2009 (11) TMI 471 - HC - Service Tax

Courier Service - Assessee was engaged in providing courier service. In the said business, it had engaged several agent, called as franchises who were collecting service tax along with service charges from customers while accepting article. Service tax so collected were remitted to department by agent, on their own name after taking registration under category of courier service. Department demanded service tax from assessee under category of Franchise Service on net amount retained by it out of charges collected for courier service after making payment to agents/franchisees. Held that - since agent/franchisees were not doing independent business but were only acting as agent for collection and delivery of parcel as agent in courier service and apart from appointing agents/franchisees, assessee was also not rendering any service to franchisees, demand of service tax from assessee under category of franchisee service was not tenable.

Summary

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

Analysis:
The High Court of Kerala heard connected appeals filed by a courier service agency challenging the Customs, Excise & Service Tax Appellate Tribunal's orders upholding the levy of service tax on the appellant for providing franchisee service under the Finance Act, 1994. The appellant engaged agents named franchisees who collected articles and service charges from customers, remitted service tax, and shared charges with the appellant. The department assessed the net amount retained by the appellant for franchise service tax, leading to double taxation. The Tribunal rejected one appeal for non-compliance with pre-deposit conditions but decided on merit in another appeal. The Court proceeded to assess the correctness of the service tax levy in both cases.

The appellant's primary activity was courier service involving collection and delivery of articles. The appellant contended that the complete courier service involved services of both agents/franchisees and the appellant. The crucial question was whether service charges collected from customers, already taxed for courier service by agents/franchisees, should be taxed again for franchisee service at the appellant's end. The Court found no provision in the Finance Act to tax the same service charges twice. Section 65(47) defining franchise did not apply to the appellant's courier service with agents/franchisees. The franchise agreement typically involves representational rights, payments from franchisee to franchisor, and use of trademark or trade name, which was not the case here. The appellant was not providing services to franchisees beyond appointing them for courier operations. The only applicable tax provision was for courier service under section 65(33) read with section 65(105)(f) of the Act.

The Court held the assessment and demand of tax under section 65(47) read with section 65(105)(zze) as untenable, allowing the appeals by vacating the Tribunal and lower authorities' orders on tax and penalties. The department was permitted to verify payments made by agents/franchisees and ensure service tax remittance for the entire courier service charges collected, as stated by the appellant.