2021 (9) TMI 546 - AT - Service Tax

Demand of tax liability - Levy of penalty and interest - non-payment of service tax - Franchise service - grant of representational rights , inherent in the contract so awarded, to the de facto operator - period between October 2006 and March 2010 - extended period of limitation - HELD THAT - Franchise is a business model that affords access to market by riding on the back of a product or offering that is well-entrenched in the minds of consumers and for which the franchisor is entitled to recompense from the franchisee. Many national jurisdictions have special laws for governing such commercial engagement but we do not and remedies are enforceable only within the generality of Indian Contract Act, 1872. The expression is evocative of congruity of intent between two parties with stipulations that obligate, along with indebtment of, the beneficiary in exchange for specific offering from the benefactor. The range of contract is, thus, too vast for encapsulation within the confines of a statutory definition. It is the contents of the agreement that unveil the franchisor-franchisee engagement by the congruity of intent to assign representational rights of product, service or process by one to the other. The relationship intended by the agreement between the appellant and M/s Shri Sai Transport and Courier Pvt Ltd must find fitment within the framework of the definition for establishing that franchise was intended - brief overview of bus services in India would not be out of place as, unlike goods transport, stage carriage of passengers was of sufficient import to public policy even before representational governance was made fully operational and, in the infancy of the Republic, a national enactment, viz,. The Road Transport Corporations Act, 1950, enabled the federating states to participate in servicing of the travelling public. Chapter IV-A, comprising section 68-A to section 68-J was engrafted in 1956 in the Motor Vehicles Act, 1939 to further empower state governments to nationalize bus routes. The offering of M/s Shri Sai Transport and Courier Pvt Ltd to its customers are the services associated with Maharashtra State Road Transport Corporation to which they obtain rights by their agreement with the appellant who are delegates of the Corporation. The transport is effected by Maharashtra State Road Transport Corporation and it is that service which the appellant has enabled M/s Shri Sai Transport and Courier Pvt Ltd to offer to users. This representational right is intended to be taxed by the taxable service and the consideration thereof is liable to tax. The decision in COMMISSIONER OF SERVICE TAX, AHMEDABAD. VERSUS M/S. GUJARAT STATE ROAD TRANSPORT CORPORATION. 2012 (12) TMI 673 - CESTAT, AHMEDABAD that was based upon the clarification issued by Central Board of Excise Customs is of no relevance to the present dispute which does not pertain to tax leviable on the State Road Transport Corporation. Extended period of limitation - HELD THAT - Neither does the claim for discard of extended period; as the taxable service , incorporating essential elements of the service, did not offer an alternative even if subsequent introspection may have suggested otherwise. Mere correspondence does not evince absence of suppression or misrepresentation. Consequently, the plea for limiting the demand to the normal period lacks support. Appeal dismissed.

Summary

Issues Involved:
1. Taxability of the service under section 65(105)(zze) of Finance Act, 1994.
2. Classification of the service as 'franchisee service'.
3. Applicability of judicial precedents and statutory interpretations.
4. Validity of the demand notice and penalty imposition.

Detailed Analysis:

1. Taxability of the Service under Section 65(105)(zze) of Finance Act, 1994:
The main issue revolves around whether the service provided by the appellant falls under the taxable category of 'franchisee service' as per section 65(105)(zze) of the Finance Act, 1994. The appellant, M/s Baba Trading Company, was held liable for ?1,91,91,761 under section 73 of the Finance Act, 1994, along with applicable interest and a penalty of like amount under section 78. The adjudicating authority determined that the contractual agreements among the three parties (appellant, Maharashtra State Road Transport Corporation (MSRTC), and M/s Shri Sai Transport and Courier Pvt Ltd) constituted a 'franchise' arrangement, making the appellant a 'franchisor' and M/s Shri Sai Transport and Courier Pvt Ltd a 'franchisee'.

2. Classification of the Service as 'Franchisee Service':
The appellant contended that their role did not fit the definition of 'franchisee service' and that the actual operator, M/s Shri Sai Transport and Courier Pvt Ltd, being a provider of 'courier service', precluded the mediatory role of the appellant from being characterized as such. However, the tribunal rejected this argument, stating that there was no restrictive framework in the description of the 'taxable service' or in the scheme of the Finance Act, 1994, to support this proposition. The tribunal emphasized that the appellant had granted 'representational rights' to M/s Shri Sai Transport and Courier Pvt Ltd, thereby making the service taxable.

3. Applicability of Judicial Precedents and Statutory Interpretations:
The appellant relied on several judicial precedents, including the decision of the Hon'ble High Court of Delhi in Delhi International Airport P Ltd v. Union of India, and decisions of the Tribunal in Directi Internet Solutions P Ltd v. Commissioner of Service Tax, Mumbai, and Commissioner of Service Tax, Mumbai-I v. Bharat Petroleum Corporation Ltd. However, the tribunal found these precedents inapplicable to the present case. The tribunal cited the principle from Union of India v. Ind-Swift Laboratories Ltd, emphasizing that the term 'representational right' would necessarily qualify all the three possibilities mentioned in section 65(47) of the Finance Act, 1994.

4. Validity of the Demand Notice and Penalty Imposition:
The appellant argued that the notice for recovery was faulty, relying on a communication from the Central Board of Excise & Customs and a related Tribunal decision in Commissioner of Service Tax, Ahmedabad v. Gujarat State Road Transport Corporation. However, the tribunal dismissed this argument, stating that each stage of rendering service must be independently evaluated for taxability. The tribunal also rejected the appellant's claim for exclusion from tax, referencing decisions in GR Movers v. Commissioner of Central Excise, Lucknow, and Commissioner of Central Excise, Meerut v. Moradabad Gas Service.

The tribunal affirmed the impugned order, concluding that the relationship between the appellant and M/s Shri Sai Transport and Courier Pvt Ltd had always been covered by the 'taxable service' and that the plea for limiting the demand to the normal period lacked support. Consequently, the appeal was dismissed, and the order was pronounced in the open court on 09/09/2021.