2019 (12) TMI 560 - HC - Service Tax

Maintainability of appeal - appropriate forum - Franchise service - failure to obtain service tax registration for providing franchise service, which is a taxable service - failure to discharge due service tax liability inclusive of Education Cess and Secondary Higher Education Cess - HELD THAT - A perusal of Section 35L (b) goes to show that an appeal against any order passed by the CESTAT relating, among other things, to the determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment shall lie directly to the Hon ble Supreme Court. Such order, as is noticed earlier, is not made appellable to the High Court, as Section 35G specifically excludes such an order from being a subject matter of an appeal before the High Court. A perusal of the judgment of the High Court of Delhi in Ernst Young Pvt. Ltd. 2014 (2) TMI 1133 - DELHI HIGH COURT goes to show that a contention was advanced by the Revenue that the expression rate of duty or value of service should be construed in a narrow manner limiting it to the rate of duty payable on the service chargeable to tax or the valuation of the service which is chargeable to tax and that the same will not encompass the question as to whether the activity is a taxable service under the charging section - The High Court of Delhi held that determination of any question relating to rate of tax would necessarily directly and proximately involve the question, which is, whether the activity falls within the charging section and service tax is leviable on the said activity. It was further held that the said determination is integral and an important injunct to the question of rate of tax. In case service tax is not to be levied or imposed and cannot be imposed under the charging section, no tax would be payable - the words rate of tax in relation to rate of tax would include the question whether or not the activity is excisable to tax under a particular or specific provision. While respectfully following the decision of High Court of Delhi in Ernst Young Pvt. Ltd., we also note that Sub-Section (2) of Section 35L, which was inserted by the Finance (No.2) Act, 2014 with effect from 06.08.2014, makes it abundantly clear that the determination of any question having relation to the rate of duty shall include determination of taxability or excisability of goods for the purpose of assessment. These appeals before this Court are not maintainable under Section 35G of the Act of 1944 - Appeal dismissed as being not maintainable.

Summary

Issues Involved:
1. Maintainability of the appeals under Section 35G of the Central Excise Act, 1944.
2. Taxability of accreditation fees received by the respondent.
3. Taxability of alumni fees collected by the respondent.

Issue-wise Detailed Analysis:

1. Maintainability of the appeals under Section 35G of the Central Excise Act, 1944:

The primary issue in both appeals was whether they were maintainable under Section 35G of the Central Excise Act, 1944. The respondent raised a preliminary objection, arguing that the appeals related to the "determination of any question having a relation to the rate of duty of excise or to the value of goods for purposes of assessment," which should be addressed by the Supreme Court under Section 35L of the Act. The court examined the statutory provisions and relevant case law, including the Supreme Court's decision in Navin Chemicals Mfg. and Trading Co. Ltd., which defined the scope of the phrase "relation to the rate of duty or to the value of goods for purposes of assessment." The court concluded that the appeals involved questions directly and proximately related to the rate of duty and the value of services, thus falling under Section 35L. Consequently, the appeals were deemed not maintainable before the High Court.

2. Taxability of accreditation fees received by the respondent:

In Tax Appeal No. 01 of 2017, the issue revolved around whether the accreditation fees received by the respondent from Learning Centres were subject to service tax under the Finance Act, 1994. The Commissioner had initially demanded service tax, interest, and penalties, concluding that the relationship between the respondent and the Learning Centres was that of a franchisor and franchisee. However, the CESTAT set aside the Commissioner's order, accepting the respondent's argument that the fees charged were not subject to service tax. The High Court noted that the determination of whether the accreditation fees were taxable was a substantive question of law directly related to the rate of duty, thus falling under the jurisdiction of the Supreme Court as per Section 35L.

3. Taxability of alumni fees collected by the respondent:

In Tax Appeal No. 02 of 2017, the issue concerned the taxability of alumni fees collected by the respondent from students. The Commissioner had issued a show cause-cum-demand notice, asserting that the alumni fees were taxable under "Business Auxiliary Services" and later under "Other than Negative Services" as per the Finance Act, 1994. The CESTAT, however, found that the respondent had not provided any service in exchange for the alumni fees, thereby negating the applicability of service tax. The High Court observed that the determination of whether the alumni fees were taxable was integral to the question of the rate of duty, and thus, the appeal should be addressed by the Supreme Court under Section 35L.

Conclusion:

The High Court upheld the preliminary objection raised by the respondent, concluding that the appeals involved the determination of questions directly related to the rate of duty and the value of services, which fall under the jurisdiction of the Supreme Court as per Section 35L of the Central Excise Act, 1944. Consequently, the appeals were disposed of as not maintainable before the High Court.