2023 (4) TMI 322 - AT - Service Tax

Levy of Service Tax - license fee paid by the appellant to the Railways under section 73(2) of the Finance Act, 1994 along with consequential interest under section 75 of the Finance Act and 100% penalty under section 78 of the Finance Act - differential service tax due on the difference in value of catering service as declared in balance sheet and ST-3 returns - HELD THAT - The period under dispute can be broken in two different sub-periods since an amendment was made w.e.f 01.04.2016. The taxability of the activity of providing licenses has been clarified by the CBIC Circular dated 11.10.2019. It states that the act of granting license is taxable only after 01.04.2016. Therefore, the grant of license is clearly not exigible to service tax before 01.04.2016 and has to be set aside. If the demand is set aside for the period prior to 01.04.2016, then in effect the entire demand for extended period will be set aside and a partial demand of Rs. 4,56,73,377/- for the normal period will also be set aside, leaving an amount of Rs. 2,91,82,900/- - In the instant case, the show cause notice in paragraph 15 (ii), demanded service tax amounting to Rs. 11,15,69,363/- during the period 01.04.2013 to 31.03.2017, not paid by the appellant on the services described in paragraphs 5 and 6 and paragraph 6.2A concludes that the Indian Railways provided support services to the appellant and would be taxable on a reverse charge, as it is not covered in the negative list of service provided under section 66D of the Finance Act. Whether the activity identified in the show cause notice qualifies to be a taxable service for which the license fee is said to be the consideration? - HELD THAT - The license fee is the consideration paid for the grant of license . It is pertinent to note that the words license fee is defined the Oxford Dictionary to mean a fee paid to an organization for permission to own, use or do something. The Supreme Court in STATE OF ORISSA ORS. VERSUS NARAIN PRASAD ORS., ETC. ETC. 1996 (9) TMI 599 - SUPREME COURT explained the meaning of expression Privilege and held that Privilege really means the license or permit granted by the State - In the instant case, the license fee paid by the appellant to Railways is the consideration for the privilege to be the sole catering agent on board the trains for which a license was issued. This grant of license/privilege is the service which was taxable and the value of this service is equal to the license fee which is the consideration paid for this service. The show cause notice has not identified this service. To tax this service would, therefore, result in going beyond the scope to the show cause notice. There is merit in the contention advanced by the learned counsel for the appellant that the consideration paid by the appellant as license fee cannot be subjected to levy of service tax. The other two demands proposed in the show cause notice and confirmed by the adjudicating authority have not been contested by the appellant. The impugned order dated 15.10.2018 in so far as it confirms the demand of service tax on the license fee paid by the appellant to the Railways with interest and penalty is set aside - Appeal allowed.

Summary

Issues Involved:
1. Taxability of the license fee paid by the appellant to the Railways.
2. Differential service tax due on the difference in value of catering service as declared in balance sheet and ST-3 returns.
3. Service tax collected in excess but not deposited.

Summary:

Issue 1: Taxability of the License Fee Paid by the Appellant to the Railways

The appellant contested the demand for service tax on the license fee paid to the Railways, which was alleged to be for "support services" such as infrastructural, operational, and marketing support. The appellant argued that the license fee was solely for the authorization to provide catering services on trains, as per the Railway Catering Policy, 2010, and not for any support services. The Tribunal examined the Master License Agreement and the show cause notice, concluding that the identified support services did not qualify as taxable services under the Finance Act. The Tribunal also noted that the Circular dated 11.10.2019 clarified that the act of granting a license is taxable only after 01.04.2016. Therefore, the demand for service tax on the license fee for the period before 01.04.2016 was set aside. For the period after 01.04.2016, the Tribunal found that the show cause notice did not properly identify the grant of license as a taxable service, and thus, the demand could not be sustained. Consequently, the demand of Rs. 11,15,69,363/- was set aside.

Issue 2: Differential Service Tax Due on the Difference in Value of Catering Service

The appellant did not contest the demand for differential service tax amounting to Rs. 10,26,416/-. The appellant had already deposited this amount with interest on 06.10.2015.

Issue 3: Service Tax Collected in Excess but Not Deposited

The appellant also did not contest the demand for service tax collected in excess but not deposited, amounting to Rs. 1,32,66,338/-. The Tribunal upheld this demand.

Conclusion:

The Tribunal set aside the impugned order dated 15.10.2018 in so far as it confirmed the demand of service tax on the license fee paid by the appellant to the Railways with interest and penalty. The appeal was allowed to this extent, while the other two demands were not contested by the appellant and thus upheld.