Custom, Excise & Service Tax Tribunal
M/S. Ima Mental Arithmetic Academy Pvt. ... vs Commissioner Of Service Tax, Chennai on 7 March, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal No. ST/148/2010
(Arising out of Order-in-Appeal No.78/2009 (MST) dated 9.12.2009 passed by the Commissioner of Central Excise (Appeals), Chennai)
M/s. IMA Mental Arithmetic Academy Pvt. Ltd. Appellant
Vs.
Commissioner of Service Tax, Chennai Respondent
Appearance Shri G.Natarajan, Advocate for the Appellant Shri S. Govindarajan, AC (AR) for the Respondent CORAM Honble Ms. Sulekha Beevi C.S., Member (Judicial) Honble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing / Decision: 07.03.2018 Final Order No. 40597 / 2018 Per Bench Brief facts of the case are that the appellants herein are engaged in imparting training / coaching in mental arithmetic. Appellants had entered into Franchisee Agreement with IMA Mental Arithmetic Academy, Malaysia. They had also entered into Franchisee Agreement with various franchisees appointed by them in India. Department took the view that the gross amounts collected by the appellant including admission fee, course instructor fee, tuition fee etc. would be eligible for service tax under the category of Franchisee Service under section 65(47) of the Finance Act, 1994. The proposals initiated in the show cause notice were confirmed by the original authority vide order dated 26.12.2007. However, in appeal, Commissioner (Appeals) vide order dated 9.12.2009 (impugned order) allowed deduction of the amounts relating to sale of course materials / books to the Indian franchisees by the appellant and remanded the matter to that extent to the original authority for requantification of tax liability. The appellant was also given relief from penal provisions under section 80 of the Finance Act. However, the appellants are aggrieved by the confirmation of tax liability on the remaining amounts and have come in appeal.
2. Today, when the matter came up for hearing ld. counsel Shri G. Natarajan for the appellant submitted as follows:-
2.1 The appellants are not disputing the demand of service tax of Rs.5,432/- on franchisee fee paid to the Malaysian principal under reverse charge post 18.4.2006.
2.2 The appellant is not contesting the demand of royalty fee and franchisee fee received from the Indian franchisees.
2.3 However, they contest the following amounts received from the students on the ground that they are not at all relevant to the franchisee service provided by them viz. (i) Admission Fee, (ii) Tuition Fee and (iii) Competition Fee.
2.4 The amount received from the franchisees towards franchisee fee and royalty fee alone are the consideration for the franchisee service provided by the appellant. The course instructor fee collected by the appellant for providing coaching to the instructors is also not relevant for the franchisee service because this activity only involves training of the instructors of the franchisee and accordingly the instructors are liable to pay service tax amounts and not any amounts which have been received from the franchisees.
2.5 The ld. counsel draws our attention to the Schedule of the Franchisee Agreement wherein as per clause 10, the IMA royalty is collected at 25% of the prescribed tuition fee. This amount collected by them as franchisor fee from all their franchisees in India. They have no dispute on paying service tax liability on this amount.
3. On the other hand, ld. AR Shri S. Govindarajan supports the impugned order. He draws attention to the decision of the Tribunal in the case of Jetking Information Ltd. Vs. Commissioner of Central Excise, Mumbai 2007 (7) STR 314 (Tri. Mumbai) which has been admitted by the Honble High Court of Bombay as reported in 2009 (13) STR J72 (Bom.). The ld. AR submits that the admission fee, tuition fee and competition fee are very much part of the franchisee service and therefore they should form part of the service tax and would also be leviable on them.
4. Heard both sides.
5. The definition of Franchise and Franchisor as given under Section 65(47) and 65(48) of the Finance Act, 1994 are as follows:-
Franchise is granted representational right to sell or manufacture goods or 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 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 the franchisee The franchisee is required to pay to the franchisor, directly or indirectly, a fee; and The Franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person 5.1 As per the definition, the payment to be made by the franchisee to the franchisor is only for the right to sell or manufacture goods or to provide service or undertake any process identified by the franchisor etc. The payment required to be paid for use of the IMA Mental Arithmetic course have been indicated as 25% of the gross fees collected. From the copy of the agreement, we do not find any other tax which are required to be paid towards royalty or franchisee fee by any other name called. Hence, in our view, the cost of admission fee, tuition fee, competition fee and course instructor fee charged by the appellant either from their franchisees or from the instructor cannot then form part of the value to be adopted for levying service tax on franchisee service.
5.2 Coming to the case law relied upon by the ld. AR, we find that the same relates to a case where there was a dispute in nature of service provided by the appellant therein. The Tribunal in that case held that the service provided by the appellant therein were in the nature of franchisee service as defined under section 65(105)(zze) of the Finance Act. There is however no dispute on the nature of the service in this appeal. What is only disputed is which amounts would form part of franchisee service, which aspect we have already discussed in the above paragraphs. As per section 65(105)(zze), the taxable service is that given to a franchisee by the franchisor in relation to franchise. This being so, only those amounts directly relatable to the representational right granted by the franchisor to the franchisee and the royalty/franchisee fee towards that right would alone be part of taxable for the purpose of levy under this category. In view of the above, we find favour with the appellant. The impugned order is therefore modified to the extent of holding that the tax liability for the appellant in respect of franchisee appointed by them within India will not include the amounts relatable to admission fee, tuition fee, competition fee and course instructor fee. We do not interfere with the any other part of the impugned order. The appeal is partly allowed in the above terms.
(Dictated and pronounced in open court) (Madhu Mohan Damodhar) (Sulekha Beevi C.S.) Member (Technical) Member (Judicial) Rex 6