Custom, Excise & Service Tax Tribunal
Punjab Technical University vs C.C.E.&S.T., Ludhiana on 23 December, 2015
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
WEST BLOCK NO.2, R.K. PURAM, NEW DELHI 110 066.
Date of Hearing: 09.09.2015
Date of Pronouncement : 23.12.2015
For Approval & Signature :
Honble Honble Justice G. Raghuram, President
Honble Mr. R.K. Singh, Member (Technical)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
No
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
Yes
3.
Whether Lordships wish to see the fair copy of the order?
Seen
4.
Whether order is to be circulated to the Department Authorities?
Yes
Application No.ST/STAY/52179/2014-CU[DB]
Appeal No.ST/51778/2014-CU[DB]
[Arising out of Order-in-Original No.106-07/LDH/2013, dated 19.12.2013 passed by the C.C.E.&S.T., Ludhiana]
Punjab Technical University Appellant
Vs.
C.C.E.&S.T., Ludhiana Respondent
Appearance Mr. Prabhat Kumar, Adv. - for the Appellant Mr. Govind Dixit, DR - for the respondent CORAM: Honble Justice G. Raghuram, President Honble Mr. R.K. Singh, Member (Technical) Final Order No.53817/2015, dated 23.12.2015 Per Mr. R.K. Singh :
Appeal has been filed against Order-in-Original No.106-07/LDH/2013, dated 19.12.2013 in terms of which service tax demand of Rs.1,44,14,31,243/- for the period October, 2006 to June, 2012 was confirmed along with interest and penalties under Franchise Service [Section 65 (47/48/105 (zze) of the Finance Act, 1994].
2. Brief facts of the case are as under:-
The appellant, Punjab Technical University (PTU), is a university established under the Punjab Technical University Act, 1996. It is a statutory body which runs its own colleges/affiliated colleges and distance education programme through more than 2100 Learning Centres (LCs). It provides courses leading to degree/diploma in engineering, management, architecture, paramedical and various other programmes. The appellant designed its distance education programme and created a 3-tier architecture for running the same (i.e. distance education programme) through LCs (3rd tier) which were to be supervised by Regional Centres (RCs) (2nd tier). The Memorandum of Understanding (MOU) entered into by the appellant with LCs/ RCs lists out obligations of the appellant, RCs and LCs. The ground for confirmation of demand is that the appellant rendered Franchisor Service to its RCs and LCs and the entire fee received by it (under various heads like admission fee, examination fee, miscellaneous fees/late fee, result/certificate fee, challenge checking fee, migration fee, M Tech Viva, Thesis Fee, Scholarship fee, inspection fee, recovery, etc.) from its students enrolled at LCs was the assessable value for charging service tax under the said service.
3. Ld. Advocate for the appellant contended that
(i) None of the ingredients of franchise service are present in the present case. It was imparting education through Learning Centres (LCs). There is no franchise agreement and there is only an MOU with LCs/RCs.
(ii) It has not granted any representational right to its LCs and it is more in the nature of public-private partnership.
(iii) It has kept with itself the essential institutional provisions of a university like determination of eligibility of students, allotment of enrolment numbers to eligible students, preparation of syllabus, preparation of question papers, evaluation of answer sheets, awarding of degrees, diplomas under its seal which are duly recognised and approved by the AICTE.
(iv) RCs/LCs are under strict control of the appellant and they simply carried out the activities of teaching as per its guidelines. It laid down all the requisite norms which are implemented by LCs to ensure that quality education was imparted by LCs to the students. None of the obligations of the appellant stipulated in the MOU indicate that it was providing any service to RCs/LCs and it is RCs/LCs, which were providing service to the appellant.
(v) RCs and LCs were performing appellants functions in remote areas without having any representational rights.
(vi) LCs were at par with affiliated colleges of the appellant and therefore cannot be discriminated against vis-a-vis affiliated colleges.
(vii) The service rendered by appellant is education service, which is exempted.
(viii) The impugned services are on negative list after 01.06.2012.
(ix) It cited the clarification contained in education guide issued by CBEC.
(x) The adjudicating authority relied upon the judgement of CESTAT in the case of Speed and Safe Courier Vs. Commissioner[2008 (13) STT 257 (Tri.-Bang)] but that judgment was overturned by Kerala High Court [2010 (18) STR 550 (Ker)].
(xi) The MOUs entered into by the appellant with LCs can be called joint venture agreement and not franchise agreement.
(xii) The entire fee collected by the appellant is taken as taxable service while as per the agreement, the appellant paid certain percentage to LCs/RCs out of the fee collected. The share of appellant normally varied from 28% to 37% of the total fee collected. If at all, only authorisation fee / additional authorisation fee collected by appellant should be treated as value of franchise service which will reduce the demand to Rs.5,86,003/- after cum-tax benefit, as shown in para 36 of grounds of appeal.
(xiii) The extended period in this case is not invokable as there is no suppression of facts or wilful mis-statement and these activities of the appellant were made public even on its website.
(xiv) The facts of this case are not similar to the case of DPS Vs. CST [2013 (32) STR 179 (Tri.-Del)] decided by CESTAT.
(xv) It cited in its support judgments of CESTAT in the cases of Franch Express Network Vs. CST, Chennai [2008 (12) STR 370 (Tri.-Chennai)] and Bonanza Speed Couriers Pvt. Ltd. Vs. CCE, Cochin [2010 (19) STR 675 (Tri.-Bang.)].
(xvi) Revenue has failed to show any trade mark, service mark, or logo or any such symbol of the appellant, which was used by LCs for providing service, which is an essential ingredient for franchise service.
3. Ld. Departmental Representative, on the other hand stated that (i) the MOU entered between the appellant and LCs clearly shows that it satisfies all ingredients of franchise agreement and LCs had representational rights. (ii) The MOU clearly specified obligations of the respective parties and LCs have been given representational rights of the appellant including brand name, service mark or logo. (iii) Merely because fee was collected in the name of the appellant and the appellant made some payments to RCs is not of any consequence in-as-much-as the manner of payment to LCs for the service rendered is merely a matter of detail. (iv) The appellant authorised LCs to conduct courses on its behalf and RCs and LCs acted as agent on behalf of the appellant. (v) RCs were under obligation to conduct marketing/ advertisement campaign and brand promotion of the appellants courses. (vi) LCs and RCs were under obligation to display the name of the appellant to show their association with the appellant to general public. (vii) The gross value charged by the appellant is rightly taken as assessable value. (viii) The judgment of CESTAT in the case of DPS Vs. CST, Delhi (supra) is applicable to the present case. Revenue also cited the CESTAT judgement in Amway India Enterprises Pvt. Ltd. Vs. CST, Delhi [Final Order No.ST/A/51612/2015-CU[DB], dated 14.05.2015] in its support. (ix) The extended period is invokable because the appellant did not take registration nor paid service tax and also did not submit figures when asked for.
4. We have considered the contentions of both sides and perused the records. The following issues are involved in this case:-
(i) Classification of service (allegedly) rendered by the appellant under the Finance Act, 1994.
(ii) Valuation of service for levy of service tax (in case the service is held to be classifiable as franchise service).
(iii) Whether extended period of limitation is invocable in the facts and circumstances of the case.
(iv) Whether penalty is leviable on the appellant.
A careful scrutiny of the MOU entered into between PTU and RCs/LCs is necessary for deciding classification of service. Therefore, it is facilitative to reproduce a typical MOU and definition of franchise given in Section 65 (47) of the Finance Act, 1994, which is done below:-
MEMORANDUM OF UNDERSTANDING This MEMORANDUM OF UNDERSTANDING (MOU) is made on 27 day of August 2007 between:
PUNJAB TECHNICAL UNIVERSITY, Ladowali Road, Jalandhar, Punjab, India-144001, through its Dean (DEP) hereinafter referred to as PTU, which expression shall include its successors and assigns (part of the first part);
AND M/S SYMANTEC INFOWAYS, 3789/1 JAGAT JEET NAGAR, LUDHIANA, PUNJAB, THROUGH ITS ARC M/S VICE, having its office at 2647, HUTSON LINE, NEAR NORTH CAMPUS, DELHI UNIVERSITY, DELHI, DELHI, India, through its CHAIRMAN, RAJAN CHOPRA.
Hereinafter referred to as PTUs REGIONAL CENTRE, hereinafter further referred to as RC, which expression shall include its SUCCESSORS and assigns (party of the second part). This MoU is in furtherance to the earlier agreement, duly extended after following due process of law and amended and modified as per requirements of the distance education system of Punjab Technical University. The clauses contained hereinbelow shall override the clauses of the earlier agreement.
WHEREAS the PTU, a University established under the Punjab Technical University Act, 1996, being Act No.1 of 1997 of the Punjab State Legislature, is engaged, amongst other activities, in importing education under its Distance Education Programme (for short, DEP) by running its distance education courses through the distant mode regulate by its own Distance Education Council (for short, DEC) as a part of the continuing education programmes as authorised by section 4(2) of the said Act No.1 of 1997, through its own approved organs and outreach local centres called the LEARNING CENTRES, hereinafter referred to as the LCs duly set up and established at the chosen places by the PTU under separate letters of authorization issued by PTU, and each individual LC concerned is required to provide the requisite infrastructure for offering the various Courses of Information Technology and Management for short, I.T.) and non-Information Technology (for short, Non-I.T.) and other related fields, and its said LCs being located at various local places in the respective zones in the country, and the PTU is accordingly engaging its REGIONAL CENTRES for its each zone in the country to be allotted to the RCs for providing logistic support to and effecting supervision of the said LCs on PTUs behalf within the zone allotted to the RC concerned.
AND WHEREAS the PTUs and its said authorized LCs, being the very organs and authorised outreach local centres of PTU created as aforesaid, are engaged in providing training / education by offering PTUs various approved Distance Education Courses of I.T. & Non-I.T. streams and other related fields, strictly as per the commands and norms of the PTU, under the immediate supervision of their respective RCs in the country, to enable the students of the PTU enrolled with them to get skill based training leading to the award of Degrees / Diplomas of the PTU by the distance Education mode in the concerned courses;
AND WHEREAS the RC herein has been set up as per its own instrument of creation, for the purpose of providing logistic support and student services to the Learning Centres (LCs) of the PTU within its herein allotted zone comprising the STATE OF RAJASTHAN for the IT, and for supervising the working of the LCs located in its said zone and coordinating with those LCs for ensuring that the LCs provide proper and quality education / training to the students of the PTU strictly as per the commands, norms and standards laid down by the PTU for the skill based learning leading to the award of Degrees / Diplomas by the PTU in the concerned courses / streams through the distance education made.
AND WHEREAS this arrangement under the present MOU is not a franchising arrangement in any way but that this a model of public-private partnership for providing effective student support services keeping in mind the present structure of PTU.
AND WHEREAS by this arrangement under the present MOU, no essential, basic and statutory function of the PTU shall be outsourced to the RC.
NOWTHEREFORE in consideration of the aforesaid binding premises, and the mutual covenants and promises made hereinafter, the parties hereto, i.e., the PTU and the RC, agree as follows to create a legally binding mutual relationship:
Section 1 : FEES:
1.1 Mode of collection of fees by the LCs: The fees from the students shall be collected by the LCs (located within the entire allotted zone of RC) only by way of Demand Drafts drawn in the name of the Registrar, Punjab Technical University, Jalandhar, payable at Jalandhar, against proper receipts.
1.2 Collection of fees from the LCs: The RC will collect the fees from each LC located within its entire allotted zone. The RC will cross-check from the receipt books and the students enrolments records maintained by the LC concerned that all the Demand Drafts in respect of the fees collected from all the students enrolled and studying at the LC concerned have been accounted for and handed over to it. The RC will maintain a MIS as per form of EDP Cell of PTU.
1.3 Transmitting of fees to the PTU: The RC will then spend all those Demand Drafts towards fees collected as above from all the LCs located within its allotted zone to the PTU.
1.4 Fees Sharing: Out of the total fees collected from the students and transmitted to the PTU by the RC as above, the fee shall be shared as follows between the PTU, RC and the LC:
1) Share of the PTU : 28/32.5/37% (>28 <37%)
2) Share of the RC : 18/20/22% (as per incentive based assessment)
3) Share of the LC : 45/47.5/50% (as per incentive based assessment) 1.5 Authorization fee: For all the courses offered at the LC as per letter of authorization issued by the PTU, a non-refundable authorization fee shall be paid by the LC to the PTU by way of bank Demand Draft drawn in the name of Registrar, Punjab Technical University, Jalandhar, payable at Jalandhar, as per rates as fixed and as per norms of the PTU in force from time to time.
1.6 Additional Authorization Fee: For starting any other course(s) not initially mentioned in the letter of authorization issued to the LC, separate prior permission of the PTU shall have to be taken by the LC concerned through the RC and, if so permitted by the PTU in its sole discretion, an additional non-refundable authorization fee shall be paid by the LC concerned to the PTU for each additional course at the rates as fixed and as per norms of the PTU, before offering the said course(s) to the students of PTU enrolled thereat.
Section 2: COURSES to be offered by the LC 2.1 Nomenclature: The nomenclature and list of courses to be offered by the LC shall be as per the letter of authorization issued to the LC by the PTU at the sole discretion of PTU. Each LC may start either IT & Mgt. courses OR non-IT courses as per their core-competence. Each LC shall have to provide separate infrastructure for PTU authorized courses. Any LC desirous of running both IT & Mgt. and Non IT streams shall have to provide separate infrastructure for these streams. It shall be responsibility of the RC concerned to make these guidelines known to the LC and train them as per rules and ensure strict compliance of the instructions of the University.
2.2 Venue for conducting the courses: The courses mentioned in para No. 2.1 shall be conducted only at the designated location of the LC, as stipulated in the letter of authorization issued to the LC by the PTU. In no case the location of the LC can be shifted to any other place of its own without the prior written permission of the PTU after verifying the suitability of the said venue. RC shall have to ensure that no LC in their region of operation, either sells, transfers, or closes the operation without properly taken care of the interests of the students enrolled with the University.
2.3 Norms for Infrastructure & Facilities:
The norms for infrastructure and instructional facilities as decided from time to time shall be enforced at each LC by the RC concerned within their zone and deficiency, if any, shall be reported to the University.
Section 3: EDUCATION AND DELIVERY PROCESS
3.1 List: It shall primarily include the following:-
(1) Curriculum mapping.
(2) Infrastructure planning.
(3) Faculty planning.
(4) Batch launch planning.
(5) Assisting in curbing commercialization of education (6) Assisting in Monitoring activities (7) Invitation of registrations/enrolments-Marketing.
(8) Taking registration (9) Course commencement.
(10) Delivery of the course.
(11) Conducting tests & preparing eligibility list for issuing certificates to the successful students.
(12) Conducting soft skill training to students.
(13) Conducting faculty training within their zone.
(14) Any other matter / item at the sole discretion and with the prior approval of the PTU.
Section 4: OBLIGATIONS 4.1 OBLIGATIONS OF THE PTU (Party No.1 herein) (1) PTU will appoint RC and allot zone of operation under this MOU, and shall monitor the working of the RC, and may at its sole discretion, for the development of the system, restructure zone(s) allotted to the RC or advertise for a new RC where performance of RC is poor or not up to the satisfaction of the University.
(2) PTU will establish and monitor all the LCs in the Zone through the RC.
(3) The LCs will be under the direct & strict control of PTU.
(4) The PTU will approve the syllabus, courseware & examination process.
(5) The students will be on the rolls of PTU.
(6) The prospectus and application form will be approved by PTU.
(7) The PTU will approve the update regularly at regular intervals, the course material through its statutory board of studies from time to time.
(8) The PTU will conduct the examinations, undertake evaluation process, declare results, award degrees/diploma and issue the DMCs.
(9) The question papers would be prepared and supplied by the PTU with secrecy.
(10) The PTU will lay down infra-structural requirements to be adhered to by the LCs.
(11) The PTU will lay down the eligibility criteria as to the qualifications, experience and age of the faculty / staff to be engaged by the LCs for conducting the authorized courses.
(12) The PTU will lay down all the requisite norms which shall be implemented by the LCs to ensure the imparting of quality education by the LCs to the students of PTU enrolled for the authorized courses.
4.2 OBLIGATIONS OF THE REGIONAL CENTRE (RC) (Party No.2 herein) (1) The RC will coordinate with the PTU on the one hand and the LCs on the other hand in all matters as required by the PTU from time to time.
(2) The RC will provide logistic support to the PTU and LCs as per norms of PTU, to carry out the objects and obligations under the MOU.
(3) Provide information about each LC to the PTU and assist in its proper monitoring.
(4) In case any LC is closed by PTU then it would the liability of the RC to assist the PTU to ensure that students do not suffer & their studies are conducted alternatively in PTUs another authorized LC within the zone allotted to RC. Before officially closing the center, all student record files and No Dues must be submitted by RC to the University.
(5) RC would be responsible for conducting the marketing / advertisement campaigns & strategies in print and electronic media for admissions and brand promotion of the courses of PTU in coordination with PTU.
(6) To assist the PTU in the skill enhancement and quality control of entire system.
(7) To maintain document and data control as well as authentic student data in prescribed formats and to make available such data and MIS to PTU within the stipulated deadlines.
(8) RC will establish a placement assistance cell and liaise with industry through its experts & place students appropriately and maintain data of such placements.
(9) To assist PTU in defending or fighting legal cases within the zone allotted to the RC.
(10) To ensure timely delivery of course material, identity cards, etc. to LCs.
(11) Coordinate efforts for preparing digital contents, CDs Learning Materials, MIS, and LMS, etc., for quality teaching-learning process within the allotted zone and for the overall development of distance education.
(12) To participate in national and international events pertaining to distance education within and outside the country, in consultation with the PTU.
(13) The RC will assist the PTU for conduct of the examinations as per Rules & Regulations of the PTU and ensure fair practices.
(14) The RC will issue State level advertisements for Admission Notices for the aforesaid courses in the leading Newspapers in coordination with the LCs in consultation with the PTU.
(15) The RC will arrange to provide training for the latest technologies and teaching pedagogy to the staff of the LCs in coordination with the PTU.
(16) The RC will make timely collection from the LCs of the fees paid by the students at the LCs for the allotted courses.
(17) The RC will keep regular and periodic checks on the LCs so as to ensure timely completion of the allotted courses by the LCs.
(18) The RC will conduct all kinds of audits (i.e. Technical audit, Management Information System audit, Library audits, Financial audit, etc.) of the LCs in respect of the PTUs courses run at the LCs.
(19) The RC will frame the marketing strategy and will ensure its implementation by the LCs, in consultation with the PTU.
(20) The working of the RC and LCs shall also be mentioned /reviewed by PTUs Regional Monitoring Committee (RMC).
(21) In addition to review by the RMC, a continuous monitoring mechanism will be in place for assessment by the PTU of the performance of RCs and LCs.
(22) The format of style of any advertisement and hoarding to be placed / put up by the RC and LCs under the RC shall be done with the prior written approval of the PTU. Any advertisement and hoarding to be placed; put up by the RC / LCs should not bring down or cast aspersions on or discredit the PTU, and the decision of the PTU ordering the withdrawal of the advertisement or removal of the hoarding shall be final and binding on the RC / LCs.
(23) The RC may take part actively with the PTU in image building exercises and must organize at least one public function, seminar, counselling session in their region each semester.
(24) The RC agrees to provide expertise for infrastructure, equipments, teaching and training necessary for the course as and when called to do so by the PTU in respect of any LC within the zone allotted to the RC.
(25) The RC shall ensure that the learning imparted to the student covers comprehensively, the entire syllabus, as prescribed by the University within the specified time frame and strictly as per norms laid down or to be laid by the PTU.
(26) The RC will have to perform any other functions or assist the PTU in the proper functioning of the LCs as and when called to so do by PTU.
(27) The RC agrees to pay the necessary fee, i.e., as decided by the PTU for each Region / zone allotted to the RC.
(28) The RC will ensure that all the various LCs under its zone comply strictly with their Obligations to the full satisfaction of the PTU.
(29) The RC will follow, in letter and spirit, all rules and regulations, notifications, guidelines (whether issued to the RC or the LCs) and office orders of the PTU issued from time to time.
4.3 OBLIGATIONS OF LEARNING CENTRES (1) Each LC shall abide by all the terms and conditions laid down in the letter of its Authorization read with the guidelines issued by the PTU.
(2) To establish and maintain infrastructure as per norms of the PTU.
(3) To maintain a strict academic calendar for timely completion of courses and to arrange for practicals within the center.
(4) To maintain student record files and comprehensive MIS for each PTU student enrolled at the LC.
(5) To follow, in letter and spirit, all rules and regulations, notifications, guidelines and office orders of the PTU issued from time to time.
(6) To enhance student skills and facilitate their placements.
(7) To effectively coordinate with the RC and to work in close cooperation with the RC.
(8) To participate in meetings and training programs organized by the RC/PTU.
(9) To adhere to the norms & standards of the PTU at all times, as modified from time to time. If the LC is not able to admit students for two consecutive semesters or does not comply with the orders, norms & guidelines of PTU, its authorization shall stand cancelled & withdrawn.
Section 5 : Intellectual Property Rights (IPRs) Issues:
PTU expects the RCs and LCs to have legal software and use course material with due regard to IPRs (Copyrights, Trademarks, Patents, etc.) of the owners/authors thereof. The PTU will not be bound and legally responsible for any sort of legal consequences arising out of any violation of the IPRs by the RCs and LCs concerned.
Section 6: Authorization:
6.1 In supersession of the existing Agreement: The authorization under this MOU, as per provisions of the earlier Agreement (by way of extension of the existing tenure of the existing RC and by re-allotment of its zone of operation, under the present policy of PTU for renewing the existing terms of the existing RCs after due assessment of their performance) shall be in supersession of the existing MOU of the RC with the PTU.
6.2 Duration: The validity of authorization period by way of extension of the existing tenure of RC and by re-allotment of its zone of operation on the terms and conditions as laid down in this MOU under the aforesaid present policy of PTU, shall be as stipulated under this MOU.
Section 7 : Validity of authorization period and the re-allotted zone:
This authorization as RC (being granted under the present policy of PTU for renewing the existing terms of the existing RCs after due performance appraisal as per ____________ approved by BOG) is presently valid for a term of 2.5 year(s) from the date of signing this MOU, with a provision of extension based on performance after proper evaluation, for the re-allotted zone falling in Zone T.
There shall be mid-term appraisal after 1.25 years and further extension or otherwise shall be decided.
Section 8 : Withdrawal Clause:
Any RC may withdraw from this MOU by giving a prior notice of withdrawal of three months to the PTU, which shall require acceptance by the PTU.
Section 9 : Exit clause and provision of Natural Justice:
The RC agrees that the PTU reserves the right to terminate the present authorization to the RC or to modify / restrict / terminates its zone of operation created under section 7 of this MOU, by following the process of natural justice. It is clearly stipulated herein, and accepted and agreed to by the RC, that in case of any breach by the RC of any of the foregoing terms and conditions contained in this MOU, or for its unsatisfactory performance, or for non-performance, or for abandonment of the project or for any other reason or issue to be felt or determined by the PTU, a show cause notice will be served to the RC concerned with details of deficiencies and a written reply shall be sought within 15 days. The reply to the show cause notice shall then be considered by the DEP Council, and if required, the RC concerned shall be asked to defend their case before the DEP Council. The matter with the recommendations of the DEP Council shall then be sent to the BOG of PTU and further decision regarding any punitive action may include modification/restriction/termination of the zone of RC under this MOU, as per decision of the BOG and such decision shall be final and binding on the RC. The decision so taken may be represented against by the concerned RC and the Board may consider appointing a committee to reconsider the decision after giving an opportunity of being heard in the matter to the RC concerned. The decision so taken shall be final.
Section 10: Stipulation.
10.1 For MOU: Two sets of this MOU shall be typed, each one on a separate non-judicial paper of the requisite value meant for agreements. This MOU is to be signed by both the parties and their respective witnesses, in the manner as shown hereunder.
After execution of both the original sets (i.e., the each set containing the MOU & the Affidavit) prepared as stipulated in Section 10 above, one original thereof has been kept for record by each of the two parties hereto.
IN WITNESS WHEREOF both the parties hereto set their respective hands to this writing (MOU) at this day and year mentioned above. Section 65 (47) of the Finance Act, 1994 reads as under:-
Franchise means an agreement by which the 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; As evident from the MOU, appellant approved and monitored all LCs. It approved the syllabus, courses and examination process. Students are on the rolls of the appellant and the prospectus and the application form is approved by the appellant. The examination, evaluation, declaration of results and award of degrees are also the obligations of the appellant. The appellant lays down infrastructural requirements to be adhered to by LCs. It also lays down the eligibility criteria for the faculty and staff to be engaged by LCs and the requisite norms to be implemented by LCs to ensure impart of quality education by LCs to the students enrolled by the appellant in authorised courses. Correspondingly, obligations of LCs, as mentioned in MOU reproduced above, clearly show that they have to abide by the terms and conditions specified in the MOU. The agreement clearly provides that LCs are duly authorised by the appellant to engage in providing training/education by offering appellants various approved distance education courses of IT and non-IT streams and other related fields, strictly as per the commands and norms of the appellant to enable the students of the appellant enrolled with them to get skill based training leading to the award of degrees/diplomas of the appellant by the distance education mode in the concerned courses. The appellant ensures that LCs provide proper and quality education to the students of the appellant in accordance with the norms and standards laid down by the appellant for the skill based learning leading to the award of degrees / diplomas by the appellant in the concerned courses / streams through the distance education mode.
From the foregoing there remains no doubt that LCs were authorised to take students by claiming and making it clear that the education they were providing was on behalf of the appellant. They were allowed even to advertise to that effect. It was because LCs were representing the appellant with regard to providing education, that the MOU cast strict obligations on LCs to ensure that the quality of education remained as per the standards of the appellant. It also comes out from the MOU that RCs framed marketing strategies to be implemented by LCs in consultation with the appellant. As per the MOU, the format and style of any advertisement or hoarding to be placed by RCs/LCs had to be done with the prior written approval of the appellant lest these bring down or cast aspersions on or discredit the appellant. Owing to the fact that LCs represented the appellant with regard to providing education, MOU laid down strict requirements of infrastructure, processes, qualifications of staff, etc. as elaborated in the MOU. Though the MOU states that it is not a franchise arrangement and is a model of public-private partnership for deciding classification of the service rendered thereunder, we have to see the nature, terms and conditions thereof; it is immaterial as to what nomenclature is assigned to it. Thus, notwithstanding that the MOU states that it is not a franchise agreement, the aforesaid analysis leaves no doubt that it satisfies all ingredients of franchise as defined in Section 65 (47) of the Finance Act, 1944 in-as-much-as LCs were granted representational rights to provide service and to undertake various activities identified with the appellant. The contention of the appellant that franchise has to involve trade mark, service mark, trade name or logo or any other such symbol is untenable as the definition of franchise given in Section 65(47) ibid quoted earlier clearly states that these may not be involved. In the case of Global Transgene Ltd. Vs. CCEST, Aurangabad [2013 (32) STR 179 (Tri.-Del.)], CESTAT has held that admittedly in a franchisee transaction, the franchisee loses his individual identity and represent the identity of the franchisor to the outside world, as in the case of McDonald the customers are not concerned with who owns the McDonalds restaurant (franchisee). The customers identify it with McDonald (the franchisor). In the present case also, a student is hardly much concerned as to which LC he joins because each LC provides education as per the norms and requirements laid down by the appellant and he gets a degree of and from the appellant. Ld. advocate referred to the judgement of Kerala High Court in the cases of Speed and Safe Courier Service Vs. Commissioner (supra) and Franch Express Network (supra).
In the case of Speed and Safe Couriers Service (supra), the Hon'ble Kerala High Court found that double assessment of charges was made and held that there was no statutory provision to tax the same service charges twice. Thus, the ratio of this judgment has no relevance to the present case. In the case of Franch Express Network (supra) cited by the appellant, it was found that the agreement indicated that representational right was not granted (which is not the case in respect of the MOU under consideration). In case of Bonanza Speed Couriers (supra), cited by the appellant, CESTAT interpreted the definition of franchise as it existed prior to 16.06.2005 and therefore the said judgement is not germane to the issue in the present case. On the other hand, we find that the facts in the case of DPS Vs. CST, Delhi (supra), where CESTAT held that there was rendition of franchise service by DPS, are pretty similar to facts in the present case in-as-much-as as in that case also, the appellant provided concepts of business operation to the franchisee including know-how, method of operation, managerial expertise, etc. Further, the definition of franchise as applicable to the present case is much wider than the definition which existed during the period covered by the DPS case (supra), making the ratio of the DPS judgment squarely applicable (and more) to the present case. Indeed, the MOU in question is so clear an example of franchise as defined in Section 65 (47) ibid that any further elaboration on this point will be an exercise in over-kill.
5. Coming to the aspect of valuation of service, we find force in the contention of the appellant that the entire fee collected by LCs in the name of the appellant cannot be treated as assessable value of franchise service. We note that out of the total fee collected by the appellant through LCs, a part was given back to LCs. Obviously, the part of the collection which was given back by the appellant to LCs cannot form part of the assessable value for the purpose of taxability. As per Section 67 ibid, the value of taxable service is the gross amount charged by the service provider for such service and gross amount will be only the amount, which remained with the appellant after payments to LCs. However, the contention of the ld. advocate that only authorisation fee and additional authorisation fee should be taken as a consideration for the service rendered is untenable, because the valuation for the impugned service is to be done in accordance with the provisions of Section 67 ibid, which, to repeal, in effect, states that the value of the taxable service will be the gross amount charged for the service and the gross amount charged by the appellant for the service rendered has to be equal to the amount collected by the appellant from LCs minus the amount paid by it to LCs. It is pertinent to mention that the amount paid by the appellant to RCs would not be excludible from the assessable value, because the RCs were created by the appellant to ensure that LCs acted as per the MOU, the franchise service was properly monitored and suitably promoted and for certain other purposes as mentioned in MOU. Thus, the amount paid to RCs by the appellant was an expense at the hands of the appellant in connection of provision of franchise service. For the sake of elucidation, for example, the appellant could as well have employed its own persons for doing what RCs did in which case the expenses incurred in doing so would not be deductible from the assessable value. Thus, the amount paid by the appellant to RCs is not excludible from the assessable value.
6. The appellant has contended that the extended period in this case is not invocable as there was no suppression or wilful mis-statement. It stated that the figures asked for were also given within a months time. We find that in the Show Cause Notice, the invocation of the extended period is proposed in the following terms:-
13. The Noticee during the relevant periods neither got themselves registered with the Department nor paid the appropriate service tax on the services provided by them. The Noticee also did not file the returns prescribed as per law with the Department. Thus they have suppressed the fact of providing the taxable service from the Department with an intent to evade payment of service tax and have violated the provisions of Section 66, 68, 69 and 70 of the Act read with Rule 4, 5, 6, and 7 of the Rules. By these acts of omission and commission, they have rendered themselves liable to penal action under Section 76, 77 & 78 of the Act.
14. The extended period of limitation of five years as provided under proviso to Section 73(1) is clearly invokable in this case as the Noticee had suppressed the fact of providing the taxable service from the Department with an intent to evade payment of service tax and had the department not gathered the information on their own about the services provided by the Noticee, this huge evasion of service tax would not have come to the Notice of the Department as the Noticee neither got themselves registered with the Department nor filed the prescribed returns during the relevant period as required under the law. The appellant was established under Punjab Technical University Act, 1996 and started distance education programme through LCs in terms of the guidelines issued by University Grants Commission (UGC). The details of such programme were advertised and also displayed on its website. It entered into MOUs with almost 1,000 LCs. In these circumstances, the allegation that it suppressed this activity or indulged in wilful mis-statement is simply preposterous. In the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh-I [2007 (216) ELT 177 (SC)], the Supreme Court observed that an incorrect statement cannot be equated with a wilful mis-statement - There cannot be suppression or mis-statement of fact, which is not wilful and yet constitute a permissible ground for purpose of proviso to Section 11A ibid - Mis-statement of fact must be wilful. Also in the case of Nestle India Ltd. Vs. CCE, Chandigarh [2009 (235) ELT 577 (SC)], the Supreme Court held that extended period invokable only when there is positive act other than mere inaction or failure on the part of manufacturer and there must be conscious or deliberate withholding of information by manufacturer. While there are bland statements made in the Show Cause Notice alleging wilful mis-statement/suppression of facts, there is no evidence adduced in support thereof. Non-payment of service tax/non-obtaining of registration by themselves can hardly ever sustain charge of wilful mis-statement or suppression of facts in-as-much-as in case of a bona fide belief regarding non-taxability, no assessee would file returns or obtain registration. In case of CCE Vs. Chemphar Drugs Liniments [2002-TIOL-266-SC-CX], the Supreme Court held that something positive other than mere inaction or failure on the assessees part or conscious withholding of information when assessee knew otherwise is required for invoking extended period. Thus, we are of the view that the allegation of suppression of facts cannot be sustained in the given circumstances. Consequently, penalty under Section 78 ibid is not imposable.
7. In the light of the analysis above, we allow the appeal by way of remand to the adjudicating authority with the following findings/directions:-
(i) We hold that the appellant provided franchise service.
(ii) The extended period is not invocable.
(iii) Penalty under Section 78 ibid cannot be imposed.
(iv) The impugned demand has to be re-computed only for the normal period and taking the assessable value as equal to the aggregate amount collected by the appellant through LCs minus the amount paid to LCs. Needless to say that the amount of penalty under Section 76 ibid has also to be re-computed.
(Pronounced in the Open Court on 23.12.2015) (Justice G. Raghuram) President (R.K. Singh) Member (Technical) SSK -2-