2023 (3) TMI 574 - AT - Service Tax

Liability to pay service tax for the period post 01.07.2003 - franchise service was provided post its enactment i.e on 01.07.2003, and prior to that date, but the contract for the franchise service and payment therefore, was made prior to 01.07.2003 - whether the appellant s demand under commission service is time barred when the service of commission provided by giving table space to the finance company for sale of their finance product? HELD THAT - The fact which is not under dispute is that the appellant have entered into a contract of franchise agreement before 01.07.2003. and the payment of such contract was also made at the time of entering into the contract. In this fact the Hon ble Rajasthan High Court in 2018 (3) TMI 1288 - RAJASTHAN HIGH COURT has decided the matter holding that when the contract was entered and payment thereof was made at a subsequent stage if the service was brought under the levy of service tax, the appellant is not liable to pay the service tax, for the reason that the the provision of services shall be treated as provided on the date of contract on payment of service value - it is settled that in respect of Franchise Service the service tax will arise as per the date of contract and date of payment for the service and if the same is at a time when there is no levy, no service tax can be charged. Accordingly, in the present case also the service tax on franchise service is not chargeable. Levy of service tax - Business Auxiliary Service under the head of commission - HELD THAT - The issue was not free from doubt and this Tribunal in the case of SILICON HONDA VERSUS COMMISSIONER OF C. EX. (APPEALS-II), BANGALORE 2007 (4) TMI 27 - CESTAT, BANGALORE , TRIBHUVAN MOTORS LTD. VERSUS COMMISSIONER OF SERVICE TAX, MANGALORE 2009 (5) TMI 382 - CESTAT, BANGALORE held in favour of the assessee that mere providing the table space to the financial institutions, it is not taxable. However, the issue was subsequently referred to the larger bench and in the case of M/S PAGARIYA AUTO CENTER VERSUS CCE, AURANGABAD 2014 (2) TMI 98 - CESTAT NEW DELHI (LB) , It was held that the commissioner received from the financial institution shall be liable to service tax. Extended period of limitation - suppression of facts - HELD THAT - The suppression of fact cannot be alleged against the appellant. Therefore, the demand being covered under the extended period will not sustain as the same is hit by limitation. Appeal allowed.

Summary

Issues:
1. Liability to pay service tax on franchise service post 01.07.2003.
2. Time-barred demand on commission service under Business Auxiliary Service.

Analysis:

Issue 1: Liability to pay service tax on franchise service post 01.07.2003
The appellant argued that since the contract and payment for the franchise service were made before the service tax levy on 01.07.2003, they should not be liable for service tax post that date. The Hon'ble Rajasthan High Court held that services provided under a contract before the levy of service tax should not attract service tax post the implementation date. This interpretation was supported by the Chennai Bench of the Tribunal in a similar case. Therefore, the appellant was not liable to pay service tax on the franchise service post 01.07.2003.

Issue 2: Time-barred demand on commission service under Business Auxiliary Service
Regarding the demand on commission service for providing table space to a financial institution, the appellant contended that the issue was under dispute and previous judgments favored the assessee. However, a subsequent decision by the Larger Bench in the case of Pagariya Auto Center held that such commission received would be liable to service tax. Despite the initial ambiguity in the interpretation of the law, the demand was considered time-barred due to the extended period being hit by limitation. The Tribunal found that the suppression of fact could not be alleged against the appellant. Therefore, the demand on commission service was not sustainable.

In conclusion, the Tribunal set aside the impugned order, allowing the appeal based on the findings that the appellant was not liable for service tax on franchise service post 01.07.2003 and that the demand on commission service was time-barred. The judgments cited by both parties were crucial in establishing the legal precedent for the issues at hand, ensuring a fair and just decision in the matter.