2009 (11) TMI 223 - HC - Service Tax

Courier Service - service tax liability on Franchisor (appellant) - the service charges collected and shared between the appellant and the agents/franchisees - appellant is engaged in rendering courier service which involves collection of letters, parcels, articles etc from customers and then delivery of the same to the addressees. In this business, the appellant has engaged several agents who are named as Franchisees in the agreement between the appellant and them whereunder these agents collect articles from customers along with service charges at the tariff prescribed by the appellant. Held that In this case, in fact, the agent/franchisee is not doing independent business but is only acting as agent for collection and delivery of parcel as agent in the courier service. Apart from appointing the agent / franchisees, the appellants are not rendering any service to the franchisees. - the assessment and demand of tax from the appellant under section 65(47) read with Section 65(105)(zze) is untenable.

Summary

Issues:
Challenge to levy of service tax on courier service agency for franchisee service under the Finance Act, 1994.

Analysis:
The High Court of Kerala heard appeals filed by a courier service agency against Customs, Excise & Service Tax Appellate Tribunal's orders upholding the levy of service tax on the appellant for franchisee service under the Finance Act, 1994. The appellant engaged agents named Franchisees who collected articles from customers along with service charges and remitted service tax to the Central Excise Department. The appellant shared service charges with Franchisees based on agreements. The Tribunal assessed the net amount retained by the appellant for franchise service, leading to double taxation under 'tax on courier service' and 'tax on franchise service'. The appellant approached the Court under section 35G of the Central Excise Act, 1944, challenging the Tribunal's decision.

The Court noted that while second appeals against non-compliance with pre-deposit orders are not maintainable, a connected appeal was decided on merit by the Tribunal. The appellant's primary activity was courier service involving collection and delivery of articles. The service charges collected were shared between the appellant and Franchisees. The issue was whether the net service charges retained by the appellant after payment to Franchisees were subject to further tax under 'franchise service'. The Court analyzed Section 67 and found no provision in the Finance Act, 1994 for double taxation of the same service charges. It held that the appellant's courier service with Franchisees did not fall under 'franchise' as defined in the Act.

The Court clarified that a franchise agreement involves representational rights and payments for using the franchisor's name or trademark, which was not the case with the appellant and Franchisees. The appellant was not providing services to Franchisees beyond appointing them for courier service. The only applicable tax provision was for courier service under Section 65(33) read with Section 65(105)(f) of the Act. The Court allowed the appeals, vacating the Tribunal's orders on tax and penalties, with a directive for the department to verify service tax remittances by Franchisees based on the appellant's submissions.