2019 (5) TMI 974 - AT - Service Tax

Valuation - Franchise service - inclusion of amount of sale of books, admission kit, curriculum and other income/ miscellaneous income etc. in assessable value - benefit of N/N. 12/2003-ST - Whether the consideration received towards sale of goods and equipments under separate invoice on payment of VAT should form the part of taxable service under the category of Franchisee Services provided by the respondents? - HELD THAT - From N/N. 12/2003-Service Tax, it is clear that the value of goods and materials sold by the service provider to the recipient of service, from the service tax leviable thereon under section (66) of the said Act, subject to condition that there is documentary proof specifically indicating the value of value of the said good and materials. The exemption granted is unconditional and is not circumscribed by any conditions as sought to be argued by the revenue in their appeal. There is no requirement in the notification that the supply of the goods/ materials should be under a separate contract. Notification does not talk about dominant nature of contract for allowing the exemption under this notification. Commissioner has in his order analyzed the relevant agreements very lucidly along with the case laws on the subject and have concluded in favour of the assessee. Appeal dismissed - decided against Revenue.

Summary

Issues Involved:
1. Whether the consideration received towards the sale of goods and equipment under separate invoices on payment of VAT should form part of taxable service under the category of Franchisee Services.
2. Applicability of Notification No. 12/2003-ST for exemption from service tax.
3. Interpretation of the Franchise Agreement and the valuation of taxable services.
4. Examination of the dominant nature of the contract between the franchisor and franchisee.
5. Admissibility of the benefit under Notification No. 12/2003-ST.
6. Consideration of the extended period for demand and penalties.

Issue-Wise Detailed Analysis:

1. Consideration Received Towards Sale of Goods and Equipment:
The primary issue was whether the amounts received for the sale of books, admission kits, curriculum, and other materials should be included in the taxable value of Franchisee Services. The revenue argued that these materials were integral to the franchise service and thus their value should be included in the taxable service. The respondents contended that these were separate sales transactions, evidenced by separate invoices and VAT payments, and thus should not be included in the taxable value.

2. Applicability of Notification No. 12/2003-ST:
The revenue challenged the Commissioner’s decision to grant the benefit of Notification No. 12/2003-ST, which exempts the value of goods and materials sold by the service provider from the service tax, provided there is documentary proof. The revenue argued that the materials sold were not standard textbooks and were specific to the service provided. The respondents maintained that the exemption was applicable as they had provided documentary proof and the goods were sold separately.

3. Interpretation of the Franchise Agreement:
The revenue argued that the Commissioner did not fully examine the Franchise Agreement and its annexures, particularly the changes in the definition of Franchise under Section 65(47) of the Finance Act, 1994. The agreement indicated that the materials supplied were integral to the franchise service, and thus their value should be included in the taxable service. The respondents argued that the materials were sold under separate invoices and were not part of the franchise service.

4. Dominant Nature of the Contract:
The revenue contended that the dominant nature of the contract was the provision of franchise services, and therefore, the value of goods should not be excluded. The respondents argued that the sale of goods and equipment was a separate transaction and should not be considered part of the franchise service.

5. Admissibility of Benefit under Notification No. 12/2003-ST:
The Tribunal analyzed the plain reading of Notification No. 12/2003-ST, which exempts the value of goods and materials sold by the service provider from service tax, provided there is documentary proof. The Tribunal noted that the exemption is unconditional and does not require the supply of goods to be under a separate contract. The Tribunal referred to several case laws, including Chate Coaching Classes Pvt. Ltd. and Sadhana Educational & People Dev. Ser. P. Ltd., which supported the respondents' claim for the exemption.

6. Extended Period for Demand and Penalties:
The revenue argued that the Commissioner did not render findings on other issues such as limitation, interest, and penalties. The respondents argued that the demand was time-barred and that they had acted under a bona fide belief, with all facts disclosed to the department. The Tribunal did not find any reason to interfere with the Commissioner’s order, which had already analyzed the relevant agreements and case laws comprehensively.

Conclusion:
The Tribunal upheld the Commissioner’s order, dismissing the revenue’s appeal and disposing of the respondents' cross-objections. The Tribunal found that the consideration received towards the sale of goods and equipment under separate invoices on payment of VAT should not form part of the taxable service under Franchisee Services. The benefit of Notification No. 12/2003-ST was rightly granted, and the extended period for demand and penalties was not justified.