2012 (6) TMI 520 - AT - Service Tax

Waiver of pre-deposit - Franchise Service - appellants getting branded alcoholic beverages manufactured from different contract bottling units (CBUs) on contract basis - activity of the applicants for the subsequent period, in the applicants own case, the Commissioner has dropped the demand holding that the activity undertaken by the applicants does not fall under the Franchise Service . He further submitted that prior to 16.6.2005, under the exhaustive definition, it was held by the Commissioner that activity does not fall under Franchise Service Held that - activity undertaken by the applicants cannot be covered under the restricted definition of Franchise Service . Further, the issue is debatable and interpretation of law under which category the activity undertaken by the applicants shall be covered and from whom the Service Tax is to be recovered is also in jeopardy. Waiver of pre-deposit of entire demand of Service Tax, interest and various penalties granted.

Summary

Issues:
1. Waiver of pre-deposit of Service Tax under 'Franchise Service' and 'Management Consultants Service' along with penalties.
2. Tax liability of the applicants under 'Franchise Service' and 'Management Consultant Service'.
3. Interpretation of the definition of 'Franchise Service' under the Finance Act, 1994.
4. Bar of limitation for issuing the show-cause notice.
5. Allegation of suppression of activity by the applicants.
6. Confusion regarding the appropriate category for levying Service Tax.

Analysis:
The applicants sought a waiver of pre-deposit of a substantial amount of Service Tax under the categories of 'Franchise Service' and 'Management Consultants Service', along with penalties and interest. The case revolved around the applicants, who were owners of different brands of Indian Made Foreign Liquor (IMFL) and engaged in getting branded alcoholic beverages manufactured by contract bottling units (CBUs) through agreements. The tax liability of the applicants was examined under 'Franchise Service' due to the arrangement with CBUs for manufacturing and selling branded beverages. A show-cause notice was issued for demanding Service Tax, which was contested by the applicants but ultimately confirmed along with penalties and interest.

The applicants argued that the subsequent period's Commissioner had dropped the demand, stating that the activity did not fall under 'Franchise Service'. They also claimed that the show-cause notice was beyond the normal period and relied on a Board's clarification regarding the nature of surplus/profit earned by the brand owner. The Revenue, however, contended that the activity qualified as 'Franchise Service' under the restricted definition before a certain date and that suppression of activity had occurred, justifying the extended period of limitation.

After hearing both sides, the Tribunal found that the activity undertaken by the applicants could not be covered under the restricted definition of 'Franchise Service'. The issue was deemed debatable, with uncertainty on the appropriate category for Service Tax and the party liable for payment. Given the circumstances and the differing interpretations of the law, the Tribunal granted a waiver of pre-deposit of the entire demand of Service Tax, interest, and penalties, staying the recovery during the appeal's pendency. The decision highlighted the need for clarity in defining taxable activities and the importance of considering all aspects before imposing liabilities.