2014 (7) TMI 1044 - AT - Service Tax

Valuation - Franchisee service - Non inclusion of amount of royalty - Held that - Prima facie, the appellant is liable to include the so-called royalty as part of the taxable value of Franchise Service . It has been claimed by the learned counsel that the royalty was collected by the franchisor from the franchisee as part of a profit sharing arrangement, which argument does not appeal to us inasmuch as the royalty is the only consideration specifically mentioned in the relevant agreement as consideration to be paid by the franchisee to the franchisor - royalty referred to in the agreement and actually collected by the appellant from the franchisee ought to have been made part of the taxable value of the Franchise Service for the period of dispute - Prima facie case not in favour of assessee - stay granted partly.

Summary

Issues:
1. Miscellaneous application for bringing certain documents on record and incorporating additional grounds in the memorandum of appeal.
2. Stay application seeking waiver of pre-deposit and stay of recovery of adjudged dues related to service tax and education cess under the Head "Franchise Service" for a specific period.
3. Interpretation of franchise agreement terms concerning royalty payment, service tax liability, and franchisee obligations.
4. Appellant's argument against service tax on royalty, reliance on case laws, limitation plea, and financial hardships plea.
5. Revenue department's contention on including royalty in taxable value, disclosure issues, limitation period, and revenue neutrality argument.

Analysis:

1. The judgment addresses a miscellaneous application seeking to introduce certain documents and additional grounds in the appeal memorandum, which was allowed by the tribunal after hearing both parties.

2. The stay application filed by the appellant requested a waiver of pre-deposit and stay of recovery for the assessed dues, including service tax and education cess. The tribunal examined the details and directed the appellant to make a specific pre-deposit within a stipulated period.

3. The tribunal analyzed the terms of the franchise agreement, emphasizing the obligations of the franchisor and franchisee, particularly regarding royalty payment, service tax liability, and restrictions on activities by the franchisee.

4. The appellant argued against the service tax on royalty, citing specific case laws to support their position. They also pleaded limitations on the demand for service tax and highlighted financial hardships through a provisional profit and loss account.

5. The revenue department contested the appellant's position, asserting that royalty should be included in the taxable value for service tax. They raised concerns about non-disclosure of royalty collection, limitation period, and the plea of revenue neutrality. The tribunal considered these arguments and directed the appellant to make a pre-deposit, subject to compliance.

This comprehensive analysis covers the key issues addressed in the judgment, including the interpretation of the franchise agreement terms, arguments presented by both parties, and the tribunal's decision regarding the pre-deposit and stay of recovery.