2007 (12) TMI 129 - AT - Service Tax

Appellant has entered into franchise agreement with various persons for providing courier service even if franchisees are discharging service tax liability on courier services , appellant, franchisor is clearly liable for discharging the ST liability on franchise services also both services are differed under statue - this cannot be objected by the appellants on the ground that it amounts to double taxation - commission received by the franchisor from the franchisees is taxable

Summary

Issues Involved:
1. Service Tax liability on "Franchise Service"
2. Allegation of double taxation
3. Penalties imposed under various sections of the Finance Act, 1994

Issue-Wise Detailed Analysis:

1. Service Tax liability on "Franchise Service":
The appellants, M/s Speed and Safe Courier Service, were engaged in providing "Courier Service" through their branches and franchisees. Revenue proceeded against them for not discharging Service Tax on the amount collected towards 'Franchise Service,' which became taxable from 1-7-2003. The Commissioner confirmed a Service Tax demand of Rs.52,01,026/- for the period from 1-7-2003 to 31-12-2004 under Section 73 of the Finance Act, 1994. The appellants argued that the agreements with franchisees were not strictly 'Franchise Agreements' and that they were merely agents, thus not liable for Service Tax under 'Franchise Service.' However, the Tribunal found that the agreements met the definition of 'Franchise' under Section 65 of the Finance Act, 1994, and that the appellants were liable for Service Tax on the amounts received from franchisees.

2. Allegation of double taxation:
The appellants contended that demanding Service Tax under 'Franchise Service' amounted to double taxation since the franchisees had already paid Service Tax on the amounts collected for courier services. The Tribunal, however, clarified that there was no double taxation. The Service Tax paid by franchisees was for 'Courier Service,' while the Service Tax demanded from the appellants was for 'Franchise Service.' These were distinct services under the statute, and taxing the gross receipts for franchise services did not constitute double taxation. The Tribunal cited the Adjudicating authority's finding that the commission received by the franchisor (appellants) from the franchisees was separate from the courier services and had not been previously taxed.

3. Penalties imposed under various sections of the Finance Act, 1994:
The Commissioner imposed several penalties on the appellants: a daily penalty under Section 76 for failure to pay the tax, a penalty of Rs.1000/- under Section 77 for contravening Section 70, and a penalty equal to the Service Tax demanded under Section 78 for suppressing material facts with intent to evade tax. The Tribunal upheld the demand for Service Tax and the imposition of penalties but reduced the penalty under Section 78 to Rs.5,00,000/- considering the facts and circumstances. The impugned order was modified to this extent, and the appeal was disposed of accordingly.

Conclusion:
The Tribunal confirmed the Service Tax demand under 'Franchise Service,' rejected the claim of double taxation, and upheld the penalties with a reduction in the penalty under Section 78. The appeal was disposed of with the modification in the penalty amount.