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2024 (2) TMI 907 - AT - Service TaxClassification of services - Franchise Service or Business Auxiliary Service? - Race Promotion Contract dated 13.09.2011 executed between JSIL and FOWC - correctness in issuing SCN dated 09.07.201 in respect of tax liability under the Service Agreement dated 13.09.2011, when the entire service tax liability along with interest on this issue was deposited on 06.06.2012 - Invocation of extended period of limitation - penalties. Whether the Race Promotion Contract dated 13.09.2011 executed between JSIL and FOWC is covered by the expression franchise as defined under Section 2(47) of the Finance Act, 1994 and therefore a taxable service under Section 65(105)(zze) of the said Act? - HELD THAT - This Tribunal in Global Transgeme Limited v. Commr. of Central Excise 2013 (8) TMI 748 - CESTAT MUMBAI has held that the foremost requisite for a service to qualify as a taxable franchise service is that the franchisee should have been granted a representation right and that in a franchise transaction, the franchisee loses its individual identity and represents the identity of franchisor to the outside world. In Tata Consultancy Services Ltd. v. Commissioner of Central Excise 2019 (6) TMI 109 - CESTAT MUMBAI , this Tribunal held that the grant of a representational right would imply that the person to whom such a right has been granted undertakes the entire activity as if it had been undertaken by the person granting such rights. The franchise means an agreement by which the franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved. The sine-qua-non for Franchise Service is therefore grant of representational right to sell or manufacture goods, or to provide service or to undertake any process identified with the franchisor. It is not possible to hold that the Race Promotion Contract is a Franchise Agreement, under which FOWC provided franchise service to JSIL and consequently the demand of service tax of Rs.20,36,32,619/- is clearly not sustainable. Whether the show cause notice dated 09.07.2014 was rightly issued in respect of tax liability under the Service Agreement dated 13.09.2011, when the entire service tax liability along with interest on this issue was deposited on 06.06.2012? - HELD THAT - The demand of Rs.1,12,23,633/- pertains to payment of US 20,00,00 to FOM arising out of Service Agreement dated 13.09.2011, for which invoice was issued by FOM on 17.04.2012, payment was made by JSIL on 16.05.2012 and service tax of Rs.1,34,68,358/- (inclusive of interest) was deposited on 06.06.2012, which fact is also recorded in the impugned. Apparently when the entire amount of service tax along with interest was deposited, we find no reason for issuance of show cause notice on this count in view of specific provisions contained in sub-section (3) of Section 73. However, since the ld. counsel for the appellant has fairly not pressed the demand on merits, no further findings in this regard are necessary. Whether extended period of limitation was rightly invoked in the facts and circumstances of the present case? - HELD THAT - The fact that the entire facts were known to the revenue even before filing of return wherein no tax liability was admitted and in absence of any other positive act on the part of JSIL to deliberately suppress correct information with the intent to evade payment of tax. In these facts, the invocation of extended period of limitation cannot be sustained in view of dicta laid down in Padmini Products Limited 1989 (8) TMI 80 - SUPREME COURT and Pushpam Pharmaceuticals Company v. CCE 1995 (3) TMI 100 - SUPREME COURT . Whether penalties imposed under Sections 77 and 78 are justified in the facts and circumstances of this case? - HELD THAT - Once the demand of Rs.20,36,32,619/- is not found sustainable on merits, the question of imposition of penalty under Section 78 does not arise. The penalty of Rs.1,12,23,633/- is also not sustainable in view of Explanation 2 to Section 73(3), which provides that no penalty is to be imposed when short paid service tax is deposited along with interest prior to the issuance of show cause notice. The demand being not sustainable on merits, the imposition of penalty under Section 77 and demand of interest is also not sustainable. Thus, the demand of service tax to the extent of Rs.20,36,32,619/-, penalty imposed under Sections 78 and 77 and demand of interest cannot be sustained and the same are accordingly set-aside - appeal allowed.
Issues Involved:
1. Whether the Race Promotion Contract dated 13.09.2011 executed between JSIL and FOWC is covered by the expression 'franchise' as defined under Section 2(47) of the Finance Act, 1994 and therefore a taxable service under Section 65(105)(zze) of the said Act. 2. Whether the show cause notice dated 09.07.2014 was rightly issued in respect of tax liability under the Service Agreement dated 13.09.2011, when the entire service tax liability along with interest on this issue was deposited on 06.06.2012. 3. Whether extended period of limitation was rightly invoked in the facts and circumstances of the present case. 4. Whether penalties imposed under Sections 77 and 78 are justified in the facts and circumstances of this case. Summary: Issue 1: Franchise Service The Tribunal examined whether the Race Promotion Contract between JSIL and FOWC constituted a 'franchise' under Section 2(47) of the Finance Act, 1994. The Tribunal found that the agreement was for the transfer of the right to host, stage, and promote the Event, and not for granting representational rights. The Tribunal noted that: - JSIL retained its identity and did not represent FOWC. - FOWC had no authority to grant representational rights. - JSIL had significant control over the event's organization but did not lose its identity to FOWC. - The Tribunal concluded that the transaction did not constitute a franchise service, and therefore, the demand for service tax of Rs.20,36,32,619/- was not sustainable. Issue 2: Service Agreement and Show Cause Notice The Tribunal noted that the demand of Rs.1,12,23,633/- pertained to the payment under the Service Agreement. Since the service tax along with interest was already deposited on 06.06.2012, the Tribunal found no reason for the issuance of the show cause notice on this count, as per Section 73(3). The appellant did not press the demand on merits, so no further findings were necessary. Issue 3: Extended Period of Limitation The Tribunal observed that the facts were known to the revenue on 03.11.2011, and the return for the period was filed on 20.04.2012. The show cause notice was issued on 15.07.2014. The Tribunal found no deliberate suppression of facts by JSIL and held that the invocation of the extended period of limitation was not sustainable. Issue 4: Penalties Since the demand of Rs.20,36,32,619/- was not sustainable on merits, the Tribunal held that the imposition of penalties under Sections 77 and 78 was not justified. The penalty of Rs.1,12,23,633/- was also not sustainable as the service tax was deposited along with interest before the issuance of the show cause notice. Conclusion: The appeal was allowed, and the demand of service tax, penalties, and interest were set aside. The appellant was granted consequential reliefs.
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