Customs, Excise and Gold Tribunal - Mumbai
Jetking Information Ltd. vs Commissioner Of Central Excise on 29 November, 2006
Equivalent citations: [2007]8STJ476(CESTAT-MUMBAI), 2007[7]S.T.R.314, [2007]6STT444, (2008)13VST263(CESTAT-MUM)
ORDER Archana Wadhwa, Member (J)
1. The appellant is engaged in the business of setting up and operating centres for vocational training in relation to computer-oriented programmes They have 5 centres and/or branches of their own in addition have entered into agreements with 66 other unrelated and independent parties for the purpose of imparting the same training and authorizing these parties to use their name for the operation of the centres. W.e.f. 1.7.2003 service tax was levied in respect of commercial training or coaching services as well as Franchise Services. However, the commercial training for coaching by a vocational training institute or computer training institute was exempted from payment of whole of service tax wide notification No. 9/2003-ST dt 20.6.20003, as amended by Notification No. 1/04-ST dt. 4.2.2004. The dispute in the present appeal does not relate to the services being provided by the appellant in their own centres as computer training or coaching services.
2. Inasmuch as, the appellant has entered into Franchise agreement with other independent parties allowing them to open the computer training centres under the appellants name and style, Revenue entertained a view that such franchise services would attracted service tax w.e.f. 1.7.03. Accordingly, appellants jurisdictional officers called upon the appellant to furnish details regarding Franchise Services and the fees and royalties received by them. Though, the appellant contended that no service tax was leviable on them inasmuch as, they were imparting computer training and educational services, they ultimately submitted the requisite information. The statement of Shri Bharwani, Jt. Managing Director of the appellant company was also recorded.
3. Baaed upon above, show cause notice dt. 19.4.2004 was issued to the appellant proposing confirmation of service tax on the Non Refundable Deposits received by them from the Franchisees as well as on the Recurring Franchise Fees during the period July 2003 to January, 2004. Notice also proposed imposition of penalty in terms of the provisions of Section 75A, 76, 77, & 70 of the Act, along with confirmation of interest. The said show cause notice culminated into an order passed by the original adjudicating authority confirming the service tax amount of Rs. 31,45,848/- and imposing personal penalty @ Rs. 200A per day from 26.8.2003 subject to maximum amount of Rs. 31,34,848/- in terms of the provisions of Section 76 of the Act. In addition personal penalty of Rs. 62.91 lakhs was imposed under Section 78 and of Rs. 500/- under Section 75(A) of the Act, and penalty of Rs. 2000/- for non-filing of returns of under Section 77 of the Act. Appeal against the above, did not succeed before Commissioner (Appeals). Hence the present appeal.
4. We have heard Shri V.S. Nankami Ld. Advocate appearing for the appellant and Shri P.K. Katiyar Ld. SDR appearing for the Revenue.
5. The statutory definition of Franchise as appearing in Section 65 (47) of the Service Tax Act defines "Franchise" as follows:
(47) "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 know-how, method of operation; managerial expertise, marketing technique or training and standards of quality control except passing on the ownership of all know-how to franchisee;
(iii) The franchisee is required to pay to the franchisor, directly or indirectly, a fee; and
(iv) The frarchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.
It has been argued before us that though the first three conditions of the definition stand satisfied by the appellant, 4th condition is not satisfied. It has been argued by Shri V.S. Nankani that the terms of the agreement would reveal that there is no restriction on the franchisee not to engage in selling or providing similar goods or services or process of any other person. However, when pointed out that Clause 5(b) of the agreement restrained the franchisee from any other business of identical type, Shri V.S. Nankani, clarifies that the said restrain is from conducting identical business from the same premises and the franchisee's is free to indulge in identical activity of any other persons from any other premises. However, we do not find favour with the above plea of the appellant. The said Clause 5(b) of the agreement clearly provides that "Franchisee shall not conduct any other business from the said premises and shall remain an exclusive of the Franchisee of the Franchiser". The second line of the above clause clearly puts the restrain on the franchisee to enter into any other Franchisee's agreement, when it says that franchisee shall remain, an exclusive franchisee of the franchiser. As such, it is char that the franchisee is under an obligation not to provide identical services or to enter into franchisees with any other person.
6. The taxable service stands defined in Section 65 (105)(zze) of Service Act, as "any service provided to a Franchisee, by the Franchisor in relation to Franchise". The Franchisor develops the brand name, concept of following the business, promotes the same and establishes the name. As such, by entertaining into an agreement of Franchisee's, it assigns the brand name to other person to carry out the business under his brand name or trade name, in the same manner in which he himself was conducting the business. The definitions of Franchisor under Section 65(48) of the Act, means "any person who enters into franchise with an franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchisee's on his behalf. The agreement as placed before us refers the appellant as the franchisor and the other party as franchisee. In terms of the said agreement there are obligations on the franchisee to set up the adequate premises and to conduct the business in accordance with the terms of the agreement. For the said franchisee, is under an obligation to pay fixed amount to the appellant and in addition recurring franchisee fee at the rate of 15%. The purpose of the agreement of franchisees is to enable franchisee to carry on the business in the manner desired by the franchisor. The agreement also reveals that the appellant shall provide prospectus, course material, brochure, leaflets, direct mail materials, stationary etc. They shall also provide additional training to the staff franchisee request at additional cost. As such, it is seen that the agreements between the appellant and their franchisees satisfy all the four requisites of the definition of 'Franchise' as provided under Section 65(47) of the Act, and the appellant is liable to pay service tax on the said services.
7. The appellants have also claimed the benefit of Notification No. 9/03-ST dt. 20.6.2003, which exempts taxable services provided in relation to commercial training or coaching by a vocational training institute, computer training institute or a recreational training institute, to any persons from the whole of the service tax leviable thereon under Sub-section (2) of Section 66 of the said Act. Reading of the above notification clearly leads to the conclusion that the exemption provided is in respect of services relating to commercial training or coaching. As rightly held by the Commissioner (Appeals) appellant is providing two different services under two different categories namely - (a) Commercial Training and Coaching Services and (b) Franchise Services. The notification only exempts services provided as commercial training and coaching. The Ld. Advocate's argument that the expression "in relation to" appearing in the notification is of wide connotation and would include the franchisees services also, cannot be accepted. Even if the said expression "in relation to" is held to be of wide sphere, the same has to be extended only in relation to the commercial training or Coaching being given by the institute. It cannot be extended and stretched to such an extension, so as to hold that any service by training institute would get exempted even though it may be in a different field. Taking hypothetical example that if a training institute is also undertaking advertising service, can it be said that the same would not attract to tax merely because the same is provided by a training institute. The vocational training institute and recreational training institute stands defined in the explanation to the notification and it is the commercial training or coaching by the said institute to any person. The services provided by the institute have to be viewed in the light of the definitions of such institute given in the notification. The same cannot be extended to franchise services given by the said institute to the franchisee. As such, we hold that the benefit of the said notification is also not to the available to the appellant.
8. In view of the foregoing, we hold that the appellant was liable to pay service tax on the franchise services. However, we agree with the Ld. Advocate that for the purpose of calculation of duty, consideration received by the appellant before 1.7.2003, when franchisees was brought under the service tax net should not be taken into consideration as full amount and the same should be taken on pro-rata basis for the period after 1.7.03. For the said purposes, we remand the matter to the original adjudicating authority for recalculation of service tax. He would also consider the appellants plea of penalty under various section, depending upon the quantum of the service tax recalculated. The appeal is disposed of in above terms.
(Pronounced in court on 29/11/06)