2009 (11) TMI 529 - AT - Service Tax

Courier Service - assessee had entered into franchise agreement with several persons - Agents designated as franchisees and conditions of franchise agreement not enforced - all the 4 conditions of the taxable service are not met - Appellant is not covered by the definition of franchisee service as given in Section 65(47) of the Finance Act, 1994 and therefore would not attract service tax - appellants are not a franchiser rendering franchise service

Issues:
1. Liability to pay service tax under the category of 'franchise service.'
2. Applicability of penalties under Sections 78 and 76 of the Act.
3. Invocation of extended period for recovering tax.
4. Definition and enforcement of franchise agreement.
5. Evidence of franchisee fees collection and prohibition on similar services.
6. Compliance with conditions of franchise agreement.
7. Interpretation of relevant legal provisions and precedents.

Issue 1: Liability to pay service tax under the category of 'franchise service.'
The case involved M/s. Bonanza Speed Couriers (P) Ltd. failing to discharge their service tax liability under the 'franchise service' category as per Section 65(47) of the Finance Act, 1994. The original authority demanded Rs. 2,37,847/- as due service tax along with penalties under Sections 78 and 76 of the Act. The Commissioner (Appeals) upheld the original authority's decision, emphasizing that the agreements with franchisees satisfied the criteria laid down in the Act. The appellants argued against the imposition of service tax, interest, and penalties, citing lack of evidence and non-collection of franchisee fees.

Issue 2: Applicability of penalties under Sections 78 and 76 of the Act.
The appellants contested the penalties imposed under Sections 78 and 76 of the Act, claiming no deliberate attempt to evade payment and citing the absence of fraud or suppression to justify invoking the extended period for recovery. They relied on legal precedents to support their argument that the demand, interest, and penalties were not sustainable. The Tribunal analyzed the facts and legal provisions to determine the validity of the penalties in light of the appellants' arguments.

Issue 3: Invocation of extended period for recovering tax.
The appellants challenged the invocation of the extended period for recovering tax due from July 2003 to March 2005, arguing that no deliberate evasion was established. They referenced a Supreme Court judgment to support their claim. The Tribunal examined whether the conditions for invoking the extended period were met and assessed the applicability of the extended period based on the facts and legal principles.

Issue 4: Definition and enforcement of franchise agreement.
The Tribunal scrutinized the franchise agreement between M/s. Bonanza Speed Couriers and their agents designated as franchisees to determine compliance with the provisions of Section 65(47) of the Act. The appellants contended that they did not enforce certain conditions of the agreement, including payment of franchisee fees and the prohibition on providing similar services. The Tribunal evaluated the enforcement of the agreement terms and their alignment with the legal definition of a franchise under the Act.

Issue 5: Evidence of franchisee fees collection and prohibition on similar services.
The Tribunal examined whether M/s. Bonanza Speed Couriers collected franchisee fees from their designated agents and enforced the prohibition on providing similar services to other entities. The Commissioner's findings regarding fee collection and service prohibition were challenged by the appellants, who argued against the lack of conclusive evidence supporting the Commissioner's conclusions. The Tribunal assessed the evidence presented and the implications for the appellants' liability under the 'franchise service' category.

Issue 6: Compliance with conditions of franchise agreement.
The appellants consistently maintained that they did not collect franchisee fees from their appointed agents and did not enforce the prohibition on providing similar services. Legal precedents, including the Franch Express Network Pvt. Ltd. and Dewsoft Overseas Pvt. Ltd. cases, were cited to support the appellants' position. The Tribunal compared the facts of the present case with the precedents to determine the appellants' compliance with the conditions of the franchise agreement as defined in the Act.

Issue 7: Interpretation of relevant legal provisions and precedents.
The Tribunal analyzed the legal provisions under Section 65(47) of the Act defining a franchise and the requirements for service tax liability under the 'franchise service' category. Precedents such as the Franch Express Network Pvt. Ltd. and Dewsoft Overseas Pvt. Ltd. cases were considered to interpret the applicability of the law to the facts of the case. The Tribunal's decision was based on a comprehensive review of the legal framework and relevant judicial interpretations.

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