Customs, Excise and Gold Tribunal - Bangalore
Speed And Safe Courier Service vs The Commissioner Of Central Excise on 6 December, 2007
Equivalent citations: [2008]12STJ455(CESTAT-BANGALORE), 2008[10]S.T.R.337, [2007]13STT257
ORDER T.K. Jayaraman, Member (T)
1. This appeal has been filed against the Order-in-Original No. 10/2006/ST dated 21.08.2006, passed by the Commissioner of Central Excise & Customs, Kochi.
2. M/s Speed and Safe Courier Service, the appellants are engaged in providing "Courier Service" in different parts of the country through their own branches as well as through their designated franchisees. Based on the investigation, Revenue proceeded against the appellants on the ground that they have not discharged the Service Tax liability in respect of the amount collected by them towards 'Franchise Service' which became a taxable serviceable with effect from 1.7.2003. The Jurisdictional Commissioner after giving an opportunity of personal hearing passed the impugned order. He confirmed an amount of Rs. 52,01,026/- being the Service Tax along with Education Cess payable by the appellants for the period from 1.7.2003 to 31.12.2004 under Section 73 of the Finance Act, 1994. Interest was demanded under Section 75 of the Act. He imposed penalty @ Rs. 100/- under Section 76 of the Act for every day during which they failed to pay the amount of tax. Further a penalty of Rs. 1000/- was imposed under Section 77 of the said Act for contravening the provisions of Section 70 of the said Act. Finally he imposed a penalty equal to the Service Tax demanded under Section 78 of the Act, for suppressing material facts from the notice of the department with an intent to evade the payment of tax. The appellants are highly aggrieved over the impugned order. Therefore they have come before the Tribunal for relief.
3. Ms. Sreelatha Nair, learned Advocate appeared on behalf of the appellants and Mr. K. Sambi Reddy, learned JDR for the Revenue.
4. We heard both the sides in the matter.
5. The learned Advocate pointed out that the appellants are actually rendering 'Courier Services'. They have also entered into an agreement with various persons for rendering courier services in different parts of Kerala independently. For this purpose, they entered into 'Franchise Agreement'. She said that in terms of the agreement, the franchisees are rendering courier services and as a consideration, the appellants were actually paying certain percentage collected by the franchisee for rendering courier service as their commission. She submitted that the franchisees are actually the agents of the appellants and the agreement between the appellants and the franchisees cannot be strictly called the 'Franchise Agreement'. Therefore she said that the appellants are not liable for payment of service tax under the category of 'Franchise Service'. Further she said that when the franchisees who are already registered with the Service Tax Department collect the amounts for rendering courier services from their clients, they discharge the appropriate service tax after taking their commission in terms of the agreement between the appellants and the franchisees remit the balance amount to the appellants. The point made by the learned Advocate is that when an amount is collected from a customer for rendering courier service, the service tax has already been paid on it. Therefore demanding service tax from the appellants under the category of 'Franchise Service' amounts to double taxation. Therefore she requested the Bench to set aside the impugned order.
6. The learned JDR took us through the impugned Order-in-Original and submitted that there is actually no double taxation. The appellants have entered into 'Franchise Agreement' with various persons. The franchisees rendered the courier service under the name and style of M/s Speed and Safe Courier Service. The agreement in fact is only a 'Franchise Agreement' and all the ingredients of 'Franchise Service' as mentioned in the Finance Act are satisfied in the present case. In fact, in terms of the franchise agreement, the appellants received the balance amount after adjusting the commission due to the franchisees and this amount received by the appellants shall always represent the gross receipt rendered for franchise services rendered by the appellants. He pointed out that the Commissioner has examined the entire issue in terms of the Finance Act, 1994 and has come to the correct conclusion that the appellants are liable to pay service tax. Therefore he requested to confirm the order.
7. On a vary careful consideration of the issue, we find that as per Section 65 of the Finance Act, 1944, "franchise" means an agreement by which
(i) franchisee is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchisor, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved;
(ii) the franchisor provides concepts of business operation to franchisee, including knowhow, method of operation, managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all knowhow to franchisee.
(iii) the franchisee is required to pay to the franchisor, directly or indirectly, a fee; and
(iv) the franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.
The Commissioner has examined the issue with reference to the agreement entered by the appellants with various franchisees. Let us take a typical agreement. The agreement is described as 'Franchise Agreement'. The Franchise Agreement has been entered between the appellants, M/s Speed and Safe Courier Service, represented by Shri P. Unnikrishnan Nair and the Franchisee, Mr. Lijo K. Joy, aged 27, S/o Mr. K.T. Joy, residing at Karavat House, Thiruvankulam P.O., Ernakulam. The 'Franchise Agreement' (only relevant paragraphs) is reproduced herein below:
1. Franchisee shall be permitted to function as franchisee only within the territory of Thiruvankulam in Ernakulam District (as per the list attached) in Kerala State, subject strictly to the conditions that franchisee shall not transact, do or carry on similar business within the Kerala State for any, except franchisor and that franchisee shall not transact, do or carry on any similar business outside the territory allotted to the franchisee.
2. The documents / packets / parcels shall be collected by the franchisee from the customers and shall be booked after collecting the charges stipulated in the Schedule - 1 to this agreement. The rates shown in the Schedule - 1 are subject to variations as required by the franchisor and franchisee shall collect from the customers only the charges stipulated subject to such variations as may be communicated to the franchisee by the franchisor in writing from time to time. The franchisee shall ensure that pickups are accepted only for location as per the serviceable network of Speed & Safe Courier Service. The franchisee also must ensure that the consignee address must necessarily have the respective telephone numbers.
3. Franchisee shall maintain such documents in such form/style as may be required by the franchisor from time to time. Franchisee shall also report to the Head Office on a daily routine all records such as incoming load receipts, delivery status, non delivery details if any with genuine reasons. Franchisee shall always do business describing themselves and holding themselves out to the public/customers as the franchisee of Speed & Safe Courier Service.
4. Franchisee must collect all the articles entrusted to them by the customers and pack them in separate covers station-wise and handover the same to the franchisor's representative at the place and time specified by the franchisor from time to time. Franchisee also must ensure that, consignment notes are duly discharged by the consignor, making them binding on the terms and conditions printed overleaf of the consignment note.
5. The articles to be delivered to the customers within the franchisees' territory in the designated areas, shall be received by the franchisee from Speed & Safe Courier Service, Ernakulam Operations Office / Railway Station as the case may be. Similarly articles that are booked by the franchisee for different destinations, shall also be handed over at the Speed & Safe Courier Service, Ernakulam Operations office / Railway Station as the case may be at the franchisees cost. Franchisee shall distribute / deliver the same to the consignees against acknowledgments in the prescribed form / forms free of charge and the proof of delivery (POD) should be returned to the franchisor forthwith. All inbound articles are to be delivered on topmost priority.
6. Time is the essence of this business and franchisee shall therefore ensure that the articles are collected from the customers and the same is delivered to them expeditiously without any delay and without giving any room for any compliant.
7. Franchisees shall employ or engage the required personnel for the operation of their business and they shall be the franchisees' employees and Speed & Safe Courier Service shall have absolutely no responsibility or liability viz. Labour Law, ESI Act & PF Act etc. in respect of such employment or engagement.
8. Franchisee shall maintain high standards in business and ensure that the goodwill and reputation that the franchisor enjoy is maintained and improved. Under no circumstances the franchisee shall indulge in activities such as availing loan from banks or any other institutions projecting themselves as the franchisee of Speed & Safe Courier Service. Franchisee shall also not open bank account in the name of Speed & Safe Courier Services anywhere in India.
9. Franchisee shall be responsible for any loss / damage / delay to the articles collected from the customers or entrusted to the franchisee for distribution and shall indemnify the franchisor for any damages suffered by the franchisor due to the franchisees negligence. All such damages will be recovered from the security deposit placed with the franchisor.
10. The franchisor reserve their rights to appoint additional franchisees in the territory allotted to the franchisee at their discretion.
11. Franchisee shall pay a minimum sum of Rs. 10000/- (Rupees Ten thousand Only) as interest free security deposit. The security deposit is refundable only after evaluation of business conducted till the time of termination, and any sum due to Speed & Safe Courier Service shall be recovered from this security deposit.
12. Franchisee shall as consideration given to them to function as franchisee under this order, eligible for 50% of the charges collected by the franchisee as per our tariff in respect of consignments booked, within Kerala as per our station list. Commission in respect of booking for out side Kerala shall be 25%. Commission for parcels within Kerala shall be 10 + 5 = 15%. For international documents the franchisee shall be eligible for a flat sum of Rs. 50/- for bookings above Rs. 500/- per shipment and for value below Rs. 500/- the commission shall be limited to 10% of such values per shipment.
Necessary documents to ascertain the total amount collected by the franchisee shall be maintained by the franchisee as directed by the franchisor from time to time. It is specifically agreed and understood that the franchisor shall not be liable to pay to the franchisee any amount over and above the commission mentioned above for discharging the obligations under this order. It is further understood by the franchisee that, offering credit facilities to clients, other than approved by the franchisor, will be at the franchisees risk and commission on such booking will be paid to the franchisee only on recovery for such bills.
The amounts payable to the franchisor shall be paid by the franchisee every week by demand draft payable at Ernakulam without fail. Further it is agreed that franchisee shall not open Bank in the name of M/s Speed & Safe Courier Service, without the franchisor's written consent.
On a very careful reading of the ingredients of 'Franchise Services' as given in Section 65 of the Finance Act, 1994, and also the 'Franchise Agreement', it is very clear that the appellant has entered into franchise agreement with various persons for providing courier service. It is difficult to hold that franchisees are agents of the appellants. No doubt, the franchisees are rendering courier services and service tax liability has been discharged on the amount collected by the franchisee. However in terms of the agreement, for example, Paragraph 12 of the agreement, the commission which is given to the franchisee is mentioned and the balance of the amount collected by the franchisee is payable to the franchisor. This amount which is received by the franchisor is obviously for the receipt for rendering the franchise service. Since franchise service has been brought under the service tax net, the appellant is clearly liable for discharging the service tax liability on this and demanding this amount cannot be objected by the appellants on the ground that it amounts to double taxation. There is no double taxation at all. What is sought to be taxed now is the gross receipt of the appellants for the franchise services rendered. In fact, the Adjudicating authority's finding has clearly dealt with this point. We are extracting Para 48 of the Order-in-Original herein below:
18. As may be seen from the definitions mentioned above there is no ambiguity in the nature and scope of both the services. While it is not denied that the franchisees were paying tax on courier services rendered by them to various customers, it is wrong to correlate the payment of tax under this category to the tax payable on the franchise commissions received by the assessee. Both are different services under the statute and what was alleged to have escaped assessment to tax was the commission received by the franchisor (assessee) from the franchisees concerned and this has nothing to do with the courier services. Double taxation can be alleged only if the same service has been subjected to tax two times. Here the case is quite different. Franchise service has not been levied to tax at any point of time. Hence the double and apprehension expressed by the assessee are held as misplaced.
Therefore we find that the demand of Service Tax under the category of 'Franchise Service' is in order. We do not want to interfere with the decision of the Commissioner in demanding the service tax and imposing penalty. However having regard to the facts and circumstances, the penalty under Section 78 is reduced to Rs. 5,00,000/- (Rupees Five lakhs only). The impugned order is modified to this extent only. The appeal is disposed of in the above manner.
(Pronounced in the court on 6 DEC 2007)