2014 (8) TMI 712 - AT - Service Tax

Waiver of pre deposit - Franchise service or not - sub-license agreement - penalties under Section 76, 77 & Rule 7C read with section 70 - Held that - Assessee was given the right to book, deliver, transshipment, handling, loading, unloading etc. and to carry out the business of courier by the ordinary buses of MSRTC. The said agreement by no stretch of imagination can be considered as a franchise services because MSRTC is not a courier service provider but merely transporter of goods. Further, the sub-licensee M/s ShriSai Transport and Courier Pvt. Ltd. cannot be considered as franchisee of Baba Trading Company as he is not representing M/s Baba Trading Company but MSRTC who is actually undertaking the transportation of the parcels/goods. As per the clarification issued by the CBE & C, classification under business support service will be effective from 01/05/2011 and not prior to that. Thus, as per the department itself, prior to 01/05/2011, there is no liability to pay service tax on the said activity. If a service is classifiable under business support service from a given date and the said service is not carved out of any of the existing services, it cannot be construed that service was taxable prior to that date. In the present case, therefore, the question of levying any service tax on the activity under the category of franchise service would not arise at all, inasmuch as the business support service has not been carved out of franchise service . In these circumstances, the appellant has made out a strong case for waiver of pre-deposit of the dues adjudged - Stay granted

Summary

Issues:
Service tax demand under the category of franchise service, applicability of service tax prior to 01.05.2011, demand barred by limitation, sustainability of the demands, interpretation of franchise agreement.

Analysis:

Service Tax Demand under Franchise Service:
The appellant contested the service tax demand categorized as franchise service due to a contract with a transport corporation. The appellant argued that the service should be classified under "support services of business or commerce" as clarified by the Commissioner of Service Tax, Mumbai. The appellant highlighted a similar clarification by the Board regarding a different entity in Gujarat. The appellant contended that the demand under franchise service was legally unsustainable.

Applicability of Service Tax Prior to 01.05.2011:
The appellant emphasized that the demand period was before 01.05.2011, and the liability to pay service tax did not arise before that date. The appellant pointed out that the show-cause notice was issued after the demand period, indicating a limitation issue. The appellant argued that even if service tax was applicable, it should only be on the amount retained after payments to the transport corporation.

Demand Barred by Limitation and Sustainability:
The Revenue reiterated the findings, asserting that the appellant's representation of the transport corporation through the sub-licensee constituted franchise service. The Revenue contended that the demands were sustainable based on the invoicing details. However, the Tribunal analyzed the contract terms and concluded that the agreement did not align with franchise services. The Tribunal noted that the sub-licensee was not representing the appellant but the transport corporation, and the services rendered were not within the franchise service category.

Interpretation of Franchise Agreement:
The Tribunal scrutinized the contract terms and clarified that the agreement did not fit the definition of franchise services. It emphasized that the transport corporation was not a courier service provider but a goods transporter. The Tribunal highlighted the sub-licensee's discharge of service tax liability under courier services, further supporting the conclusion that the services did not fall under franchise services. The Tribunal granted a waiver from pre-deposit of dues adjudged against the appellant and stayed the recovery during the appeal's pendency.

This detailed analysis of the legal judgment addresses the issues raised by the appellant regarding service tax demand, applicability of service tax, limitation concerns, sustainability of demands, and the interpretation of the franchise agreement, ultimately leading to the Tribunal's decision to grant a waiver and stay recovery of dues.