Custom, Excise & Service Tax Tribunal
Picasso Digital Media Pvt Ltd vs Commissioner, Cgst-Delhi East on 20 February, 2024
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI
PRINCIPAL BENCH
Service Tax Appeal No. 51788 of 2022
(Arising out of Order-in-Original No. 88/Commr/Delhi East/AP/2022 dated
02.05.2022 passed by the Commissioner, CGST, Delhi- East Commissionerate)
M/s. Picasso Digital Media Pvt. Ltd., ...Appellant
DGL-121, First Floor, DLF Galleria,
Mayur Vihar Phase-I, Delhi-110091
Earlier Situated at: A-14, Mohan
Co-operative Industrial Estate,
Mathura Road, New Delhi
VERSUS
Commissioner, CGST, East-Delhi ...Respondent
CR Building, IP Estate, New Delhi-110002 APPEARANCE:
Mr. Arjun Raghavendra M., Advocate for the Appellant Ms. Jaya Kumari, Authorized Representative of the Department and Service Tax Appeal No. 52294 of 2022 with Service Tax Cross Objection No. 50300 of 2023 (Arising out of Order-in-Original No. 88/Commr/Delhi East/AP/2022 dated
02.05.2022 passed by the Commissioner, CGST, Delhi- East Commissionerate) The Commissioner ...Appellant Central Tax, Goods and Service Tax, Delhi-East, C.R. Building, I.P. Estate, New Delhi-110002 VERSUS M/s. Picasso Digital Media Pvt. Ltd., ...Respondent A-14, Mohan Cooperative Industrial Estate, Mathura Road, New Delhi-110044 APPEARANCE:
Ms. Jaya Kumari, Authorized Representative of the Department Shri Arjun Raghavendra M, Advocate for the Respondent CORAM: HON‟BLE MR. JUSTICE DILIP GUPTA, PRESIDENT HON‟BLE MR. P.V. SUBBA RAO, MEMBER (TECHNICAL) Date of Hearing: 09.11.2023 Date of Decision: 20.02.2024 FINAL ORDER No‟s. 50270-50271/2024 2 ST/51788/2022 & ST/52294/2022 JUSTICE DILIP GUPTA:
Service Tax Appeal No. 51788 of 2022 has been filed by M/s. Picasso Digital Media Pvt. Ltd.1 against that part of the order dated 02.05.2022 passed by the Commissioner, Central GST, Delhi East Commissionerate2 that confirms the demand of service tax of Rs.
1,61,61,355/- out of the demand of service tax of Rs. 4,82,73,992/-
proposed in the show cause notice dated 21.10.2011 issued under the proviso to section 73(1) of the Finance Act 1994 3, with interest and penalty.
2. Service Tax Appeal No. 52294 of 2022 has been filed by the department against that part of the order dated 02.05.2022 passed by the Commissioner that drops the demand of Rs. 2,73,56,539/-
pertaining to provision of commercial coaching and training service.
3. Cross Objection No. 50300 of 2023 have been filed by the appellant in the aforesaid appeal filed by the department.
4. The appellant is a Maharishi Group Initiative, which is a multinational educational institution having more than 200 Maharishi Vidya Mandir schools throughout India and USA. To fulfil its basic objective, i.e., „to use and deal in media technology in the field of production and education‟, the appellant is engaged in imparting education by collaborating with different national as well as international universities. In keeping with this objective, the appellant conducts Bachelor/Master Degrees and Diploma Courses in Multimedia VFX (Visual Effects) and Animation in coordination/tie-up with national as well as international universities.
1. the appellant
2. the Commissioner
3. the Finance Act 3 ST/51788/2022 & ST/52294/2022
5. The details of the courses mentioned by the appellant are as follows:
A. BSc and MSc (Multimedia & VFX) Degree courses in affiliation with Punjab Technology University which is a State University established by the state government of Punjab under the Punjab Technical University Act, 1996 which has a mandate to set up centers of excellence in emerging technologies for promoting training and research & development. Accordingly, BSc and MSc (Multimedia) Degrees were designed for 12th pass and graduate students towards a career in Visual Effects (VFX) and 3D Visualisation/Animation.
B. Star Animation Diploma course in affiliation with Centennial College, Canada which is the oldest publicly funded college in Ontario, Canada, and is affiliated to the Canadian Bureau for International Education (CBIE). The Star Animation Diploma program is designed for undergraduates and provides opportunity to become a professional in the industry of Animation and VFX.
6. The appellant also entered into franchise agreements with different business partners like, VAS Group, Evolve Consulting and Theme Animation Pvt. Ltd. and received Royalty fees and Sign-up fees. The appellant claims that it has been paying service tax on this franchise service provided in India.
7. The appellant and Centennial College, Canada entered into an arrangement of revenue sharing model whereby Centennial College delivered Animation/VFX courses in India. The Centennial College mutually collaborated with the appellant as it had the capacity to organise/manage such educational program in India. Both the parties share the revenue and the appellant pays certain amount to Centennial College, Canada in foreign currency. In addition to the above revenue sharing model, as per the mutual understanding between the appellant and Centennial College, Canada, out of the 4 ST/51788/2022 & ST/52294/2022 expenses incurred by the appellant in India for running such courses in India, the appellant gets 50% of marketing cost/expenses reimbursed from Centennial College, Canada, which is booked as „Misc. Income‟ in the books of account of the appellant.
8. The appellant also receives certain consultancy charges which are reflected in the balance sheet as „other income‟.
9. An investigation was initiated against the appellant and thereafter a show cause notice dated 21.10.2011 was issued to the appellant proposing demands, which are summarised:
I. Commercial Training or Coaching Services [section 65(105)(zzc)]: The department believed that „Fee Receipts‟ received against the activity of conducting Degree courses in affiliation with the Punjab Technology University and Diploma Courses in affiliation with Centennial College are taxable under „commercial training or coaching services‟ for the period from April 2006 to March 2011 as the appellant does not fall either under the exclusion clause nor the activity is exempted under Notification No. 24/2004-ST dated 10.09.2004 as the appellant is not a „vocational training institute‟;
II. Franchise Services [section 65(105)(zze)] against Forward Charge: The department mentioned fourteen franchisee names against which appellant received „Royalty Fee/Sign-up Fee‟ from April 2006 to March 2011 and accordingly, it has been alleged that appellant is engaged in „franchise services‟ and liable to pay service tax under forward charge;5
ST/51788/2022 & ST/52294/2022 III. Franchise Services [section 65(105)(zze)] against Reverse Charge: While proposing reverse charge demand against the expenditures covered under the head „royalty paid‟ (reflected in the schedule „operating and other expenses‟) and „expenditure in foreign currency‟ (reflected in the notes to accounts) for the period from April 2006 to March 2011 under taxable category of franchise service, the department believed that the appellant used the brand name „Centennial College‟ which provides infrastructural support (including land, building, cleaning and electrical etc.) to run Centennial program in India. It has, therefore, been alleged that the appellant is managing all operational functions and marketing/promoting its educational program. With this assertion, it has been alleged that appellant is transferring certain amount to Centennial College, Canada in foreign currency, which is exigible to service tax under Reverse Charge Mechanism in terms of rule 2(1)(d)(iv) of the Service Tax Rules, 19944 read with section 66A of the Finance Act;
IV. Section 65(19): Against the „miscellaneous income‟, department alleged that appellant is rendering Business Auxiliary Services5 to Centennial College, Canada and getting 50% of marketing expenses paid by Centennial College, Canada for the period April 2006 to March 2007; and V. Management or Business Consultant Services [section 65(105)(r)]: The department alleged that
4. the Service Tax Rules
5. BAS 6 ST/51788/2022 & ST/52294/2022 „other income‟ reflected in the balance sheet for April 2006 to March 2007 is taxable under management or business consultant services.
10. The appellant filed a reply dated 21.11.2012 to the aforesaid show cause notice and also submitted additional submissions on 03.08.2015, 22.11.2021 and 29.12.2021 and denied the allegations made in the show cause notice. The main contentions raised in the reply are as follows:
(i) Wrong computation of the proposed demands due to invocation of „Best Judgment Assessment‟ instead of actual value on „accrual basis‟;
(ii) The demand could not have been confirmed on merits;
(iii) The extended period of limitation could not have been invoked; and
(iv) Penalties could not be proposed under sections 76, 77 and 78 of the Finance Act.
11. Apart from the aforesaid, the appellant also submitted that the proposed demand under „commercial training or coaching services‟, franchise service (under forward charge) and franchise service (under reserve charge mechanism) should be re-quantified as it had been calculated on the higher side by invoking „best judgment assessment‟ instead of taking the actual figures for the Financial Year 2010-11. The appellant also submitted that the demand had been wrongly computed by taking values of receipt/expenditure of the appellant on „accrual basis‟ as per the financial statements, though in terms of the rule 6A of the Service Tax Rules the appellant was liable to pay service tax on „receipt basis‟ during the period in dispute from April 2006 to March 2011. The chart submitted by the appellant in the 7 ST/51788/2022 & ST/52294/2022 Memo of Appeal depicting the aforesaid submission is reproduced below:
Issue/Activity Demand Excess Amount considered in proposed show cause notice due to through show cause notice dated 21.10.2011 Taking actual Calculation on values instead of „accrual basis‟ Best Judgment instead of Assessment for „receipt basis‟ Financial Year 2010-11 I. Commercial 3,11,31,564 59,18,282 36,14,383 Training and Coaching Services (Fee Receipts) II. Franchise Service 1,07,88,799 28,28,055 16,99,843 (Forward Charge Demand) (Royalty Receipt/Sign-up Fee) III. Franchise Services 60,98,383 12,66,956 (Reverse Charge Mechanism) (Foreign Currency remittance)
12. The appellant has also stated that the department had proposed appropriation of service tax of Rs. 44,41,384/- only but the appellant had actually paid service tax of Rs. 92,63,532/- before service of show cause notice. Thus, the remaining tax of Rs. 48,22,148/- was not acknowledged/appropriated in the show cause notice dated 21.10.2011. Challans were also provided with the reply to show cause notice. A plea was, therefore, made by the appellant to appropriate the remaining tax already paid by the appellant.
13. In addition, the appellant claimed that after service of show cause notice, challans amounting to Rs. 5,63,622/- against franchisee service under forward charge and Rs. 33,730/- against management or business consultancy services were submitted and a request was made to appropriate the amount.
8
ST/51788/2022 & ST/52294/2022
14. It is after eleven years from the date of issuance of the show cause notice on 21.10.2011 that the Commissioner passed the order dated 02.05.2022 confirming the demand of Rs. 1,61,61,355/- and dropping the demand of Rs. 2,73,56,539/-.
15. The appellant has filed Service Tax Appeal No. 51788 of 2022 to assail that part of the order that confirms the demand and the department has filed Service Tax Appeal No. 52294 of 2022 against that part of the order that drops the demand.
16. The following chart would give details of the demand proposed against the services, the demand confirmed, the demand dropped and the amount in respect of which the appellant and the department have filed appeals.
Issue Demand Demand Demand Appeal of the Appeal of
proposed Confirmed dropped Appellant the
in the in the in the (in Rs.) Revenue
show order (in order (in (in Rs.)
cause Rs.) Rs.)
notice
(in Rs.)
Commercial 3,11,31,564 37,75,025 2,73,56,539 37,75,025 2,73,56,5
Coaching and (Out of which 39
Training appellant
Services concedes to
pay 7,74,044)
Franchise 1,07,88,799 62,54,217 45,34,582 62,54,217 Nil
Service
(Forward
Charge)
Franchise 60,98,383 60,98,383 0 60,98,383 Nil
Service
(Reverse
Charge)
Business 2,21,516 0 2,21,526 Not part of any appeal
Auxiliary
Service
Management 33,730 33,730 0 33,730 Nil
Consultancy
Service
TOTAL 4,82,73,992 1,61,61355 3,21,12,637 1,31,40,812 2,73,56,5
(out of which 39
appellant
concedes to
pay 7,74,044)
9
ST/51788/2022 &
ST/52294/2022
17. Shri Arjun Raghavendra M., learned counsel for the appellant submitted that the entire demand confirmed in the impugned order needs to be set aside on the ground of inordinate delay in the adjudication process in violation of the time limit prescribed in section 73(4B) of the Finance Act. In addition, the issues of franchise service (forward charge), and management consultancy service have been contested on the ground of limitation under section 73(1) of the Finance Act and the issues of commercial coaching and training services, and franchise service (reverse charge) have been contested, both on the ground of limitation as also on merits.
18. In fact, the learned counsel for the appellant has summarised the contentions, issue wise, in the following manner:
Commercial Franchise Franchise Management Coaching Services Services Consultancy and Training (Forward (Reverse Service (in Services (in Charges) Charges) Rs.) Rs.) (in Rs.) (in Rs.) Demand in the show 3,11,31,564 1,07,88,799 60,98,383 33,730 cause notice Best Judgment Assessment (BJA) Set aside in impugned 2,73,56,539 45,34,582 0 0 order Confirmed in 37,75,025 62,54,217 60,98,383 33,730 impugned order Amount of demand to 59,18,282 45,34,582 12,66,956 NA be set aside when actual value is considered instead of Best Judgment Assessment (BJA) Amount of demand to 2,44,39,238 NA 48,31,427 NA be set aside on merits Amount of demand to 3,11,31,564 1,07,88,799 60,98,383 33,730 be set aside due to inordinate delay of adjudication, under section 73 (48) Amount of demand 2,18,43,434 57,52,049 42,77,866 33,730 barred by limitation under the proviso to section 73(1) 10 ST/51788/2022 & ST/52294/2022
19. The submissions advanced by the learned counsel for the appellant are as follows:
(i) In view of the provisions of section 73(4B) of the Finance Act that was inserted on 06.08.2014, the adjudicating authority was required to determine the amount of service tax due within one year from the date of issuance of the notice where it is possible to do so, but the adjudicating authority determined the amount proposed in the show cause notice dated 21.10.2011 after almost eleven years on 02.05.2022.
Thus, the impugned order is liable to be set aside on this ground alone and in this connection, learned counsel placed reliance upon the decisions of the Delhi High Court in Sunder System Pvt. Ltd. vs. Union of India6 and Swatch Group India Pvt. Ltd. and ors. vs. Union of India and ors.7;
(ii) The normal period for issuance of the show cause notice as provided in section 73(1) of the Finance Act at the relevant time was one year from the date of filing of the return, but in the present case the entire demand, except in respect of two service tax returns filed on 25.10.2010 and 25.04.2011, is barred by time.
(iii) Even on merits the demand deserves to be set aside;
and
(iv) Penalties could not have been imposed.
20. Ms. Jaya Kumari, learned authorised representative appearing for the department has, however, supported the order insofar is it
6. 2020 (33) G.S.T.L. 621 (Del.)
7. 2023_VIL-543-DEL-CU 11 ST/51788/2022 & ST/52294/2022 confirms the demand of service tax and has also contended that the Commissioner committed an error in dropping the demand of Rs. 2,73,36,539/- relating to „commercial coaching and training service‟ by granting exempting under the Notifications dated 20.06.2003 and 10.09.2004. Learned authorised representative submitted that the exemption notification would not be available if the charges of such services are paid by the person undergoing such courses directly to the commercial training or coaching centers.
21. The submissions advanced by the learned counsel for the appellant and the learned authorised representative appearing for the department have been considered.
Inordinate delay in adjudication
22. Learned counsel for the appellant placed reliance upon the provisions of section 73(4B) of the Finance Act to contend that the order passed by the Commissioner should be set aside as it was passed beyond the period prescribed in the said section. This ground which is both factual and legal was not taken by the appellant in reply to the show cause notice. Section 73(4B) provides that the Central Excise Officer shall determine the amount of service tax within one year from the date of notice, where it is possible to do so. In the absence of such a ground having been taken in the reply to the show cause notice, it was not considered by the Commissioner. It would, therefore, in the absence of the factual aspect having been brought on record, not be appropriate to decide this issue.
Extended Period of Limitation
23. Learned counsel for the appellant pointed out that the show cause notice covers the period from 01.04.2006 to 31.03.2011 and 12 ST/51788/2022 & ST/52294/2022 the period within which the show cause notice was required to be issued during the relevant period was one year from the due date or the actual date of filing of the service tax return. Thus, according to the learned counsel for the appellant, only the amount of service tax demanded against the two service tax returns filed on 25.10.2010 and 25.04.2011 for the Financial Year 2010-11 would be within the time limit. In this connection, learned counsel for the appellant submitted a chart containing details of the demand which is barred by time and the demand which is within time. It is as follows:
Period Date of filing Date up to Amount Time barred or not covered of Service which show demanded from the date of Tax Return cause notice (in Rs.) issuance of show could be cause notice on served 21.10.2011 01.04.2006 25.10.2006 25.10.2007 28,08,135 to 30.09.2006 01.10.2006 25.04.2007 25.04.2008 to 31.03.2007 01.04.2007 25.10.2007 25.10.2008 1,02,35,234 to 30.09.2007 01.10.2007 25.04.2008 25.04.2009 to 31.03.2008 01.04.2008 25.10.2008 25.10.2009 1,14,92,480 Demand is time to barred 30.09.2008 01.10.2008 25.04.2009 25.04.2010 to 31.03.2009 01.04.2009 25.10.2009 25.10.2010 75,92,756 to 30.09.2009 01.10.2009 25.04.2010 25.04.2011 to 31.03.2010 01.04.2010 25.10.2010 25.10.2011 44,25,577 to 30.09.2010 Demand is within 01.10.2010 25.04.2011 25.04.2012 time to 31.03.2011
24. Section 73 of the Finance Act deals with recovery of service tax not levied or paid or short-levied or short paid or erroneously 13 ST/51788/2022 & ST/52294/2022 refunded and section 73(1) of the Finance Act, as it stood relevant time, is reproduced below:
"73(1) Where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded, the Central Excise Officer may, within one year from the relevant date, serve notice on the person chargeable with the service tax which has not been levied or paid or which has been short-levied or short-paid or the person to whom such tax refund has erroneously been made, requiring him to show cause why he should not pay the amount specified in the notice:
PROVIDED that where any service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of-
(a) fraud; or
(b) collusion; or
(c) wilful mis-statement; or
(d) suppression of facts; or
(e) contravention of any of the provisions of this Chapter or of the rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax or his agent, the provisions of this sub-section shall have effect, as if, for the words "one year", the words "five years" had been substituted."
25. It would be seen from a perusal of sub-section (1) of section 73 of the Finance Act that where any service tax has not been levied or paid, the Central Excise Officer may, within one year from the relevant date, serve a notice on the person chargeable with the service tax which has not been levied or paid, requiring him to show cause why he should not pay amount specified in the notice.
26. The "relevant date‟ has been defined in section 73 (6) of the Finance Act as follows;
"73(6) For the purpose of this section, "relevant date"
means,-
14
ST/51788/2022 & ST/52294/2022
(i) In the case of taxable service in respect of which service tax has not been levied or paid or has been short-levied or short paid-
(a) where under the rules made under this Chapter, a periodical return, showing particulars of service tax paid during the period to which the said return relates, is to be filed by an assessee, the date on which such return is so filed;
(b) where no periodical return as aforesaid is filed, the last date on which such return is to be filed under the said rules; in any other case, the date on which the service tax is to be paid under this Chapter or the rules made thereunder;"
27. The proviso to section 73(1) of the Finance Act stipulates that where any service tax has not been levied or paid by reason of fraud or collusion or wilful mis-statement or suppression of facts or contravention of any of the provisions of the Chapter or the Rules made thereunder with intent to evade payment of service tax, by the person chargeable with the service tax, the provisions of the said section shall have effect as if, for the word "one year", the word "five years" has been substituted.
28. To appreciate the contention that has been advanced by the learned counsel for the appellant regarding the invocation of the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act, it would be appropriate to refer to the allegations made in the show cause notice and the manner in which it has been dealt with by the Commissioner.
29. The relevant portion of the allegations made in the show cause notice are:
15
ST/51788/2022 & ST/52294/2022 "21 Whereas it appears that the party has deliberately contravened the provisions of Finance Act, 1994, as amended and the Rules made thereunder with intent to evade payment of service tax. In spite of the fact that they are engaged in providing service of Commercial Training or Coaching, the party has wrongly taken the stand that the course completion certificate issued by them is recognized by law and hence they were not covered in the service tax net in terms of exclusion clause given in the definition of Commercial training or coaching centre under Section 65(27) of the Finance Act, 1994. Further, the party is neither discharging their service tax liability on the royalty amount paid & nor on the Expenditure incurred in foreign currency under the taxable service „Franchisee service‟. They have also failed to discharge their service tax liability on the amount receipt as consultancy charges under taxable service „Management or Business Consultancy service‟ and amount receipt as „market expenses‟ under taxable service „Business Auxiliary service‟. The party‟s above omission & commission is deliberate to avoid payment of service tax. Their wrongful claim of treating the course completion certificate issued by them as recognized by law appears to be an intentional and deliberate attempt to mislead the service tax authorities in order to avoid due discharge of their service tax liability. This indicates their deliberate intention of non-compliance of the Law & the Rules. As per law, they had time up to 30 days from the date of commencement of Business to apply for service tax Registration, but they did not apply for the registration and pay the due Service Tax. These acts of non compliance of the Law & Rules appeared to be deliberate on the part of the party with an intent to evade Service Tax and tantamount to suppression of facts. Had it not been for the investigation carried out by the department, the fact regarding non payment of service tax would have gone unnoticed. Therefore, the provisions of, the proviso of Section 73(1) of the Act ibid for recovery 16 ST/51788/2022 & ST/52294/2022 of the Service Tax within extended period of 5 years are invokable."
(emphasis supplied)
30. The appellant submitted a reply dated 21.11.2012 to the aforesaid notice and contented that the extended period of limitation could not have been invoked in the facts and circumstances of the case. The appellant submitted that as service tax liability did not accrue on the appellant in respect of the allegations made in the show cause notice, there was no suppression of facts and in any case there was no intention to evade payment of the service tax. It was, therefore, submitted that the extended period of limitation could not have been invoked.
31. The Commissioner examined this aspect of limitation in paragraph 14.1 of the order and the relevant portion of the order is reproduced below:
"14.1 In the case of the noticee I find that they have not reported their complete income from the services rendered by them from F.Y. 2006-07 to 2010-11. They failed in brining correct facts to the knowledge of the department and not paid service tax correctly in respect of services provided by them, namely Commercial Coaching and Training Service, royalty amount they had paid to their overseas client, Franchisee Service on payment made to the Centennial College Canada under reverse charge and on Management or Business Consultancy Service, which was required to be paid, as explained above. In the era of self-assessment, a great trust was placed on the assesses by the Department. The notice has breaches that trust by not disclosing the correct facts to Department and by not calculating and paying the service tax correctly. They suppressed the fact in order to evade service tax on the amount received in lieu of the service rendered. Had the inquiry not been conducted in this regard same would 17 ST/51788/2022 & ST/52294/2022 have remained hidden and Government suffered a loss of a big amount of revenue. I find that it is an established position that the onus of proper assessment and discharging of the service tax falls on the tax payer. The noticee has failed to discharge the said burden and on the contrary, they failed to pay service tax properly. Hence, I hold the extended period for demand under section 73(1) has correctly been sought to be invoked."
(emphasis supplied)
32. It would be seen from the show cause notice that the extended period of limitation has been invoked by alleging that facts had been suppressed with intent to evade payment of service tax merely because the appellant did not pay service tax for certain services. The show cause notice also mentions that had the investigation not been conducted by the department, non payment of service would not have come to the notice of the department. The Commissioner, in the impugned order, also after noticing that the appellant had not paid service tax correctly and had failed to bring the correct facts to the knowledge of the department observed that in the era of self- assessment great trust is placed on the assessee by the department, but this trust had been breached by the appellant. It is only for these reasons that the Commissioner concluded that the appellant had suppressed facts in order to evade payment of service tax. The Commissioner, therefore, concluded that the onus for proper assessment and discharge of service tax was on the appellant and as the appellant had failed to discharge the said burden, the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act was correctly invoked.
18
ST/51788/2022 & ST/52294/2022
33. The issue that arises for consideration is whether the extended period of limitation can be invoked merely because service tax is not paid for some services. In the present case, the contention of the appellant is that service tax was not paid as the appellant believed that it was not liable to pay service.
34. It has been repeatedly held by the Supreme Court and the Delhi High Court that mere suppression of facts is not enough. Suppression has to be wilful with an intent to evade payment of service tax.
35. In Pushpam Pharmaceutical Co. vs. Commissioner of Central Excise, Bombay8, the Supreme Court examined whether the Department was justified in initiating proceedings for short levy after the expiry of the normal period of six months by invoking the proviso to section 11A of the Excise Act. The proviso to section 11A of the Excise Act carved out an exception to the provisions that permitted the Department to reopen proceedings if the levy was short within six months of the relevant date and permitted the Authority to exercise this power within five years from the relevant date under the circumstances mentioned in the proviso, one of which was suppression of facts. It is in this context that the Supreme Court observed that since "suppression of facts‟ has been used in the company of strong words such as fraud, collusion, or wilful default, suppression of facts must be deliberate and with an intent to escape payment of duty. The observations are as follows:
"4. Section 11A empowers the Department to re- open proceedings if the levy has been short-levied or not levied within six months from the relevant date. But the proviso carves out an exception and permits the authority to exercise this power
8. 1995 (78) E.L.T. 401 (S.C.) 19 ST/51788/2022 & ST/52294/2022 within five years from the relevant date in the circumstances mentioned in the proviso, one of it being suppression of facts. The meaning of the word both in law and even otherwise is well known. In normal understanding it is not different that what is explained in various dictionaries unless of court the context in which it has been used indicates otherwise. A perusal of the proviso indicates that it has been used in company of such strong words as fraud, collusion or wilful default. In fact it is the mildest expression used in the proviso. Yet the surroundings in which it has been used it has to be construed strictly. It does not mean any omission. The act must be deliberate. In taxation, it can have only one meaning that the correct information was not disclosed deliberately to escape from payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."
(emphasis supplied)
36. This decision was referred to by the Supreme Court in Anand Nishikawa Company Ltd. vs. Commissioner of Central Excise9 and the observations are as follows:
"26........... This Court in the case of Pushpam Pharmaceutical Company v. Collector of Central Excise, Bombay, while dealing with the meaning of the expression "suppression of facts" in proviso to Section 11A of the Act held that the term must be construed strictly. It does not mean any omission and the act must be deliberate and willful to evade payment of duty. The Court, further, held:-
"In taxation, it ("suppression of facts") can have only one meaning that the correct information was not disclosed deliberately to escape payment of duty. Where facts are known to both the parties the omission by one to do what he might have done and not that he must have done, does not render it suppression."
9. 2005 (188) E.L.T. 149 (S.C.) 20 ST/51788/2022 & ST/52294/2022
27. Relying on the aforesaid observations of this Court in the case of Pushpam Pharmaceutical Co. v. Collector of Central Excise, Bombay [1995 Suppl. (3) SCC 462], we find that "suppression of facts" can have only one meaning that the correct information was not disclosed deliberately to evade payment of duty. When facts were known to both the parties, the omission by one to do what he might have done not that he must have done would not render it suppression. It is settled law that mere failure to declare does not amount to willful suppression. There must be some positive act from the side of the assessee to find willful suppression. Therefore, in view of our findings made herein above that there was no deliberate intention on the part of the appellant not to disclose the correct information or to evade payment of duty, it was not open to the Central Excise Officer to proceed to recover duties in the manner indicated in proviso to Section 11A of the Act."
(emphasis supplied)
37. These two decisions in Pushpam Pharmaceuticals and Anand Nishikawa Company Ltd. were followed by the Supreme Court in the subsequent decision in Uniworth Textile Limited vs. Commissioner of Central Excise, Raipur10 and the observation are:
"18. We are in complete agreement with the principal enunciated in the above decisions, in light of the proviso to section 11A of the Central Excise Act, 1944."
38. The Supreme Court in Continental Foundation Joint Venture Holding vs. Commissioner of Central Excise, Chandigarh-I11 also held:
"10. The expression "suppression" has been used in the proviso to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give
10. 2013 (288) E.L.T. 161 (SC)
11. 2007 (216) E.L.T. 177 (SC) 21 ST/51788/2022 & ST/52294/2022 correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty. When the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11-A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a willful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct."
(emphasis supplied)
39. The Delhi High Court in Bharat Hotels Limited vs. Commissioner of Central Excise (Adjudication)12 also examined at length the issue relating to the extended period of limitation under the proviso to section 73 (1) of the Finance Act and held as follows;
"27. Therefore, it is evident that failure to pay tax is not a justification for imposition of penalty. Also, the word "suppression" in the proviso to Section 11A(1) of the Excise Act has to be read in the context of other words in the proviso, i.e. "fraud, collusion, wilful misstatement". As explained in Uniworth (supra), "misstatement or suppression of facts" does not mean any omission. It must be deliberate. In other words, there must be deliberate suppression of information for the purpose of evading of payment of duty. It connotes a positive act of the assessee to avoid excise duty.
xxxxxx Thus, invocation of the extended limitation period under the proviso to Section 73(1) does not refer to a scenario where there is a mere omission or mere failure to pay duty or take out a license without the presence of such intention."
xxxxxx
12. 2018 (12) GSTL 368 (Del.) 22 ST/51788/2022 & ST/52294/2022 The Revenue has not been able to prove an intention on the part of the Appellant to avoid tax by suppression of mention facts. In fact it is clear that the Appellant did not have any such intention and was acting under a bonafide belief."
(emphasis supplied)
40. Very recently the Delhi High Court in Mahanagar Telephone Nigam Ltd. vs. Union of India and others13, also observed as follows:
"28. In terms of the proviso to Section 73(1) of the Act, the extended period of limitation is applicable only in cases where service tax has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reason of fraud, or collusion, or wilful misstatement, or suppression of facts, or contravention of any provisions of the Act or the Rules made thereunder with an intent to evade payment of service tax. However, the impugned show cause notice does not contain any allegation of fraud, collusion, or wilful misstatement on the part of MTNL. The impugned show cause notice alleges that the extended period of limitation is applicable as MTNL had suppressed the material facts and had contravened the provisions of the Act with an intent to evade service tax. Thus, the main question to be addressed is whether the allegation that MTNL had suppressed material facts for evading its tax liability, is sustainable.
xxxxxxxx
41. In the facts of this case, the impugned show cause notice does not disclose any material that could suggest that MTNL had knowingly and with a deliberate intent to evade the service tax, which it was aware would be leviable, suppressed the fact of receipt of consideration for rendering any taxable service. On the contrary, the statements of the officials of MTNL, relied upon by the respondents, clearly indicate that they were under the belief that the
13. W.P. (C) 7542 of 2018 decided on 06.04.2023 23 ST/51788/2022 & ST/52294/2022 receipt of compensation/financial support from the Government of India was not taxable. Absent any intention to evade tax, which may be evident from any material on record or from the conduct of an assessee, the extended period of limitation under the proviso to Section 73(1) of the Act is not applicable. The facts of the present case indicate that MTNL had made the receipt of compensation public by reflecting it in its final accounts as income. As stated above, merely because MTNL had not declared the receipt of compensation as payment for taxable service does not establish that it had willfully suppressed any material fact. MTNL‟s contention that the receipt is not taxable under the Act is a substantial one. No intent to evade tax can be inferred by non-disclosure of the receipt in the service tax return."
(emphasis supplied)
41. It would transpire from the aforesaid decisions that mere suppression of facts is not enough and there must be a deliberate and wilful attempt on the part of the assessee to evade payment of tax. In the absence of any intention to evade payment of service tax, which intention should be evident from the materials on record or from the conduct of the assessee, the extended period of limitation cannot be invoked. Thus, mere non disclosure of the receipts in the service tax returns would not mean that there was an intent to evade payment of service tax.
42. This issue was also examined at length by a Division Bench of the Tribunal in M/s G.D. Goenka Private Limited vs. The Commissioner of Central Goods and Service Tax, Delhi South14. After referring to the provisions of section 73 of the Finance Act, the Bench observed:-
14. Service Tax Appeal No. 51787 of 2022 dated 21.08.2023 24 ST/51788/2022 & ST/52294/2022 "13. There is no other ground on which the extended period of limitation can be invoked. Evidently, fraud, collusion, wilful misstatement and violation of Act or Rules with an intent all have the mens rea built into them and without the mens rea, they cannot be invoked. Suppression of facts has also been held through a series of judicial pronouncements to mean not mere omission but an act of suppression with an intent. In other words, without an intent being established, extended period of limitation cannot be invoked.
xxxxxxxxxxxx
14. In this appeal, the case of the Revenue is that the appellant had wilfully and deliberately suppressed the fact that it had availed ineligible CENVAT credit on input services. The position of the appellant was at the time of self-assessment and, during the adjudication proceedings and is before us that it is entitled to the CENVAT credit. Thus, we find that it is a case of difference of opinion between the appellant and the Revenue. The appellant held a different view about the eligibility of CENVAT credit than the Revenue. Naturally, the appellant self-assessed duty and paid service tax as per its view. Such a self-assessment, cannot, by any stretch of imagination, be termed deliberate and wilful suppression of facts.
16. Another ground for invoking extended period of limitation given in the impugned order is that the appellant was operating under self- assessment and hence had an obligation to assess service tax correctly and take only eligible CENVAT credit and if it does not do so, it amounts to suppression of facts with an intent to evade and violation of Act or Rules with an intent to evade. We do not find any force in this argument because every assessee operates under self- assessment and is required to self-assess and pay service tax and file returns. If some tax escapes assessment, section 73 provides for a SCN to be issued within the normal period of limitation. This provision will be rendered otiose if alleged incorrect self- 25
ST/51788/2022 & ST/52294/2022 assessment itself is held to establish wilful suppression with an intent to evade. To invoke extended period of limitation, one of the five necessary elements must be established and their existence cannot be presumed simply because the assessee is operating under self-assessment."
(emphasis supplied)
43. The Tribunal in M/s. Kalya Constructions Private Limited vs. The Commissioner, Central Excise Commissionerate, Udaipur15 observed as follows:
"11. Both the SCNs further state that had the audit not conducted scrutiny of the records, the short paying the service tax would not have come to notice. It is a matter of fact that all the details were available in the records of the appellant. The appellant was required to furnish returns under section 70 with the Superintendent of Central Excise which it did. It is for the Superintendent to scrutinize the returns and ascertain if the service tax had been paid correctly or not. If the assessee either does not make the returns under section 70 or having made a return, fails to assess the tax in accordance with the provisions of Chapter or Rules made thereunder, the Superintendent of Central Excise can make the best judgment assessment under section 72. For this purpose, he may require the assessee to produce such accounts, documents or other evidence, as he may deem necessary. Such being the legal position, if some tax has escaped assessment which came to light later during audit, all it shows is that the Superintendent of Central Excise with whom the returns were filed had either not scrutinized the returns or having scrutinized then found no error in self- assessment but the audit found so much later. Had the Superintendent scrutinized the returns calling for whatever accounts or records were required, a demand could have been raised within the normal period of limitation. The fact that the alleged short payment
15. Service Tax Appeal No. 54385 of 2015 decided on 15.11.2023 26 ST/51788/2022 & ST/52294/2022 came to light only during audit does not prove the intent to evade payment of service tax by the appellant, but it only proves that the Range Superintendent had not done his job properly. For these reasons, we find that the demand for the extended period of limitation cannot be sustained."
(emphasis supplied)
44. The Tribunal in Sunshine Steel Industries vs. Commissioner of CGST, Customs & Central Excise, Jodhpur16 also observed as follows:
"20. The Department cannot be permitted to invoke the period of limitation by merely stating that it is a case of self-assessment as even in a case of self-assessment, the Department can always call upon an assessee and seek information. It is under sub-rule (1) of rule 6 of the Central Excise Rules, 2002 that the assessee is expected to self-assess the duty and sub-rule (3) of rule 12 of the Rules provides that the proper officer may, on the basis of information contained in the return filed by the assessee under sub-rule (1), and after such further enquiry as he may consider necessary, scrutinize the correctness of the duty assessed by the assessee. Sub-rule (4) of rule 12 also provides that every assessee shall make available to the proper officer all the documents and records for verification as and when required by such officer. Hence, it was the duty of the proper officer to have scrutinized the correctness of the duty assessed by the assessee and if necessary call for such records and documents from the assessee, but that was not done. It is, therefore, not possible to accept the contention of the learned authorized representative appearing for the Department that the appellant should have filed a proper assessment return under rule 6 of the Rules."
(emphasis supplied)
16. (2023) 8 Centax 209 (Tri.-Del.) 27 ST/51788/2022 & ST/52294/2022
45. What, therefore, transpires from the aforesaid decisions is that there can be a difference of opinion between the department and Revenue and an assessee may genuinely believe that it is not liable to pay service tax. On the other hand, the department may have an opinion that the assessee is liable to pay service tax. The assessee may, therefore, not pay service tax in the self-assessment carried out by the assessee, but this would not mean that the assessee has wilfully suppressed facts. To invoke the extended period of limitation, one of the five necessary elements must be established and their existence cannot be presumed merely because the assessee is operating under self assessment. If some tax escapes assessment, the officers of the department can always call upon the assessee to submit further documents and he may also conduct an enquiry.
46. Rule 7 of the Service Tax Rules provides for returns to be filed by the assessee and rule 5A empowers the Officer to have access to any premises for the purpose of carrying out any scrutiny, verification and checks as may be necessary to safeguard the interest of the Revenue. Rule 6(6) provides that it shall be lawful for the Assistant Commissioner of Central Excise or the Deputy Commissioner of Central Excise to complete the assessment, wherever he deems it necessary, after calling such further documents or records as he may consider necessary and proper in the circumstances of the case. Thus, the observation of the Tribunal in paragraph 20 in the aforesaid decision of the Tribunal in Sunshine Steel Industries would also be applicable in the present case.
47. Civil Appeal No. 4246 of 2023 (Commissioner of CGST, Customs and Central Excise vs. Sunshine Steel Industries) filed by the 28 ST/51788/2022 & ST/52294/2022 department to assail the aforesaid decision of the Tribunal in Sunshine Steel Industries was dismissed by the Supreme Court on 06.07.2023 and the judgment is reproduced below:
"Delay condoned.
2. Heard learned counsel for the appellant.
3. This Court is not inclined to interfere with the impugned order of the High Court (Sic).
4. The appeal is dismissed.
5. Pending applications, if any, are disposed of."
48. In the present case, all that has been stated in the impugned order is that since the appellant suppressed facts, the provisions of the extended period of limitation contemplated under the proviso to section 73(1) of the Finance Act would be applicable since such suppression of facts was with an intent to evade payment of service tax. The extended period of limitation could not, in view of the aforesaid decisions, have been invoked in the present case even if the returns were self assessed.
49. According to the appellant, only the demand of Rs. 44,25,577/- that has been confirmed is within the normal period of limitation.
50. The appellant has also furnished a chart to highlight what amount was within time and what was barred by time in respect of each of the four services and the same is reproduced below:
Commercial Franchise Franchise Management Total Whether coaching & Service Service Consultancy (in Rs.) time training (in Rs.) (RCM) Service barred?
services (in Rs.) (in Rs.)
(in Rs.)
2006-07 2011292 541587 33730 2586609
2007-08 7754293 584813 1896128 10235234 Time
barred
2008-09 7433785 2648861 1409834 11492480
2009-10 4644064 2518375 430317 7592756
2010-11 3369848 502168 553561 4425577 Within
(Actuals) time
Total 25213282 6254217 4831427 33730 36332656
29
ST/51788/2022 &
ST/52294/2022
51. Thus, the service wise time barred demand is as follows:
Commercial Franchis Franchise Management Total coaching & e Service Service Consultancy (in Rs.) training (in Rs.) (RCM) Service services (in Rs.) (in Rs.) (in Rs.) 21843434 5752049 4277866 33730 31907079 Management consultancy service
52. As noticed above, the entire demand confirmed under this head falls within the extended period of limitation. It has been held that the extended period of limitation could not have been invoked. The confirmation of demand under this head, therefore, deserves to set aside.
Franchise service (forward charge)
53. The appellant has challenged only the amount confirmed for the extended period of limitation. As held above, the extended period of limitation could not have been invoked. The demand of Rs. 5,02,168/- for the normal period is, therefore, confirmed.
Merits
54. The appellant has also contested, on merits, the demand pertaining to „commercial coaching and training services‟ and „franchise service (reverse charge mechanism)‟.
Merits - commercial coaching and training services
55. In respect of „commercial coaching and training services‟, the demand of Rs. 3,11,31,564/- has been challenged and the same has been explained by the appellant in a chart which is reproduced below: 30
ST/51788/2022 & ST/52294/2022 Sl. Description Amount Breakup Remarks (in Rs.)
1. Wrong 59,18,282 Set aside in the Part of computation impugned order Revenue based on „Best appeal Judgment Assessment‟ instead of actual value on „accrual basis‟
2. Degree affiliated 2,11,42,021 1,81,41,040 (a) Set aside by Part of with Punjab virtue of Revenue Technical definition under appeal University (PTU) section 65(27) of the Finance Act
(b) Also barred by limitation 25,95,804 (a) Set aside in the Part of appeal operative by the portion of order appellant but erroneously confirmed when calculating the demand in numbers
(b) To be set aside on merits as it is a calculation error
3. Diploma from 40,71,261 28,92,043 (a) Set aside by Part of Centennial virtue of Revenue College, Canada Notification No. appeal 24/2004-ST, upto February 2010
(b) Also barred by limitation 4,05,174 (a) Demanded for Part of appeal period March by the 2010 but appellant barred by limitation 7,74,044 (a) Demanded for Part of appeal the period April by the 2010-March appellant -
2011 (Stands
withdrawn to
(b) Agrees with
this extent)
the demand
and shall be
paid. Prayer
modified to this
extent
Total 3,11,31,564
31
ST/51788/2022 &
ST/52294/2022
56. It would be seen that the Commissioner set aside the demand of Rs. 59,18,282/- for the reason that the computation should have been based on actual value on „accrual basis‟ instead of best judgment assessment. There is no error in this finding recoded by the Commissioner as during the relevant period the computation was required to be undertaken on accrual basis. The department is not justified in assailing this finding recoded by the Commissioner.
57. As regards the degree courses affiliated with the Punjab Technical University is concerned, the finding recorded by the Commissioner is as follows:
"7.6 In light of the above, I find that the noticee is providing Degree courses to the students which have been recognized and affiliated to Punjab Technical University. The course, curriculum exams and results are also controlled by the University. In this way the activity performed by the notice is education and do not fall in the meaning of „commercial training‟ as envisaged under sub clause (zzc) of Section 65(105) and Section 65 (26) of the Finance Act 1994. Therefore, I hold that the fee collected by the Noticee in respect of the degree courses offered is for imparting education and not for any Commercial Training or Coaching and therefore is outside the purview of service tax under Commercial Training and Coaching Service for the period under consideration that is April 2006 to March 2011. Accordingly, I hold the same."
58. Out of the amount of Rs. 2,11,42,021/-, an amount of Rs. 1,81,41,040/- was set aside as service tax could not be levied. The finding recorded by the Commissioner does not suffer from any error and the learned authorised representative appearing for the department has also not been able to point out any specific error in 32 ST/51788/2022 & ST/52294/2022 the finding. It is, because of the discussion on the extended period of limitation, also barred by limitation.
59. Though an amount of Rs. 25,95,804/- has been set aside in the operative part of the order, but while calculating the amount it has included this amount. This is a calculation error and, therefore, the demand for this amount has to be set aside.
60. As regards the diploma courses from Centennial College, Canada, the finding recorded by the Commissioner is as follows:
"7.10 In this respect I find the objectives of the Diploma course provided by the notice in Animation Program is to train the students/Learners for the job of an animator, designer, graphics designer, computer animator, 3D modelling animator etc. I find the scope of the Course in designing and developments of ads, movies, games and other entertainment stuff using the skill imparted by the training. I find the Diploma course provided by the notice is some sort of a training which impart skills to enable the trainee to seek employment or undertake self-employment and therefore falls in the category of vocational training as required under the Notification No. 24/2004-ST dated 10.09.2004 to get the exemption from levy of service tax.
xxxxxxxxxx 7.13 Therefore, it may be concluded that the Diploma Courses being offered by the Noticee are carrier oriented and enable the students, undergoing it, to take employment or self-employment after completion of the same. For the issue of computer training institute, I find that the computer training relates to computer software and hardware. But in the case of the Noticee, they provide animation training and their students become animation professionals and not computer software or hardware professionals.
xxxxxxxxxxx 7.14 In view of the above, I find the fee collected for offering Diploma Courses by the Noticee is exempted 33 ST/51788/2022 & ST/52294/2022 till 26.02.2010 since the courses offered broadly satisfied the criteria of providing coaching or training to enable the trainees to enable the trainees to secure employment or self-employment the exemption under Notification number 24/2004-ST dated 10.09.2004 is available. However, after 27.02.2010 the condition of the institute being affiliated to National Council of Vocational Training (NCVT) and offering courses in the designated trades covered Schedule I of the apprentices Act, 1961 to be eligible for Service tax exemption is not satisfied by the Noticee. This exemption therefore is not available to the noticee from 27.02.2010. Accordingly, I hold that the Service tax is payable on receipts on account of Diploma courses offered by the noticee from 27th February 2010 onwards."
61. Out of the total amount of Rs. 40,71,261/-, the demand of Rs. 28,92,043/- upto February 2010 has been set aside because of the Notification dated 10.09.2004. It is also barred by limitation. The amount of Rs. 4,05,174/- for the period March 2010 is also barred by limitation. Regarding the remaining demand of Rs. 7,74,044/- for the period from April 2010 to March 2011, learned counsel for the appellant stated that the appellant agrees to pay this demand. Since the demand of Rs. 28,92,043/- and Rs. 4,05,174/- is barred by limitation the appeal filed by the department to assail this finding, for the reasons stated while discussing the limitation issue, deserves to be dismissed. So far as the amount of Rs. 7,74,044/- is concerned, payment of this amount is admitted by the appellant. The appeal filed by the department to this extent deserves to be allowed.
Franchise service (reverse charge) 34 ST/51788/2022 & ST/52294/2022
62. To appreciate this contention it would be appropriate to examine the definition of „franchise‟ and „franchisor‟. They are as follows:
"65(47) "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.
65(48) "franchisor" means any person who enters into franchise with a franchisee and includes any associate of franchisor or a person designated by franchisor to enter into franchise on his behalf and the term "franchisee" shall be construed accordingly."
63. The service is made taxable under section 65(105)(zze), which is reproduced below:
"65(105)(zze) "taxable service" means any service provided or to be provided, - (zze) to a franchisee, by the franchisor in relation to franchise"
64. The demand of Rs. 12,66,956/- deserves to be set aside as the amount was required to be computed on accrual basis and not on the basis of best judgement of assessment.
65. Even otherwise, the demand could not have been confirmed. The appellant had entered into a revenue sharing agreement with Centennial College, Canada to deliver digital animation and design foundation studies program in India. The appellant and Centennial College, Canada work under a revenue sharing model wherein out of the trial fee received from the students for these courses by the appellant, Centennial College, Canada is entitled to a fixed share as per the terms of the agreement. For the impugned activity to be a 35 ST/51788/2022 & ST/52294/2022 franchise service, of which the appellant is a recipient, there has to be a representational right that is granted to the appellant and the consideration must be paid for such grant of right. This is not so in the present case as there is no element of service between the appellant and Centennial College, Canada and it is only a revenue sharing agreement on a principal-to-principal basis. Both the appellant and Centennial College, Canada have a share of responsibilities towards the students who are the consumers of the educational service being provided. In proportion to their share of services being provided, they have revenue sharing terms agreed upon. The foreign currency remittance done by the appellant in the instant case pertains to transferring the revenue share of Centennial College, Canada in terms of the Agreement in the course of providing education to the students enrolled in the course.
66. Thus, franchise service was not provided by the appellant since the agreement in question is a mere revenue sharing agreement as can also be seen from the following chart:
M/s. Picasso (appellant) sharing of fee in terms Education service provided by enrolling in the course Students of the enrolled in the agreement Fees paid for the educational service courses CCAT
67. This issue is covered in favour of the appellant by a decision of the Tribunal in Niraj Prasad vs. Commissioner of C. Ex. & S.T., 36 ST/51788/2022 & ST/52294/2022 Kanpur17 and the relevant portion of the decision is reproduced below:
"15. A perusal of the agreement between Career Launcher and the appellant reveals that the appellant was entitled to 75% of the net revenue amount deposited by it in the bank account of Career Launcher towards the fees collected from the students, while Career Launcher was entitled to the remaining 25%. This arrangement is a typical revenue sharing model arrangement. The appellant was not to receive fixed amount per annum or per month from Career Launcher but only a certain percentage of the net revenue. In such a situation, it cannot be said that the appellant was a service provider and Career Launcher was a service recipient. No service was, therefore, provided by the appellant to Career Launcher. This view finds support from the decision of the Tribunal in Mormugao Port Trust. The Tribunal found that unless it can be established that a specified amount had been agreed upon to be paid as a quid pro quo for undertaking any particular activity, it cannot be assumed that there was a consideration agreed upon for a specific activity so as to constitute a service."
68. In the present appeal, there is no fixed amount specified to be paid to Centennial College, Canada. Instead for every student enrolled in a course, Centennial College, Canada gets a specified amount as a share of the fees. This is a typical revenue sharing model and in view of the aforesaid decision of the Tribunal in Niraj Prasad, there is no element of service involved. The appellant is, therefore, justified in submitting that franchise service (reverse charge) was not rendered by the appellant since the agreement was a mere revenue sharing agreement.
69. Thus, the appellant was not required to pay any service tax on franchise service on a reverse charge basis.
17. 2020 (38) G.S.T.L. 78 (Tri.-All.) 37 ST/51788/2022 & ST/52294/2022 Penalty under section 78
70. The Commissioner has imposed penalty under section 78 of the Finance Act for the reason that the ingredients for imposing penalty under this section and for invoking the extended period of limitation are same. It has been found that the extended period of limitation could not have been invoked. Thus, the penalty under section 78 of the Finance Act deserves to be set aside.
Penalty under section 77
71. Penalty of Rs. 10,000/- has been imposed upon the appellant for the reason that the appellant had contravened the provisions of section 70 of the Finance Act as the correct periodical ST-3 returns had not been filed. The appellant has very fairly stated that it is liable to pay an amount of Rs. 7,74,044/- towards service tax against commercial coaching and training service for the normal period. It has also been found that the demand towards franchise service (forward charge) for the normal period has to be confirmed. Major portion of the demand has been set aside only for the reason that the extended period of limitation could not have been invoked. The penalty under section 77 of the Finance Act has, therefore, been correctly imposed.
Order
72. In view of the aforesaid, the demand of service tax to the extent of Rs. 7,74,044/- towards „commercial coaching and training service‟ and Rs. 5,02,168/- towards franchise service (forward charge) with interest is confirmed. The rest of the demand confirmed in the impugned order is set aside. The penalty imposed under section 78 of the Finance Act is set aside, whereas the penalty 38 ST/51788/2022 & ST/52294/2022 imposed under section 77 of the Finance Act is maintained. Service Tax Appeal No. 51788 of 2022 is, accordingly, allowed to the extent indicated above with consequential relief (s). Service Tax Appeal No. 52294 of 2022 is allowed to the extent indicated above. Service Tax Cross Objection No. 50300 of 2023 stand disposed of.
(Order Pronounced on 20.02.2024) (JUSTICE DILIP GUPTA) PRESIDENT (P.V. SUBBA RAO) MEMBER (TECHNICAL) JB, Shreya