2023 (3) TMI 577 - AT - Service Tax

Non/short payment of service tax - advertisement expenses incurred by the local franchisees - non-payment of service tax on management consultancy services by wrongly claiming the same as export service - Interest on late payment of service tax on franchisee fees to McDonald s USA - HELD THAT - In the instant case it has been stated by the appellant that the appellant had filed an application with the Reserve Bank of India on 17 August, 2021 for granting permission for adjustment of the receivables. In response to the request made, the Reserve Bank of India accorded the approval and the appellant made the remittance of the net amount of Rs. 3,38,13,31,677/- to McDonald s Corporation USA on 30 March, 2022. The impugned order in so far as it seeks to confirm the demand of service tax in regard to the first issue, namely non-payment of service tax on advertisement expenses incurred by franchisees deserves to be set aside. Non-payment of service tax on management consultancy services by wrongly claiming the same as export service - HELD THAT - The matter needs to be remitted to the Commissioner to pass a fresh reasoned order in the light of the observations made above and the additional facts brought to the notice of the Tribunal by the appellant. Appeal allowed in part and part matter on remand.

Summary

Issues:
- Assailing the order passed by the Commissioner of Service Tax, Delhi-I on the statement of demand for the period 2014-2015.
- Non-payment of service tax on advertisement expenses by local franchisees.
- Short payment of service tax due to wrong utilization of cenvat credit.
- Non-payment of service tax on 'management consultancy' services by claiming it as 'export service'.
- Interest on late payment of service tax on franchisee fees to McDonald's USA.

Analysis:
1. The appeal challenges the order confirming the demand of service tax issued under section 73(1)A of the Finance Act, 1994 for the period 2014-2015. The issues raised in earlier show cause notices include non-payment of service tax on advertisement expenses by local franchisees, wrong utilization of cenvat credit leading to short payment of service tax, and wrongly claiming 'management consultancy' services as 'export service'. Additionally, interest on late payment of service tax on franchisee fees to McDonald's USA was raised.

2. The Tribunal previously decided on two issues - non-payment of service tax on advertisement expenses by franchisees and non-payment of service tax on 'management consultancy' services claimed as export service. The Tribunal held that advertisement expenses incurred by franchisees cannot be considered as consideration paid to the appellant. Regarding 'management consultancy' services, the Tribunal found that the matter needs further examination as per Export Rules.

3. The appellant, a subsidiary of McDonald's USA, provides services to local franchisees in India and 'management consultancy' services to McDonald's USA. The appellant claimed that service tax was paid on royalty and location fees received. Changes in rules treated these services as exports. The appellant's application for adjustment of receivables was approved by the Reserve Bank of India.

4. The Tribunal set aside the demand on advertisement expenses but remitted the issue of non-payment of service tax on 'management consultancy' services back to the Commissioner for a fresh decision. The Tribunal directed the Commissioner to consider additional facts presented by the appellant and make a reasoned decision based on the observations made.

5. The appeal was allowed to the extent indicated, with the confirmation of demand on advertisement expenses set aside, and the issue of non-payment of service tax on 'management consultancy' services remitted for a fresh decision by the Commissioner.

This detailed analysis covers the issues raised in the legal judgment, providing a comprehensive understanding of the case and the Tribunal's decision on each matter.