2024 (11) TMI 791 - AT - Service Tax

Service tax under the category of Franchise Service or Declared service - invocation of the extended period of limitation - appellant challenged the show cause notice on the ground that it is vague and does not specify the taxability of the given transaction so as to make the DTMPL liable to pay service tax - as submitted that for the period 1.4.2012 to 31.3.2017, the activities undertaken by DTMPL is not liable to service tax under the category of declared service under Section 66E(e) of the Act, as DTMPL is not under any obligation to do an act or to tolerate an act. Allegation of the Revenue is that the activity undertaken by DTMPL of enrolling the members falls under the category of Franchise Service for the period during the Pre- Negative Era and as declared services under Section 66E(e) for the period Post-Negative Era - HELD THAT - To bring within the ambit of service tax , it is necessary to analyse the specific factors or the principles, which would constitute that services. The basic principle for a service to be taxable is that it is necessary that there should exist a service provider and a service recipient relationship between the two parties, which, in the present case is missing. From the impugned order, we find that there is no mention of any services, which DTMPL was liable to perform having received the amount, which has been taken to be as a consideration and in absence thereof, DTMPL cannot be termed to be a Service Provider , providing any services to the members /agents. Though the receipt of membership fee by DTMPL can be regarded as income but it cannot be treated as a consideration for rendering any services. In other words, the amount of Rs.5,500/- received by DTMPL is not a consideration in lieu of any services. We are of the view that the impugned order does not show any consideration whether the activity performed by DTMPL satisfies the basic factors to be classified as Franchise Services or as declared services under Section 66E(e) of the Act. The findings as recorded by the Adjudicating Authority are insufficient to impose levy of service tax in the present case. We are afraid to say that the Adjudicating Authority have virtually copied the entire show cause notice and merely quoted the provisions of law but failed to apply its mind to the applicability of the provisions of the Act defining the two services with reference to the actual activity undertaken by DTMPL. In fact, it is not even evident as to who is the service provider or who is the service recipient and what is the nature of the services, for which the consideration is being paid, if any. Instead of repeating the show cause notice in extenso, the Adjudicating Authority being the Original Authority ought to have passed the order on a proper appreciation of the fundamentals of levying the service tax. We find that the proper course is to remand the matter back to the proper Adjudicating Authority to decide the matter afresh.The impugned order is, therefore, set aside and the appeals are allowed by way of remand.

Summary

Issues Involved:

1. Classification of services provided by DTMPL as "Franchise Service" or "Declared Services."
2. Tax liability and valuation of service tax on DTMPL's activities.
3. Applicability of the extended period of limitation for issuing the show cause notice.
4. Imposition of penalties on DTMPL and its Directors.
5. Vagueness of the show cause notice.

Detailed Analysis:

1. Classification of Services:

The core issue revolves around whether the activities of DTMPL fall under "Franchise Service" for the period before the negative list era and "Declared Services" under Section 66E(e) of the Finance Act, 1994, for the subsequent period. The Tribunal noted that for a service to be taxable, there must be a clear service provider and service recipient relationship. In this case, the Tribunal found that the adjudicating authority failed to establish such a relationship. The membership fee received by DTMPL was considered income but not a consideration for any service rendered. The Tribunal highlighted the lack of clarity in the adjudicating authority's findings regarding the classification of DTMPL's activities as taxable services.

2. Tax Liability and Valuation:

The Tribunal examined the argument that the membership fee was not a consideration for any product or service provided by DTMPL but rather a fee for becoming an agent. The Tribunal found that the adjudicating authority did not adequately address whether the activities performed by DTMPL met the criteria for "Franchise Services" or "Declared Services." The Tribunal criticized the adjudicating authority for merely quoting legal provisions without applying them to the actual activities undertaken by DTMPL.

3. Extended Period of Limitation:

The Tribunal considered the appellants' argument that the show cause notice was barred by limitation, as it was issued more than six years after the relevant period. The appellants contended that the liability, if any, should be computed only for the period between 23.05.2016 and 23.11.2017, given the statutory limitation period of 18 months under Section 73(1) of the Finance Act. The Tribunal acknowledged the need for the adjudicating authority to reconsider the issue of limitation upon remand.

4. Imposition of Penalties:

The Tribunal noted that penalties were imposed on DTMPL and its Directors based on the adjudicating authority's findings. However, given the lack of clarity and the need for a fresh examination of the case, the Tribunal set aside the penalties and directed the adjudicating authority to reconsider this issue upon remand.

5. Vagueness of the Show Cause Notice:

The appellants argued that the show cause notice was vague and did not specify the taxability of the transactions. The Tribunal agreed that the adjudicating authority had not adequately addressed this issue, merely stating that an extensive investigation had been conducted. The Tribunal emphasized the need for the adjudicating authority to properly link the allegations in the show cause notice with statutory provisions and the facts of the case.

Conclusion:

The Tribunal remanded the matter back to the adjudicating authority for a fresh decision, emphasizing the need for substantial reasons and proper application of the law to the facts. The adjudicating authority was directed to re-examine the classification of services, tax liability, limitation, and penalties, and to address the issue of the vagueness of the show cause notice. The Tribunal set aside the impugned order, allowing the appeals by way of remand, without expressing any opinion on the merits of the case.