance in the amount received. However, the Tribunal examined the terms of the Franchise Agreement, which explicitly described the appellant as a franchisee responsible for managing a showroom for M/s. PRIL's products, with a commission based on net sales. The Supplementary Agreement and Agency Agreement further supported this classification. The Tribunal concluded that the agreements did not indicate a lease or sub-lease but a franchise relationship, thereby classifying the services under "Business Auxiliary Services."

2. Applicability of Service Tax on Agency Commission, Parking Income, and Shooting Income:
The appellants were found to have raised debit notes for agency commission and reflected these amounts in their accounts as such. Despite their contention, the Tribunal noted that the agreements and the appellants' accounting practices indicated the receipt of agency commission and not rent. Consequently, the service tax liability on the agency commission was upheld. Additionally, the Tribunal addressed the parking and shooting income, confirming that these were taxable under "Renting of Immovable Property Service" from 1.6.2007 onwards, as the income was derived from letting out space for parking and film shooting.

3. Invocation of the Extended Period for Demand:
The appellants argued against the invocation of the extended period, claiming there was no suppression of facts, and the issue was interpretational. However, the Tribunal found that the appellants had misrepresented the nature of their services and failed to discharge the service tax liability on the amounts received. The Tribunal held that suppression of facts and willful misstatement were evident, justifying the invocation of the extended period for demand.

4. Inclusion of Reimbursable Expenses in the Taxable Value:
The appellants contended that the amounts reimbursed for electricity and diesel expenses should not be included in the taxable value. The Tribunal agreed, referencing the judgments in "Intercontinental Consultants and Technocrats Pvt. Ltd." and "ICC Reality (India) Pvt. Ltd.," which held that reimbursable expenses should not be included in the gross value of taxable services. The Tribunal directed the adjudicating authority to re-quantify the demand after deducting these expenses.

Conclusion:
The Tribunal upheld the classification of the services under "Business Auxiliary Services" and confirmed the service tax liability on agency commission, parking income, and shooting income. The invocation of the extended period for demand was deemed appropriate due to suppression of facts. However, the Tribunal ordered the exclusion of reimbursable expenses from the taxable value and remanded the matter to the adjudicating authority for re-quantification. The appeal was thus disposed of with these modifications.

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