THERE IS NO STATUTORY PROVISION TO TAX SAME SERVICE TWICE IF THE SERVICEFALLS UNDER TWO HEADS

[Mr. M. GOVINDARAJAN]

In 'Speed and Safe Courier Service V. Commissioner' - [2010 -TMI - 76326 - HIGH COURT OF KERALA] the appellant is engaged in rendering courier service involving collection of letters, parcels, articles etc., from the customers and to deliver the same to the respective addressees. The appellant engaged several agents for this purpose. These agents collect articles from the customers along with service charges at the tariff fixed by the appellant. The agents, viz., franchisees, also collect service tax along with the service charges from the customers while accepting the articles. The franchisees obtained service tax registration from the Department and remit service tax whatever collected by them in terms of Sec. 65 (33) read with Section 65 (105) (f) of the Finance Act, 1994. The entire service charges collected are passed to the appellant and from the same the appellant makes the payment to the franchisees at the rate fixed in the agreement. The courier service operation therefore leads to sharing of substantial amount of charges collected from the customs with the franchisees and the appellant gets only the balance amount.

The agreement provides for payment of remuneration to the franchisees only for service charges recovered by them for the articles collected by them for delivery at various destinations. The Department assessed net amount retained by appellant from out of the charges collected for courier service after payment to franchisees towards the value of taxable service payable for franchise service under Section 65(47) read with Section 65(105)(zze) of the Act. In effect the service charges collected and shared between the appellant and the franchisees got partly taxed twice for service tax under the Act, one under the head 'tax on courier service' and other under the head 'tax on franchisee service'.

The appellant filed appeal before Tribunal against the order of Commissioner which was rejected by the Commissioner (Appeals). Therefore the appellant approached High Court under Sec.35G of the Central Excise Act, 1944. One appeal was decided by the Tribunal on merit, the other appeal was rejected by the Tribunal for non deposit of the amount order to be paid as a condition for maintainability of the appeal.

The second appeal will not lie against the order issued by the Tribunal rejecting an appeal for non compliance of pre-deposit of duty ordered. However the High Court has taken this case as in the connected appeal filed by the sister concern, the issue is decided by the Tribunal on merit.

The appellant contended that the appellant transports goods between major centers and local collection and deliveries are done by engaging agents/franchisees. So much so, the services of the agents/franchisees and appellant together will only constitute the complete courier service.

The High Court framed the question to be considered is whether the service charges collected from the customers on which full tax is paid for rendering courier service under Sec. 65(33) read with Section 65(105)(f) by the agents/franchisees after registration with Department could be subject to a further tax for franchisee service under Section 65 (47) read with 65 (105) (zze) to the extent of the net amount received by the appellant.

The Department admitted the liability for the agents/franchises for payment of service charges on the entire courier service charges recovered from the customers and have therefore permitted them to register and remit the tax on regular basis. Therefore the remaining question to consider is whether net service charges recovered from customers for courier service retained by the appellant after the payment of the portion due the agents/franchisee is again assessable for service tax under the head 'franchise service' under Section 65(47) read with 65(105)(zze) of the Act.

The High Court in the first place found from Section 67 the entire amount collected from the customers for rendering courier service is subject to tax at the hands of agent/franchisee. In the view of High Court if a service falls under two heads, there is no provision in the Finance Act, 1994 to tax the very same service charges twice under two heads. In the present case what was done is double assessment on part of the service charges collected, for rendering courier service at the hands of the appellant. The High Court does not think that Sec.65(47) read with 65(105)(zze) has any application in regard to rendering of courier service by appellants with the assistance of agents/franchisees.

The High Court analyzed the provisions relating to 'franchisee. According to Sec.65 (47) franchisee means an agreement by which-

* 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 franchisor provides concepts of business operation to franchise, including know-how, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee;

* the franchisee is required to pay to the franchisor, directly or indirectly, a fee; and

* the franchisee is under an obligation not to engage in selling or provides similar goods or services or process, identified with any other person.

From the above, the High Court held that it is clear that under the franchise agreement, the franchisor gives a right to the franchisee to do business in a representative manner by using franchisor's trade mark or trade name. In such case, the franchisee is to make payments to the franchisor for using their name, trade mark etc., in respect of the goods sold or the service rendered. In this case, in fact, the agent/franchisee is not doing independent business but is only acting as agent for collection and delivery of parcel as agent in the courier service. Apart from appointing the agent/franchisees the appellants are not rendering any service to the franchisees. The franchisees also do not make any payment to the appellant which along could be subject to tax under the IT Act. In fact, franchisee gets paid only for the work done for the franchisor, i.e,, in the courier service by acting as agent for collection and distribution of articles for customers. The only provision under which tax can be levied for the entire transaction involving the appellant and agents/franchisee is the tax on courier service covered under Section 65(33) read with Section 65(105)(f) of the Act. The Court further held that the assessment and demand of tax from the appellant under Section 65(47) read with Section 65 (105)(zze) is untenable. The Court, therefore, allowed the appeals. However the Court held that it would be open to the department to cross check the amounts received by the appellants from agents/franchisees and verify whether all the franchisees who have made payments have remitted service tax for entire courier service charges collected as stated by the appellants based on which the Court allowed this appeal.