2015 (5) TMI 705 - AT - Service Tax

Intellectual property Right services - Non speaking order - Held that - Paras 28 and 29 of the impugned order which dealt with the impugned demand relating to intellectual property are clearly and admittedly non-speaking. Indeed, the first 6 lines of the said para 28 are essentially reproduction of para 18 of the order-in-original passed in respect of the appellant in a case relating to a different show cause notice. The said para 28 is also factually misleading inasmuch as it incorrectly states that the noticees have not disputed that they have received taxable services from their associate enterprises and they were liable to pay service tax under reverse charge in terms of Section 66A of the Finance Act, 1994 Thus both sides have rightly agreed that the impugned adjudication order relating to the confirmation of service tax demand under intellectual property service is a non-speaking one. Franchisee service - Invocation of extended period of limitation - whether the appellant gave to the distributors representational right to sell its products i.e. products identified with it - Held that - appellant does not dispute that it gave right to sell products identified with it to the distributors. To decide this issue, one necessarily has to refer to Amway s Business Starter Guide and Distributor Application and Terms and Conditions . As per the terms and conditions of distributors, an Amway distributor is also governed by Rules of Conduct - ABO/distributor is not merely granted right to sell Amway products but he has the representational rights to sell such products. - ABOs clearly had representational right to sell goods indentified with Amway. The impugned order therefore, cannot be faulted for concluding accordingly on the basis of the Amway Business Starter Guide, Distributor Application and Terms and Conditions etc. Adjudicating authority did not impose penalty under Section 78 of the Finance Act, 1994. As the ingredient for invoking extended period under proviso to Section 73 (1) ibid are identical to those required for imposing penalty under Section 78 ibid., it follows that the extended period is not invocable in this case and the finding of the primary adjudicating authority in para 44 of the impugned order (referred to above) is totally inconsistent with his finding that penalty under Section 78 is not imposable. It is also pertinent to note that Revenue has not filed any appeal against the non-imposition of penalty under Section 78 ibid. Also the impugned demands do not involve extended period in any case and therefore, the finding in para 44 of the impugned order that extended period of limitation is applicable in terms of proviso to Section 73(1) of Finance Act is of no relevance/consequence. - Decided partly in favour of assessee.

Summary

Issues Involved:
1. Service tax liability under Intellectual Property Rights (IPR) Service.
2. Service tax liability under Franchise Service.
3. Applicability of the extended period of limitation under Section 73(1) of the Finance Act, 1994.
4. Non-imposition of penalty under Section 78 of the Finance Act, 1994.

Detailed Analysis:

1. Service Tax Liability under Intellectual Property Rights (IPR) Service:
The appellant contested the service tax demand under IPR service, arguing that service tax was payable only on intellectual property registered in India. They cited Notification No.17/2004-ST and a Board Circular to support their claim. The adjudicating authority, however, confirmed the demand, stating that the appellant was liable to pay service tax under reverse charge as per Section 66A of the Finance Act, 1994, and dismissed their contentions. The tribunal found the adjudicating order to be a non-speaking order, as it did not consider and analyze the appellant's submissions. Consequently, the tribunal set aside the impugned order related to the IPR service demand and remanded the case to the primary adjudicating authority for a fresh, speaking order.

2. Service Tax Liability under Franchise Service:
The appellant argued that their distributors did not have representational rights to sell Amway products, hence no franchise service was involved. They referred to various legal definitions and judgments to support their argument. However, the tribunal examined the Amway Business Starter Guide and Distributor Application and Terms and Conditions, concluding that the distributors were indeed granted representational rights to sell Amway products. The tribunal upheld the adjudicating authority's order regarding the service tax demand under franchise service.

3. Applicability of the Extended Period of Limitation under Section 73(1) of the Finance Act, 1994:
The adjudicating authority initially held that the extended period of limitation was applicable. However, the tribunal found this finding inconsistent with the adjudicating authority's decision not to impose a penalty under Section 78, which requires identical conditions of fraud, suppression, or willful misstatement. Since the Revenue did not appeal against the non-imposition of the penalty, the tribunal concluded that the extended period was not invocable and that the finding regarding its applicability was irrelevant.

4. Non-imposition of Penalty under Section 78 of the Finance Act, 1994:
The adjudicating authority did not impose a penalty under Section 78, reasoning that the earlier show cause notice had already been adjudicated with a penalty for fraud, suppression, and willful misstatement. The tribunal agreed with this decision and noted that the Revenue did not appeal against the non-imposition of the penalty, further supporting the conclusion that the extended period of limitation was not applicable.

Conclusion:
(i) The tribunal upheld the service tax demand under franchise service.
(ii) The tribunal set aside and remanded the service tax demand under IPR service to the primary adjudicating authority for de novo adjudication and a speaking order.
(iii) The tribunal found the extended period of limitation inapplicable due to the inconsistency with the non-imposition of the penalty under Section 78.