sevakarahmedabad.nic.insevakarahmedabad.nic.in/doc/ADDL/OIO41-11.doc · Web viewThe word “franchisor” has been defined under Section 65(48) of the Act as “any person who enters

OIO No. 41/STC-AHD/ADC(MKR)/2011-12 Page 1 of 96

Brief Facts of the Case:

M/s. Sales India Ltd., functioning from 2nd Floor, B-Jadav Chambers, Ashram Road, Ahmedabad (herein-after referred to as ‘the said Service Provider’) is engaged in the business of providing taxable service i.e. “Business Auxiliary Service”, “Franchisee Service”, “Banking and Financial Services” and “Selling of Space Service” as defined under various sub-sections of Section 65 of the Finance Act 1994 as amended. Intelligence gathered revealed that they are indulging in evasion of Service Tax by way of providing taxable service, but not paying Service Tax on the taxable value, though they are registered with the Service Tax Department bearing Registration No.AACCS6857NST001 from 2004 onwards. Therefore, a summon dtd. 08.05.08, 29.05.08, 09.09.09 and 14.09.09 were issued to the said Service Provider asking them to produce the relevant records.

2. In response to the summons, Shri Vishnuprasad Chunilal Mehta, the Vice President of said Company appeared and submitted the copies of Balance Sheets & I.T. returns, Bank Statements of the above-mentioned company.

3.1 A Statement of Shri Vishnuprasad Chunilal Mehta, the Vice President of M/s Sales India Ltd., Ahmedabad was recorded on 09.05.2008 under provisions of Section 14 of Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, wherein he, inter-alia, stated that he is working as the Vice President of M/s Sales India Ltd. functioning from B-Jadav Chambers, Ashram Road, Ahmedabad from approximately 15 years. He further stated that the said Company was functioning from last 15 years and engaged in the business of purchase & sales i.e. trading of Electronic appliances and consumer durable goods. On being asked, he stated that the said Company is a Private Limited company in which Shri John Gee-Vergese is the Chairman and Shri Jose John Vergese is the Managing Director.

3.2 On being asked, he stated that the above company does the trading activities from their seven different functioning branches in the city of Ahmedabad, which are in the form of Showrooms, wherein the Electronic appliances and consumer durable goods are displayed, from where the ultimate clients choose and purchase the said goods. These branches are known as ‘Sales India’ and the details of the seven branches functioning are:


1. Sales India, Ashram Road, 2. Sales India, Sarkhej Gandhinagar road, 3. Sales India, Nr. Dharnidhar Derasar. 4. Sales India, Maninagar. 5. Sales India, Drive-in road 6. Sales India, Bapunagar. 7. Sales India, Motera, Sabarmati.

3.3 As regards, to the trading activity carried out by the company, he stated that as part of their pattern, they purchase Electronic goods from the manufacturing companies, wherein, they negotiate the price of the different goods and buy the goods at a particular price. Thereafter, on the negotiated price on which, they buy the product, they add their profit and sell the goods to the ultimate customers. Also, as per the conditions of their dealings with the manufacturing companies, immediately after purchase of goods, if they make the payments within a stipulated time-limit, they receive a pre-decided percentage of amounts as ‘Cash Discount’. Further, during the year, as well as during festive seasons or on monthly or quarterly or yearly, etc., basis, sale of a particular quantity is given to them as ‘target’ and on achieving the said target, they receive discounts as pre-decided in the form of percentage of value. It is also called ‘Extra Trade Discount’ or ‘target achievement discount’, as different companies use different words for such discounts.

3.4. Further, on being asked about the details of Service Tax registration and payment, he stated that the company is registered with Service tax department under the ‘Business Auxiliary Service’ category and

the details of Service tax registration Numbers and Service tax payments made till date are as

under:

Sr. No.

Name of the Company

Registration Number

Service Tax Payments Details

01. M/s Sales India Ltd. AACCS5882NST001 Rs.1,97,488/-

He further stated that their company had paid the above-mentioned amount of Service tax under Business Auxiliary Service category for the period September, 2004, however, thereafter, as per the advice received from their advocates, that they were not required to pay Service tax under Business Auxiliary Service category, so they had stopped payment of Service tax from that time onwards, but they had continued the Service tax registration and had been filing regular service tax returns till date.


3.5. On being shown the copy of the Profit and Loss account given in the Audit report for the year 2006-07 of M/s Sales India Ltd., and on being asked about the different incomes received and shown in the said Profit and Loss account, he stated that there were two types of net income shown i.e. (1) Sales and (2) Other Income. On being asked about the Sales income, he stated that the income from sales has been bifurcated into three sub-heads i.e. ‘Sales’, ‘Sales Promotion’ and ‘Sales incentive’, wherein the incomes shown against all the three heads were for the profit on trading, discounts on purchases and target incentives. As regards, the second head of ‘Other Income’, it has been bifurcated into two sub-heads i.e. Weizman Commission and Other receipts, comprising the commission received from M/s Weizman Forex Ltd., for the money transfer received and handed over to customers through Western Union Money Transfer System and the other part is what their company receives commission on the transaction on a pre-decided rate. As regards, the income shown under ‘Other Receipts’, it is the income received from the Finance companies, which were providing consumer goods finance to their customers, who wants to purchase the goods from their branches i.e. Show rooms. In this regard, on being further asked, he stated that the Finance Companies tie-up with them and purchase particular goods, sell it to their customers. Further, on the total amount of such transactions carried out by the finance companies, these finance companies give pay-outs (i.e. payments) in the form of cheques. The finance companies doing such a business with them were:

1. M/s City Financial. 2. GE Countrywide Consumer Finance Ltd. 3. ICICI Bank Retail Sales Finance.

4.1 A further Statement of Shri Vishnuprasad Chunilal Mehta, the Vice President of M/s Sales India Ltd., Ahmedabad was recorded on 29.05.2008 under the provisions of Section 14 of Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, wherein he once again reiterated the facts narrated in his earlier statement dtd. 09.05.2008 as under:

4.2 On being shown the copy of the Profit and loss account given in the Audit reports for the years 2005-06 and 2006-07 of the company and on being asked about the different incomes received and shown in the said Profit and loss account, he stated that there are two types of net income shown i.e. (1) Sales and (2) Other Income. As regards, Sales income, he stated that the income from sales has been for the profit on trading, discounts on purchases and target incentives. The second head of ‘Other


Income’, has been bifurcated into two sub-heads i.e. Weizman Commission and Other receipts. On being specifically asked about the income shown under Weizman Commission, he stated that their company receives the said commission from M/s Weizman Forex Ltd. for the money transfer received and handed over to customers through Western union money transfer system and they receive commission on the transaction basis on a pre- decided rate. Further, the income shown under ‘Other Receipts’ was the income received by the company from the Finance companies, which are providing consumer goods finance to their customers, who wants to purchase the goods from their show rooms. He further stated that the Finance Companies tie-up with their company under an agreement, as per which depending upon the amount of business of financing for consumer goods to the customers visiting their showrooms was received by them, they payout a pre-decided amount of consideration to their company. Further, on the total amount of such transactions carried out by the finance companies, these finance companies give pay-outs (i.e. payments) in the form of cheques. The finance companies doing such a business with their company are:


4.3 Apart from the above income received from financial companies, the above-mentioned income head also consists of some miscellaneous rent income received by the company from different supplier companies for providing of space for keeping of their products. In this regard, he furnished the bifurcation of the various incomes received under the head of ‘Other receipts’ and as per which under the head of ‘Other income’, their company received Rs.35,47,849/-during the year 2005-06 and Rs.22,21,890/- during the year 2006-07 as commission from the above-mentioned three Consumer Finance companies. The company wise detail of the said income received from the above-mentioned Finance companies is as under:

Name of the consumer Finance Co.,

Amount of commission

received in 2005-06 (Rs.)

Amount of commission received in

2006-07 (Rs.)M/s City Financial 19,76,729/- 12,58,774/-M/s GE Countrywide Consumer Finance Ltd. 15,71,120/- 9,42,108/-M/s ICICI Bank Retail Sales Finance 00 21,008/-

TOTAL 35,47,849/- 22,21,890/-


4.3 On being shown the definition of ‘Business Auxiliary Service’, defined

under section 65 (105) (zzb) of Finance Act, 1944 and on being asked about the applicability of

Service tax on the above-mentioned amount of commission received by their company during

the year 2005-06 and 2006-07, he stated that their company was not properly aware of such a

levy on the amount of commission income received by their company, so their company had not

paid any Service tax on the above-mentioned amount of commission received. However, as

explained to him and the details of the definition of above-mentioned service, he accepted that

their company was required to pay Service tax at the applicable rates on the above-mentioned

amount of commission received by them; the details of Service tax calculation on the above-

mentioned amount is as under:

YearAmt. of

commission received

(Rs.)

S.Tax @ 10% or

12% (Rs.)

Edu. Cess @ 0.2% or

0.24% (Rs.)

Total S. Tax

2005-06 35,47,849/- 3,54,785/- 7,096/- 3,61,881/-2006-07 22,21,890/- 2,66,627/- 5,333/- 2,71,960/-TOTAL 57,69,739/

-6,21,412/

-12,429/- 6,33,841/

-

4.4 He further confirmed that as given in the above-mentioned table, the total amount of commission received in 2005-06 was Rs.35,47,849/- and the amount of Service tax leviable on it @ 10.2 % was Rs.3,61,881/- (i.e. Service Tax of Rs.3,54,785/- + Edu. Cess of Rs.7,096/-). Further, the amount of commission received during 2006-07 was Rs.22,21,890/- and the amount of Service Tax leviable on it @ 12.24 % was Rs.2,71,960/- (i.e. Service Tax of Rs.2,66,627/- and Edu. Cess of Rs.5,333/-).

4.5 Therefore, the total Service Tax liability for the amount of commission received in 2005-06 and 2006-07 comes to Rs.6,33,841/- (i.e. Rs.3,61,881/- + Rs.2,71,960/-), which their company was liable to pay and he promised that they will pay the same within a short time.

5.1 Further Statement of Shri Vishnuprasad Chunilal Mehta, the Vice President of M/s Sales India ltd., Ahmedabad was recorded on 16.07.2008 under provisions of Section 14 of Central Excise Act, 1944 readwith Section 83 of Finance Act, 1994, wherein he once again reiterated the facts narrated in his earlier statements dtd. 09.05.2008 & 28.05.2008.

5.2 He furnished the details of the income received under the head of ‘Other receipts’ and as per which under the head of ‘Other income’, their company had received Rs.14,81,750/- during the year 2004-05 and Rs.13,61,365/- during 2007-08 as commission from the above-mentioned Consumer Finance companies. The details of the said income received from the above-mentioned Finance companies are:


Name of the consumer Finance Co.,





M/s City Financial 3,00,936/- 8,30,594/-M/s GE Countrywide Consumer Finance Ltd. 11,80,763/- 0M/s ICICI Bank Retail Sales Finance 0 5,30,771/-

TOTAL 14,81,699/- 13,61,365/-

5.3 He was once again shown the definition of ‘Business Auxiliary Service’ as defined under section 65 (105) (zzb) of Finance Act, 1944, he once again confirmed that their company is required to pay Service Tax on the amount of commission received by them from the above-mentioned finance companies. On being asked about the payment of Service tax on the above-mentioned amount of commission received during the year 2004-05 and 2007-08, he stated that initially in the year 2003-04, when the said levy was introduced, their accountant paid Service tax on the part amount and thereafter as per the advice received from their consultants, from October 2004, their company had not paid any amount of Service tax payable. The details of Service tax calculation on the amount of commission received from October, 2004 onwards has been worked out as under:

PeriodAmt. of

commission received

(Rs.)

Amt. of commission on which

S.tax already

paid (Rs.)

Taxable amount

S.Tax payable

@ 10% or 12%

Edu. Cess

@ 0.2%

or 0.24%

or 0.36%

Total S,Tax

payable

01.04.04 to

09.09.04

2,63,654/- 2,63,654/- 0 0 0 0

10.09.04 to

31.03.05

12,03,435/- 0 12,03,435/- 1,20,344/- 2,407/- 1,22,751/-

01.04.07 to

31.05.07

1,07,321/- 0 1,07,321/- 12,879/- 258/- 13,137/-

01.06.07 to

31.03.08

12,54,044/- 0 12,54,044/- 1,50,485/- 4,515/- 1,55,000/-

GT 25,64,800/-

2,83,708/- 7,180/- 2,90,888/

-

5.4 As given in the above-mentioned table, he confirmed that the total amount of commission received in 2004-05 was Rs.14,81,699/- and in that year till September 2004, their company paid Service tax on the payments received by them i.e. out of the above amount, Rs.2,63,654/- received till Sept.,2004, the amount of Service tax leviable on it @ 8 % has been paid by their company. On the remaining amount of commission of Rs.12,03,435/-


received after September, 2004, the amount of Service tax payable by them @ 10.2 % was Rs.1,22,751/- (i.e. Service Tax of Rs.1,20,344/- + Edu. Cess of Rs.2,407/-). He further confirmed that amount of commission received during the period from 01.04.2007 to 31.05.2007 was Rs.1,07,321/- and the amount of Service Tax leviable on it @ 12.24 % was Rs.13,137/- (i. e. Service Tax of Rs.12,879/- and Edu. Cess of Rs.258/-). For the period from 01.06.2007 to 31.03.2008, the amount of commission received by them was Rs.12,54,044/- and the amount of Service tax payable on it @ 12.36 % was Rs.1,55,000/- (i.e. Service Tax of Rs.1,50,485/-, Edu. Cess of Rs.3,010/- and Higher Edu. Cess of Rs.1,505/-). Therefore, the total Service Tax liability for the amount of commission received in 2004-05 i.e. after Sept.,2004 and 2007-08 comes to Rs.2,90,888/- (i.e. service tax Rs.2,83,708/- + Edu. Cess Rs.7,180/-), which he confirmed the same and promised they will pay the same within a short time.

5.5 Further, as regards the amount of service tax payable worked out for the period from 01.04.2005 to 31.03.2007 and confirmed by him in his earlier statement dtd. 28.05.2008, he furnished the copies of the two GAR 7 Challans dtd. 05.06.2008 evidencing the payment of Service tax of Rs.3,61,881/- and Rs.2,71,960/- respectively, totaling to Rs.6,33,841/-, paid towards their Service tax liability for the above period.

5.6. On being asked about the details of Service tax payments made by the said Service provider for the period from July, 2003 to September, 2004, he furnished the details of the commission amount received by the company for the above-mentioned period alongwith the details of Service Tax payments made by them in respect of the amount of commission received, alongwith the copies of TR-6 Challans evidencing the payments of Service tax made by the company. He further confirmed that as per details submitted by them, the total amount of commission received by their company for the above period and Service tax payments made are as under:

PeriodAmt. of

Commission received (Rs.)

Amt. of Service Tax Paid (Rs.)

Date of payment of S. Tax

01.07.03 to 31.03.04 8,58,310/- 68,665/- 27.10.200401.04.04 to 30.09.04 2,78,264/- 23,469/- 27.10.2004

GT 92,134/-

5.7 From the above details, it is evident that the said service provider has paid the amount of Service Tax payable on the amount of commission received by them from the finance companies for the period from 01.07.2003 to 30.09.2004.

6.1 Further Statement of Shri Vishnuprasad Chunilal Mehta, the Vice


President of M/s Sales India Ltd., Ahmedabad was recorded on 25.09.2009 under provisions of Section 14 of Central Excise Act, 1944 read with Section 83 of Finance Act, 1994, wherein he once again reiterated the facts narrated in his earlier statements dtd. 09.05.2008, 28.05.2008 and 16.07.2008.

6.2 Then, he was shown the copies of his earlier statements dtd. 09.05.2008, 29.05.2008, and 16.07.2008 recorded under Section-14 of Central Excise Act, 1944 read with Section 83 of Finance Act, 1944 and after reading and understanding the facts narrated therein, he was in complete agreement with the same.

6.3 On being asked about clarification on differences in figures reported by them in their statement and figures of Balance Sheet, he clarified that as per his knowledge during the course of recording of earlier statement they have provided the figures in respect of heads on which service tax is applicable whereas their balance sheets, figures are exhaustive which includes other income from suppliers viz. Godrej, Sony etc., on which service tax is not applicable. However, he has to go through their records and clarification thereon alongwith chart would be submitted by them within two days. On being asked, he stated that the income shown in the said head is the income received by their company from the Finance companies, which are providing consumer goods finance to their customers, who wants to purchase the goods from their branches i.e. Show rooms. In this regard, on being further asked, he once again reiterate that the Finance Companies tie-up with their company under an agreement, as per which depending upon the amount of business of financing for consumer goods to the customers visiting their showrooms was received by them, they payout a pre-decided amount of consideration to their company. Further, on the total amount of such transactions carried out by the finance companies, these finance companies give pay- outs (i.e. payments) in the form of cheques. The finance companies doing such a business with their company are:

1. City Financial. 2. GE Countrywide Consumer Finance Ltd. 3. ICICI Bank Retail Sales Finance. 4. Bajaj Auto-finance Ltd.

6.4 Further on being asked he submitted balance sheet for the year 2008-09 of their company viz., M/s Sales India Pvt. Ltd. (Formerly known as M/s Sales India Ltd.). During the year 2008-09 they have received Rs.4,26,871/- as other income, out of which as per schedule “K” the income liable to discharge service tax is Rs.32,456/- under the head Weisman Commission and Rs.3,82,831/- under the head Other receipts which includes commission


from Bajaj Auto-finance Ltd. and ICICI Bank Retail Sales Finance. They have already filed ST-3 returns for the period April, 2008 to Sept., 2008 and Oct. 2008 to March, 2009 with the service tax range-XIII and discharged the service tax liability by paying the service tax liability from Cenvat credit account. On being asked about the inflated figures shown in ST-3, he stated that they need to verify their records and accordingly they will submit their clarification thereon within a short time. He submitted copies of above referred ST-3 returns.

6.5 On being asked about the Weisman Commission he stated that Customer comes to their show room with the ten digit secret no. received from the sender party from the foreign country through their payers. After that they verify the secret no. in their system at the site of Weisman Forex Ltd./ Western Union Money Transfer and generate sheet/print out the details and as per the statement generated they pay the said amount to the customer in Indian currency. A sample sheet of such generated print outs through system will be submitted by them within two days. They receive commission from Weisman Forex Ltd./ Western Union Money Transfer for such transactions at the pre-decided rates. On being asked he stated that their company is not engaged in purchase or sell of foreign currency they are acting as intermediary between the Weisman Forex Ltd./ Western Union Money Transfer and the customer, to facilitate the customer. In their view the circular No.92/3/2007-ST dated 12.03.2007 service tax is not leviable on such activity to them.

6.6.1 On being asked regarding Franchisee Income, he stated that they had entered into agreements for franchisee with different parties and franchise fees received from them as per their ledger account is as under:

Sr.No. Name of the FranchiseeAmt. received for Franchise

Fees (Rs.)

Date of receiving amount

01. Sanket Enterprises, Anand 1,50,111/- 05.11.20013,50,001/- 29.11.2001

02. Tirupati Sankalp Retailers Pvt. Ltd. Vadodara

5,00,000/- 20.09.20025,00,000/- 23.09.2002

03. Shital Sales India, Bhuj 1,00,000/- 01.08.20024,00,000/- 28.08.2002

04. Samudra Sales, Jamnagar 1,00,000/- 05.03.20034,00,000/- 25.03.2003

05 Swapna Stuti, Himmatnagar 1,00,000/- 13.02.20034,00,000/- 21.03.2003

Total Receipts 30,00,112/-

6.6.2 They informed that the copies of the relevant ledgers will be submitted by them within two days.


6.6.3 He stated that they had entered into agreements with above referred franchisee and franchise fees/signing fee charged which is non-refundable, which is collected as per the date shown in above chart at the time of entering the agreement and every renewal thereafter. He further clarified that as the franchisee agreements were executed prior to the applicability of service tax on franchise service and also the franchise fees was received prior to the applicability of service tax on franchise service there is no need to clarify on the issue, as the law was not applicable at that time.

6.7 On being asked on clarification about the other income/Sales promotion and Sales Incentive, he has already clarified in forgoing paras and also clarified the trading activity carried out by their firm he stated that as part of their business pattern their company purchase electronic goods from different manufacturing companies and their company negotiates price of different goods and buy the goods at particular price. And as per business practice they received percentage at pre-decided percentage as cash discount/quantity discount/trade discount etc., on which no service tax is applicable.

6.8 Further vide their letter dated 01.10.2009 they produced details of sales incentives for the years 2004-05, 2006-07.

7.0 As per the financial records and documents submitted by the said service provider and on the basis of the confirmations given by Shri Vishnuprasad Chunilal Mehta, the Vice President of M/s Sales India Ltd., Ahmedabad, it is found that the said Service provider has provided services of “Business Auxiliary Service”, “Foreign Exchange under Banking and Financial Service”, “Franchise Service” and “Space Selling Service” during the

years 2004-05 to 2008-09. The amount received by them for the above referred services is as

under:

Sr. No.

Period

Amt. of Commission

received shown

under head “Other

Receipts”

Space Selling

(Renting of Space) Hoarding

Franchise Service

Weisman Commission received

shown under hear

“Other Receipts”

Total Amount received towards service

rendered (in Rs.)

(3+4+5+6)1 2 3 4 5 6 7

01. 2004-05 21,80,000/- 0 6,00,022/- 0 27,80,022/-02. 2005-06 35,47,849/- 0 8,00,022/- 28,658/- 43,76,529/-03. 2006-07 28,14,470/- 0 5,58,346/- 49,785/- 34,22,601/-04. 2007-08 16,48,553/- 18,50,000/- 2,91,666/- 49,473/- 38,39,692/-05. 2008-09 3,82,831/- 0 0 32,456/- 4,15,287/-

1,05,73,703/- 18,50,000/- 22,50,056/- 1,60,372/- 1,48,34,131/-

7.1 As per the provisions of Section 65(19) of the Finance Act, 1994 the term ‘Business Auxiliary Service’ has been defined as: “business auxiliary service” means any service in relation to,


(i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client;

or (iv) procurement of goods or services, which are inputs for the

clients; or (v) production or processing of goods for, or on behalf of, the

client; (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in

sub-clauses (i) to (v), such as billing, issue or collection or recovery of cheques, payments, maintenance or accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to “manufacture” within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 to 1944).

7.2 The service provider has promoted and marketed the goods belonging to their clients and hence they are squarely covered under the definition of “Business Auxiliary Service” mentioned herein above. The entire amount of commission received is the taxable value as the same was received towards the services rendered by them to their clients.

7.3 The total commission received by M/s. Sales India Ltd. during the period from April,04 to March,09 is Rs.1,05,73,703/- and the service tax liability of M/s. Sales India Ltd. thereon comes to Rs.11,79,811/-. In view of the above facts, it appeared that the said service provider is providing taxable service under the category of “Business Auxiliary Service” as defined under Section 65(19) of Chapter V of the Finance Act, 1994 (as amended) to their clients/ customers. It is further observed that the said service provider has obtained Service Tax Registration for Business Auxiliary Service only and are filing ST-3 returns showing taxable value of service as NIL and suppressing the taxable value of service, have not properly discharged their service tax liabilities resulting in non payment of service tax of Rs.11,79,811/- during the period from April,04 to March,09.


7.4.1 As per the provisions of Section 65 (105) (zzzm) any service provided or to be provided to any person, by any other person, in relation to sale of space or time for advertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization.

Explanation 1. - For the purposes of this sub-clause “sale of space or time for advertisement” includes:-

, (i) providing space or time, as the case may be, for display,

advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines internet;

(ii) selling of time slots on radio or television by a person, other than a broadcasting agency or organization; and

(iii) aerial advertising. Explanation 2. - For the purposes of this sub-clause, “print media” means,- (i) “newspaper” as defined in sub-section (1) of section 1 of

the Press and Registration of Books Act, 1867 (25 of 1867); (ii) “book” as defined in sub-section (1) of section 1 of the

Press and Registration of Books Act, 1867 (25 of 1867), but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

7.4.2 The service provider has provided space for display of goods and hoardings belonging to their clients and hence they are squarely covered under the definition of “Sale of Space” mentioned herein above. The entire amount received for the above service is the taxable value as the same was received towards the services rendered by them to their clients.

7.4.3 The total amount received by M/s. Sales India Ltd. for “sale of space service” for the period from April,07 to March,08 is Rs.18,50,000/- and the service tax liability of M/s. Sales India Ltd., thereon comes to Rs.2,28,660/-. In view of the above facts, it appeared that the said service provider is providing taxable service under the category of “Sale of Service” as defined under Section 65 (105) (zzzm) of Chapter V of the Finance Act, 1994 (as amended) to their clients/customers. It is further observed that the said service provider has not obtained Service Tax Registration for this service but obtained for “Business Auxiliary Service” and are filing ST-3 returns showing taxable value of service as NIL and suppressing the taxable value of service, have not properly discharged their service tax liabilities resulting in


non payment of service tax of Rs.2,28,660/- during the period from April,07 to March, 08.

7.5.1 As per the provisions of Section 65(105) (zze) of the Finance Act, 1994 taxable service means any service provided or to be provided to a franchisee, by the franchisor in relation to franchise.

7.5.2 As per Section 65(47) of the Finance Act, 1994 “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 involved.

7.5.3 The service provider has entered into franchisee agreements with their franchisee and received franchisee fee in advance for a block of five years and hence they are squarely covered under the definition of “Franchise Service” mentioned herein above. The entire amount received for the above service is the taxable value as the same was received towards the services rendered by them to their clients.

7.5.4 Further on going through the financial records and documents it appeared that the said service provider had collected non-refundable franchise fee from different parties for a block period of five years, as per the franchise agreements for the services to be provided in next five years. Though they have collected the franchise fee at once before the levy of service tax on franchise service but the actual service was provided in the block of forthcoming five years. When service is provided and amount is received for the said service, the service tax is to be paid. In the instant case service is provided, franchise fee is received at the time of entering into franchise agreements in advance for a block period of five years, but at the time of providing the franchise service after 01.07.2003 service tax to be levied even if the payment was received by them in advance at once for the block period of five years. At the time of providing franchise service after 01.07.2003 the franchise service was taxable. They have collected franchise fee in advance for the block period of five years which was non-refundable, the proportionate service tax for the period after 01.07.2003 is to be levied at the appropriate rates.

7.5.5 There are three elements for charging the service tax: 1. Service is provided or to be provided. 2. Amount is received for the service provided or to be provided. 3. At the time of providing the service, the service is taxable.


7.5.6 In the instant case following are the facts:

1. Service was provided and to be provided. 2. Amount for the service to be provided was charged at once in advance

for a block of five years period as franchise fee, which was non-refundable. They have collected franchise fee during 05.11.2001 to 25.03.2003 from different parties amounting to Rs.30,00,112/-. They have entered into franchise agreements with different parties for a block of five years.

3. At the time of providing the franchise service after 01.07.2003 the

service was taxable.

7.5.7 The proportionate figures of the Franchise Fee received by the said service provider for the years 2004-05 to 2007-08, worked out on the basis of information provided by the said service provider during recording the statement dated 25.09.2009, is as under:

Sr. No.

Name of the party from

whom Franchise

Fee received

2004-05 2005-06 2006-07 2007-08 Total

01. Sanket Enterprise, Anand

100022 100022 58346 0 258390

02. Tirupati Sankalp Retailers P Ltd., Vadodara

200000 200000 200000 83333 683333

03. Shital Sales India, Bhuj 100000 100000 100000 33333 333333

04. Samudra Sales, Jamnagar

100000 100000 100000 91667 391667

05. Swapna Stuti, Himmatnagar 100000 100000 100000 83333 383333


GT 800022 600022 558346 291666 2250056

Note: Figure shown at Sr. No.6 taken from Schedule – J Balance Sheet F.Y.2004-05 rest all from statement dated 25.09.2009.

7.5.8The total amount received by M/s. Sales India Ltd. for the “franchise service” during the period from April 04 to March 09 is Rs.22,50,056/- and the service tax liability of M/s Sales India Ltd., thereon comes to Rs.2,47,196/-. In view of the above facts, it appeared that the said service provider is providing taxable service under the category of “Franchise Service” as defined under Section 65 (105) (zze) of Chapter V of the Finance Act, 1994 (as amended) to their clients/customers. It is further observed that the said service provider has not obtained Service Tax Registration for this service but obtained for “Business Auxiliary Service” and are filing


ST-3 returns showing taxable value of service as NIL and suppressing the taxable value of service, have not properly discharged their service tax liabilities resulting in non payment of service tax of Rs.2,47,196/- during the period from April 04 to March 09.

7.6.1 Further the said service provider are also engaged in earning commission on foreign exchange through Western Union Money Transfer and the said service is covered under the category of banking and other financial services. The Circular No.92/3/2007-ST dated 12.03.2007 issued from F.No. 249/3/2007-CX.4 by CBEC on liability of ‘money changers’ to pay service tax under ‘banking and other financial service’, states that Service tax is leviable on foreign exchange (forex) broking service under the category of ‘banking and other financial service’. It was noted that ‘money changing’ and ‘foreign exchange broking’ are two distinct activities. Money changing is an activity of sale and purchase of foreign exchange at the prevalent market rates. On the other hand, foreign exchange broking is the activity performed as an intermediary, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange. The foreign exchange broker providing foreign exchange broking service does not hold title to the foreign exchange. Accordingly, Board is of the view that service tax is not leviable on money changing per se; as such activity does not fall under the category of foreign exchange broking.

7.6.2 It further appeared that the benefit of Boards Circular No. 92/3/2007-ST dated 12.03.2007 issued from F.No.249/3/2007-CX.4 is not admissible to them because the said service provider is not engaged in the activity of sale and purchase of foreign exchange at the prevalent market rates but they are performing the activity as an intermediary of Western Union Money Transfer, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange.

7.6.3 As per the provisions of Section 65 (105) (zm) taxable service means any service provided or to be provided to a customer, by a banking company or a financial institution including a non-banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services.

7.6.4 As provided under section 65(12) of the Finance Act., 1994 “banking and other financial services” means -

(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any


other body corporate [or commercial concern], namely :-

(i) financial leasing services including equipment leasing and hire- purchase;

[Explanation.-For the purposes of this item, “financial leasing” means a lease transaction where - (i) contract for lease is entered into between two parties for leasing of a specific asset; (ii) such contract is for use and occupation of the asset by the lessee; (iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and (iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment;] (v) [* * * *] (vi) merchant banking services; (vii) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing; (viii) asset management including portfolio management, all forms of fund management, pension fund management, [custodial, depository and trust services]; (ix) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy; (x) provision and transfer of information and data processing; and (xi) banker to an issue services; and (xii) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit

and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts;]

(b) foreign exchange broking and purchase or sale of foreign currency,


including money changing provided by a foreign exchange broker or an authorized dealer in foreign exchange or an authorized money changer, other than those covered under sub-clause (a);]

Explanation.-For the purposes of this clause, it is hereby declared that “purchase or sale of foreign currency, including money changing” includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately;

7.6.5 Further the said service provider also engaged in earning commission on foreign exchange through Western Union Money Transfer and the said service is covered under the category of banking and other financial services. The Circular No. 92/3/2007–ST dated 12.03.2007 issued from F.No.249/3/2007-CX.4 by CBEC on liability of ‘money changers’ to pay service tax under ‘banking and other financial service’, states that Service tax is leviable on foreign exchange (forex) broking service under the category of ‘banking and other financial service’. It was noted that ‘money changing’ and ‘foreign exchange broking’ are two distinct activities. Money changing is an activity of sale and purchase of foreign exchange at the prevalent market rates. On the other hand, foreign exchange broking is the activity performed as an intermediary, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange. The foreign exchange broker providing foreign exchange broking service does not hold title to the foreign exchange. Accordingly, Board is of the view that service tax is not leviable on money changing per se; as such activity does not fall under the category of foreign exchange broking.

7.6.6 It further appeared that the benefit of Boards Circular No. 92/3/2007 -ST dated 12.03.2007 issued from F.No.249/3/2007-CX.4 is not admissible to them because the said service provider is not engaged the activity of sale and purchase of foreign exchange at the prevalent market rates but they are performing the activity as an intermediary of Western Union Money Transfer, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange.

7.7 The total amount received by M/s. Sales India Ltd. under the head of Weisman Commission for “commission on foreign exchange” during the period from April, 05 to March, 09 is Rs.1,60,372/- and the service tax liability of M/s. Sales India Ltd. thereon comes to Rs.19,143/-. In view of the above facts, it appeared that the said service provider is providing taxable service under the category of “Banking and other financial services” as defined under Section 65 (105) (zm) of Chapter V of the Finance


Act, 1994 (as amended) to their clients / customers. It is further observed that the said service provider has not obtained Service Tax Registration for this service but obtained for “Business Auxiliary Service” and are filing ST-3 returns showing taxable value of service as NIL and suppressing the taxable value of service, have not properly discharged their service tax liabilities resulting in non payment of service tax of Rs.19,143/- during the period from April, 05 to March, 09.

8. In view of the above and on the basis of financial records and documents & the confirmations given by Shri Vishnuprasad Chunilal Mehta, the Vice President of M/s Sales India Ltd., Ahmedabad, it is found that the said Service provider vide has provided services of ‘Business Auxiliary Service”, “Foreign Exchange under Banking and Financial Service”, “Franchise Service” and “Space Selling Service” during the years 2004-05 to 2008-09. The amount received by them and their service tax liability for the above referred services is as under:

Sr. No. Period

Amount of Commission received under

Total Amount received towards services rendered (in Rs.)

3+4+5+6

Rate of Service

Tax

Amount of

Service Tax

BASSpace Selling

(Renting of space)

Franchise Service

Weisman

Comm. received shown under other

receipts (Foreign Exchang

e)1 2 3 4 5 6 7 8 9

1 2004-05 2180000 0 800022 0 2780022 10.20% 2835622 2005-06 3547849 0 600022 28658 4376529 10.20% 4464063 2006-07 2814470 0 558346 49785 3422601 12.24% 4189264 2007-08 1648553 1850000 291666 49473 3839692 12.36% 4745865 2008-09 382831 0 0 32456 415287 12.36% 51329

Total 10573703 1850000 2250056 160372 14834131 1674810

9. Thus, it appeared that the said service provider has contravened the provisions of :

i. Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994 in as-much-as they failed to make the payment of Service Tax amounting to Rs.16,74,810/- during the period 2004-05 to 2008-09 in respect of service “Business Auxiliary Service”, “Foreign Exchange under Banking and Financial Service”, “Franchise Service” and “Space Selling Service”, to the credit of the Government account within the stipulated time limit;

ii. Section 69 of the Finance Act, 1994 read with Rule 4 of the Service Tax Rules, 1994 in as much as they failed to get


themselves registered for the taxable services provided by them with Service Tax Department within 30 days from date of commencement of provisions of the taxable services ;

iii. Section 70 of the Finance Act, 1994 (32 of 1994) read with Rule 7 of the Service Tax Rules, 1994 in as-much-as they failed to file prescribed half yearly ST-3 returns for the taxable services provided within the stipulated time limit ; and

iv. Section 75A of the Finance Act, 2001 read with Rule 4 of the Service Tax Rules, 1994 in as much as they have failed to take registration for all the taxable services provided by them within the stipulated time limit at the relevant time.

10. All the above acts of contravention of Finance Act, 1994, (as amended) and rules made there under, on the part of the said service provider appeared to have been committed by way of willful suppression of facts, nature and value of service provided by them with an intention to evade payment of Service Tax and, therefore, the said Service Tax not paid is required to be demanded and recovered from them under proviso to Section 73(1) of the Finance Act,1994 as amended, by invoking extended period of five years. All these acts of contravention of the provisions of Section 68, 69, 70 and 75A of the Finance Act, 1994, as amended, read with Rules 4, 6 and 7 of the Service Tax Rules, 1994 appeared to be punishable under the provisions of Section 76, 77 and 78 of the Finance Act, 1994, as amended from time to time.

11. Further, in addition to the contravention, omission and commissions on the part of the said service provider as stated in the foregoing paras, it appeared that, they have willfully suppressed the facts, nature and value of service provided by them with an intention to evade the payment of Service Tax under the category of “Business Auxiliary Service”, “Franchisee Service”, “Banking and financial services” and “Selling of space service”, rendering themselves liable for penalty under Section 78 of the Finance Act, 1994. as they have suppressed the facts from the department by filing ST-3 returns showing taxable value NIL and that also for Business Auxiliary Service only and hidden all other taxable services and escaped from self assessment.

12. Accordingly, M/s. Sales India Ltd. were issued a show cause notice bearing F.No. STC-73/O&A/SCN/JC/SI/R-XIII/09 dated 13.10.2009 asking them as to why;


(i) Services rendered by them should not be considered as taxable service under the category of “Business Auxiliary Service”, “Foreign Exchange under Banking and Financial Service”, “Franchise Service” and “Space Selling Service” as defined under Section 65 of the Finance Act 1994, as amended, and the total taxable value of Rs.1,48,34,131/- received as Commission, Space selling income, Franchise Fee and Weisman Commission for the years 2004-05 to 2008-09 should not be considered as taxable value and Service Tax thereon at appropriate rate prevailing during the relevant time, which comes to Rs.16,74,810/- should not be demanded under Section 73(1) read with Section 68 of the Finance Act, 1994, invoking the larger period of five years as discussed hereinabove; Further, the amount of Service tax paid by them thereafter should not be appropriated against the Service Tax paid by them; (ii) interest at applicable rate on the amount of Service Tax liability of Rs.16,74,810/- should not be demanded and recovered from them for the delay in making the payment, under Section 75 of the Finance Act, 1994;

(iii) Penalty should not be imposed under the provisions of erstwhile Section 75A of the Finance Act, 2001 for the failure to obtain service tax registration for all the taxable services provided by them within the stipulated time;

(iv) penalty should not be imposed upon them under Section 76 of the Finance Act, 1994 for the failure to make the payment of Service Tax payable by them as discussed hereinabove;

(v) penalty should not be imposed upon them under Section 77 of the Finance Act, 1994 for the failure to file prescribed ST -3 returns for all the taxable services provided by them within the prescribed time, as they have filed ST-3 return only for Business Auxiliary Service showing taxable value of service as NIL and hidden all other taxable services and escaped from self assessment; and

(vi) penalty should not be imposed upon them under Section 78 of the Finance Act, 1994 for suppressing the value of taxable


services provided by them as they have filed ST-3 return only for Business Auxiliary Service showing taxable value of service as NIL and hidden all other taxable services and escaped from self assessment with an intention to evade payment of Service Tax amounting to Rs.16,74,810/-.

13. DEFENCE REPLY:-

13.1 The service provider submitted their defence reply vide their letter dated 11.05.2011, wherein they denied all the allegations made in the SCN as vogue, baseless, not tenable under law; that they denied all the baseless charges made in the SCN.

13.2 They submitted that in the impugned SCN it has been stated that Sales India Ltd.- the service provider is engaged in a business of providing taxable service i.e. Business Auxiliary Service, Franchisee Service, Banking & Financial Service and Selling of Space Service as defined under Section 65 of the Finance Act., 1994 as amended and the statement that they were indulging in evasion of service tax by way of providing taxable service but not paying service tax on the taxable value is not correct and is not acceptable to them, not sustainable on merit and also not legally tenable; that the contention what is stated in the SCN is not true and not acceptable to them in part or in toto.

14.1 DEMAND IS TIME BARREDThey further submitted that in response to summons dated 08.05.2008,

29.05.2008, 09.09.2009 and 14.09.2009 Vice President of their company Mr. Vishnu Prasad Chunilal Mehta, had appeared before then concerned officers and had delivered all the documents as desired by then concerned officers on 08.05.2008 itself and further on 29.05.2008; that also then concerned officers had recorded the statements on 09.05.2008, 16.07.2008, 29.05.2008 and 25.09.2009 under Section 14; that all the required information and records, documents etc. may called at once and not in piecemeal at the mercy of then concerned officers; that calling the information, documents etc. in piecemeal itself creates doubt on delivering of natural justice to the bona fide service provider already registered with the Department; that department was fully empowered to conduct audit etc. at that time also if any misleading or suppression etc., having been revealed; that also this act of calling them as and when created a lot of hurdles in doing their day to day work and harassment to them; that this shows that from the date of recording the very first statement of Shri Vishnu Prasad Chunilal Mehta, Vice


president on 09.05.2008 thereafter till 09.09.2009 the matter was kept pending at your end for 16 months that too without any concrete valid tenable reason or in need of any genuine documents or any genuine query in writing; that all the required documents as desired by then concerned officers were already presented before then concerned officers at once in toto and also statements under Section 14 were recorded, no further documents were called or any query raised at that time; that so there is no suppression of facts or concealment of any information or documents at the time of recording very first statement of Shri Vishnu Prasad Chunilal Mehta, Vice President under Section 14 on 09.05.2008; that also there appears no valid or tenable reason to keep the matter pending for so long for a period over one year; that when all the information, documents etc., as desired by then concerned officers were presented at once in toto before them on 08.05.2008 before recording the very first statement on 09.05.2008, all the facts were disclosed before then concerned officers there appears no suppression of facts; that the Show Cause Notice issued to them on 13.10.2009 that is after a lapse of 17 months of disclosure of all the facts, information, documents and record etc., completely at once as desired by then concerned officers; that under the circumstances it is illegal, improper and unfair to allege suppression of facts in a routine manner without in any way substantiating the allegations or suppression of facts discussed in the SCN; that the extended period is invoked without any justification or substantial ground or discussion in the SCN itself for reasons best known to them, over ruling and also ultra vires all the guiding principles laid down under the law; that the Show Cause Notice is issued beyond the period of one year's time limitation and is time barred, bad in law and required to quashed on the very same time barred ground without further going into the issue; that they requested to drop the demand and the proceedings under SCN on very short ground that the SCN is served about 17 months (after lapse of one year time limit) after the departmental officers had collected all the relevant information, documents records etc. in toto at once before recording the very first statement under Section-14 on 09.05.2008; that since the SCN is not served within one year time limit from the very first date of departmental officers collecting all the required information and recording statement and all the facts, information, documents, records etc as desired by the departmental officers made available to them at once in totality without any delay or further query at the very same time; that the demand is totally time barred and bad in law, not sustainable on this very short ground also as held in the following cases, which were squarely applicable to them.

S. D. Kemexc Industries Vs. CCE Calcutta (1995 (75) ELT 377 Tri.-Delhi)


where it was held that extended period of limitation is not applicable where SCN is issued after one year after receipt of information by department; that in their case SCN is issued 17 months after the then concerned officer recording statement under Section-14 and collecting all the information in toto before recording of the very statement.

CCE Ahd.-I Vs. Nandeshwari Packaging (2009 (235) ELT 697 Tri.-Ahd.) where it was held that SCN issued after period of six months from date of search and even after completion of investigation is barred by limitation; that this is squarely applicable to them.

Rivaa Textile Industries Vs. CCE Surat (2006 (197) ELT 555 Tri.-Mumbai) where it was held that SCN issued after 6 months from first factual panchnama is time barred; that this is squarely applicable to them.

Kathiravan Pipes Ltd. Vs. CCE Coimbatore (2002 (147) ELT 1266 Tri.-Chennai) where it was held that SCN having been issued beyond six months from date of completion of investigation by department. The demand is hit by time bar; that this is squarely applicable to them.

Mahakoshal Beverages Pvt. Ltd. Vs. Commissioner of Central Excise, Belgam reported in 2007(6) STR 148 wherein it has inter alia been held that the proviso to Section 73 of the Act. was promulgated by Finance Act, 2004 but adding proviso to Section 73 of the Central Excise Act., which is pan material to Section 11 A of Central Excise Act.

Hon'ble Supreme Court in Pahwa Chemicals Pvt. Ltd. Vs. Comm. of C.Ex. Delhi reported in 2005 (189) ELT 257 (SC) wherein it has been inter alia held that: “It is settled law that mere failure to declare does not amount to willful mis-declaration or willful suppression. There must be some positive act on the part of the party to establish either willful mis-declaration or willful suppression”.

Hon'ble Supreme Court in Anand Nishikawa Co. Ltd. Vs. Comm. of Central Excise Appeals, Meerut reported in 2005 (188) ELT 149 (SC) wherein it was observed that “Suppression of Facts” can have only one meaning that correct information was not deliberately disclosed to evade payment of duty, when facts were known to both the parties, omission by one to do what he might have done that he must have done would not render it suppression... that as none of the conditions necessary for invoking the extended period of limitation were satisfied in the present case, the extended period of limitation cannot be invoked against them and all demands were barred by limitation and therefore cannot sustain.

Chandra Shipping & Trading Services v. Commissioner of Central


Excise & Customs, Visakhapatnam-II [2009] 21 STT 266 (BANG. - CESTAT) Final Order No.1108 of 2008 in Appeal No. ST/339/2007 August 25th , 2008 wherein it was held that, on a very careful consideration of the issue, we find that the ST-3 returns and also the Cenvat credit returns have been filed regularly by the appellant. In view of this, the larger period cannot be invoked. Therefore, we are inclined to give the benefit of time bar to the appellants, when the returns are filed, if there is any doubt the department has to verify the correctness of the particulars given in the returns, both ST-3 returns and also the Cenvat credit returns. The department has not done that it is for the department to prove the allegations with solid evidence. The burden of proof is always on the department. In view of this above findings, we do not find that there is any suppression of facts, especially when the appellants had filed service tax returns and Cenvat tax returns regularly. Hence, we allow the appeal with consequential relief. The penalties are set aside.

14.2 DATA REPORTED IN TABLE-A ARE WRONG AND MISLEADING:

14.2.1 They further submitted that at page No.12 Table-A of the impugned SCN, that none of the services mentioned in the Table-A are applicable to them and there is no contravention of any provision of the Finance Act 1994; that since the law was not applicable to them, they have not got registered; that also the data reported in Table -A and services wrongly implied on them are fictious, hypothetical and incorrect; that they don’t agree with the same and strongly oppose the same.

14.2.2 They further submitted that what is stated at page No. 12 at para 8 of the SCN as “thus it appears that service provider has contravened the provisions of Section 68 of the Finance Act,1994 read with rule-6 of the service tax rules, 1994 in as much as they failed to make the payment of service tax amounting to Rs.16,74,810/- during the period 2004-05 to 2008-09 in respect of the service “Business Auxiliary Service”, “Foreign Exchange under Banking and Financial Service”, “Franchise Service” and “Space Selling Service” to the credit of governments accounts within the stipulated time limit; that they don’t agree with the same and strongly oppose the same; that in para 7.1 of the SCN it is alleged that they have promoted and marketed the goods belonging to their clients and hence they were squarely covered under the definition of “Business Auxiliary Service” mentioned herein above; that the entire amount of commission received is the taxable value as the same was received towards the services rendered by them to


their clients.

14.2.3 As per the provisions of Section 65(19) of the Finance Act, 1994 the term “Business Auxiliary Service” means any service in relation to, (i) promotion or marketing or sale of goods produced or

provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided on behalf of the client;

or (iv) procurement of goods or services, which are inputs for the

clients; or (v) production or processing of goods for, or on behalf of, the

client; (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in

sub-clauses (i) to (v), such as billing, issue or collection or recovery of cheques, payments, maintenance or accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any information technology service and any activity that amounts to "manufacture" within the meaning of clause (f) of section 2 of the Central Excise Act, 1944 (1 to 1944).

14.2.4 They further submitted that no service as defined hereinabove from (i) to (vii) has been provided by them; that whatever business carried out by the financial companies like Bajaj Finance etc. is by way of sales and purchase of the goods from them on which sales tax VAT has been paid by them as applicable and there is no element of providing any service from their side is involved; that the procedure in detail is as follows:- (i) These Financial companies are buying consumer durables

from them for their customers who buy consumer durables through finance offered by these Finance companies. While financing their customers representative’s of these finance companies are filing forms, explains the hire-purchase scheme. They take initial payments received by them and balance amount of payment they collect by way of post dated cheque from their customers in the name of the financial company. Approval of finance is also given by these financial companies by their approval letter to them and by such approval letter they give them delivery orders to deliver the goods as selected by their customers who have availed loan / finance from these companies; that they are not authorized to deliver such goods without financial


company’s approval letter. (ii) These financial companies are giving them order form by

way of their delivery order stating name of their customer with address, phone no. and product information which they have buy from these financial companies. On receipt of this delivery order from finance company they have to deliver the selected goods/product to such customer.

(iii) Balance payment which is to be received from customer is the responsibility of these financial companies.

(iv) Whatever product after buying from them and sold to their customer by these financial companies they issue bills in favour of such financial companies with their respective customer and for such bills they receives payments from these financial companies.

(v) The entire procedure is carried out by the financial companies representatives/sales representatives who are being paid by such financial companies and hence they are not providing any service in any form to anybody whether financial company or customer; that the service to customers is being provided by the representatives of the financial companies itself; that no where they are involved in any way except selling / delivering the goods; that this is purely a buy and sells activity on which sales tax VAT has been paid by them as applicable; that no service component is involved at any stage during the whole process of buying and selling the goods by them; that so question of payment of service tax doesn’t arise when sales tax has been paid by them.

(vi) They are giving price quotation of the product to the customer and representatives of such financial companies are processing further. They are not involved in providing any service to any person.

(vii) Whatever product sold to such customers of these financial companies they pay sales tax VAT & such other government taxes including octroi wherever applicable; that the entire procedure is purely a buy and sells no where service component is involved.

14.2.5 They further submitted that from the above discussion it is crystal clear that not a single condition as mentioned in (i) to (vii) of Section 65(19) of the Finance Act,1994 in respect of Business Auxiliary Service is applicable to them; that the activity being carried out by them is purely a buy and sells and no where service component is involved; that they have done the activity of purchase and sale which comes within the purview of ‘sale of goods’ and sales tax / VAT is attracted.


14.2.6 They further submitted that in support of this they relied on the following cases ;

ruling of Supreme Court in the case of Bharat Sanchar Nigam Limited Vs. Union of India (2006(2) STR 161 (SC) 2006 TIOL 15 SC CT LB) wherein it was held that anything on which sales tax / VAT is paid is goods and therefore service tax cannot be levied thereon. Though Central Excise duty may be leviable, if the goods are found to be excisable & dutiable ;that the ratio laid down by the Supreme Court ruling in BSNL case cited supra has been followed by the tribunal in the case of BPL Mobile Communications Ltd. Vs. CCE (2007 (7) STR 440 (4) (Tribunal)= 2007 (209) ELT 67 Tribunal 2007-TIOL-435- CESTAT-Mumbai wherein tribunal held that Service Tax cannot be levied on the value of SIM card, once sales tax has been paid on the same.

R. Venkatramanan Vs Comm. of Central Excise, Trichy, 2009 (13) STR 187 (Tri.- Chennai) Final Order No. 977/2008, Stay Order No. 803/2008 and Misc. Order No. 382/2008, dated 04.09.2008 in Application Nos. S/COD/ 135/2008 and S/PD/97/2008 in Appeal No. S/113/2008/MAS - Business Auxiliary Services - Sale of SIM card - Demand on 5% amount allowed as discount / commission to distributors - Service tax paid on full face value of SIM card by principal - Entire consideration charged from customers subjected to Service tax - Finding in impugned order that appellant promoting business of sale or service of principal, misconceived - Issue settled by Tribunal decisions in favour of appellant - Appeal allowed - Sections 65(19) and 73 of Finance Act, 1994. [paras 5, 8], R.B. Agencies v. Commissioner - 2008 (11) STR 124 (Tribunal) , South East Corporation v. Commissioner - 2007 (8) STR 405 (Tribunal), Ld. Counsel for the appellant relies on the following decisions of the Tribunal in support of his case that the appellant did not engage in rendering Business Auxiliary Service. (i) South East Corporation v. GGE & ST, Cochin - 2007 (8) STR 405 (Tri.-Bang.) (ii) R.B. Agencies v. GGE, Calicut - 2008 (11) STR 124 (Tri.-Bang.)… I also find that in South East Corporation v. CCE & ST, Cochin case (supra) this Tribunal had held as under: “There is no service carried out by the appellants but actually they have done the activity of purchase and sale which comes within the purview of ‘sale of goods’ and sales tax is attracted.

Pepsico India Holdings Pvt. Ltd., Vs Comm. of C.Ex Pondichery 2007 (6) STR. 266 (Tri. - Chennai) Stay Order No. 1220/2006, dated 11.12.2006 in Application No. S/PD/74/2006 in Appeal No. S/193/ 2006 Sales Tax was paid on the above charges as evidenced by the relevant invoices, it was not open to the Central Excise authorities to demand Service tax


thereon. In this connection, reliance is placed on the Supreme Court's Constitution Bench judgment in Bharat Sanchar Nigam Ltd. v. Union of India [2006 (2) S.T.R.161 (S.C.) = 2006- TIOL -15-SC-CT -LB].

JR Communications & Power Control Vs. CCE reported in 2009 (91) RLT 398 wherein the Tribunal held that there was no service carried out by the assessee, but the assessee had done the activity of purchase and sales which comes within the purview of “Sales of Goods” and sales tax attracted,; that it was held that amount of discount does not attract service tax as sales tax was paid on SIM card / recharge coupons.

;that demand may please be settled / quashed in respect of “Business Auxiliary Service” as there is no service provided by them.

14.2.7 They further submitted that the department while recording the statement of Shri Vishnu Prasad Chunilal Mehta on 09.05.2008, 29.05.2008 and 16.07.2008 under Section 14 had shown the definition of “Business Auxiliary Service” as defined under section 65(105) of (zzb) of Finance Act, 1994 Mr. Vishnu Prasad Chunilal Mehta had already clarified before recording officer of department that he was ignorant of law & therefore service tax on such amount was not paid; that Mr. Vishnu Prasad Chunilal Mehta had no alternative but to agree about paying the service tax & as per fear of applicability of law as explained by recording officer they paid service tax amounting to Rs.6,33,841/- erroneously; that this service tax amounting to Rs.6,33,841/- has been paid under the fear created during recording the statement by then officers, though they were not required to pay the same as the law was not applicable or they have carried out any activity which attracts service tax; that the recording officers has wrongly explained the applicability of law and forced them to pay service tax on above amount and he threatened them & said that the will have to face the consequences if they don’t pay and therefore they paid above amount under threat and fear of then departmental officers; that the amount of service tax paid by them erroneously under the threat of facing the consequences, pressure and fear created by then officers may please be refunded to them along with interest at the applicable rates.

14.2.8 They further submitted that looking to above mentioned facts, reality of the case, their bona-fide belief of not to pay service tax & there was no alternative for them but to pay the service tax, they paid the service tax; that SCN issued to them is not correct, not legally tenable, erroneous and bad at law may please be ignored, set aside and may please be rejected as the then investigating officer has not applied his mind about applicability of the law and who enforced them badly to pay the service tax even if this was not applicable to them and also requested to refund the above amount they


have paid erroneously, unwillingly, under the threat, fear and pressure of the departmental officers.

14.3.1 They further submitted that in Para 7.2 of the show cause notice, it is alleged that they have provided space for display of goods and hoardings belonging to their clients and hence they were squarely covered under the definition of “Sale of Space” mentioned herein above; that the entire amount received for the above service is the taxable value as the same was received towards the services rendered by them to their clients.

14.3.2 As per the provisions of Section 65(105)(zzzm) any service provided or to be provided to any person, by any other person, in relation to sale of space or time for advertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization.

Explanation 1. - For the purposes of this sub-clause, “sale of space or time for advertisement” includes, -

(i) providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet; (ii) selling of time slots on radio or television by a person, other than a broadcasting agency or organisation; and (iii) aerial advertising.

Explanation 2. - For the purposes of this sub-clause, “print media” means,-

(i) “newspaper” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867 (25 of 1867); (ii) “book” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867 (25 of 1867), but does not include business directories, yellow pages and trade catalogues which are primarily meant for commercial purposes;

14.3.3 They submitted that what is shown in Column no.4 of Table-A at page 12 of the SCN in respect of renting of space Rs.18,50,000/- as receipt in year 2007-08 is not correct; that this amount was received by them in the year 2006-07 when the renting of space service was not taxable; that Renting of space law came into force from 01.06.2007; that when there is no applicability of law they requested to drop the demand as mentioned above;


that when law was not in force, the department’s allegations like willful suppression of facts and evasion of payment of service tax and contravention of provisions of Section 68, 69, 70 and 75A of the Finance Act, 1994 read with Rules 4, 6 and 7 of the service tax rules, 1994 is not at all correct, not it is applicable to them as department has not gone in details of their records produced before the then statement recording officer; that such above table is misleading and is wrong and hence there was no need to file their returns when law was not applicable on them; that they requested to reject this illegal demand of service tax on Rs.18,50,000/- & further requested to reject illegal, unjustifiable, wrong production of figures by the department; that the demand & to wave the penalty clauses as mentioned in the SCN at page 12 para 8 to 11; that all what mentioned in para 8, 10 & 11 are not applicable.

14.3.4 They further submitted that the demand under SCN is not sustainable on merit as also on ground of limitation considering the following facts :-

(i) The SCN appeared to have ignored the very important fact that the service relating to Display of advertisement on its site and raising rental charges does not get covered under advertising agency service as held in a series of cases. By ignoring this very important and crucial fact the SCN proposes demand of service tax on advertising service making bad in law. (ii) Further as can be seen from series of cases and decisions on the issue involved in the matter it is crystal clear that issue of coverage of rental charges for display of advertisement was free from doubt and the question of interpretation of law is involved and the SCN proposed demand is shown in table is not for the year 2007-08 but it was for the year accounting year 2004-05 when law was not in applicable and hence they have suppressed any information from the department is not true and alleging suppression in a routine manner show the high headedness of the department. (iii) The amount charged by them from party is on rental charges for allowing space for which they have submitted their bills. This shows the amount received is for rental charges i.e. space selling, in such rental there is no element of advertisement service since only rental space is provided and hence the same cannot be branded as advertising service by any way of stretch of imagination as wrongly proposed in the SCN. Accordingly value received by them during the year 31.03.2005 cannot be treated as value of taxable service as wrongly proposed in SCN and hence service tax is not payable thereon as proposed in the SCN. Now the service of giving time or space for


advertisement has become taxable w.e.f. 01.05.2006 under the category of “Sale of space or time for advertisement service” which also implies that such service was not taxable prior to 01.05.2006. TDS has been deducted on the same and actually this receipt is miscellaneous income. Since the demand is in the SCN is for a period 31.03.2005 the same is clearly not sustainable. They reproduced the definition relating to “Advertisement Service” and “Sale of space or time for advertisement” for ready reference. According to section 65(2) “Advertisement” includes any notice, circular, label, Wrapper, Document, Hoarding or any other audio or visual representation made by means of light, sound, smoke or gas. According to Section 65(3) “Advertising Agency” means any person engaged in providing any service connected with making preparation, display or exhibition of advertisement and includes advertisement consultants. According to section 65(105) taxable service means any service provided or to be provided to any person by an agency in relation to advertisement in any manner. (iv) Such service of sale of space or time for advertisement was not taxable prior to 01.05.2006. In their case selling of space is for the year ended 31.03.2005 and the law was made applicable from 01.05.2006 and hence they were not covered under taxable service. Where no service provided or to be provided as the space to whom they rented have displayed in their own way. The issue in the present case is covered by a series of decisions of honorable CESTAT holding that allowing site to be used for display of advertisement of other party against payment is not covered within the definition of advertising agency having not conceptualized, visualized & designed such advertisement; that in support of their claim they relied upon following decisions:-

Commissioner of Central Excise, Chennai Vs Team UPD Ltd., 2006 (3) S.T.R. 427 (Tri. - Chennai) Final Order No. 923/2004, dated 18.10.2004 in Appeal No. S/50/2004/MAS - Service tax - Advertising agency - Appellants allowed their site to be used for display of advertisement of other party, against payment of rental charges - Appellants having not conceptualized, visualized and designed such advertisement, not covered under the definition of 'advertising agency' - Hence, no service tax leviable - Section 65 of Finance Act, 1994. - in the instant case, PEPSICO designed the advertisement, which implies that they also did the conceptualization and visualization of the advertisement. Therefore, the instant case does not fall within exception in Trade Notice No. 99/GL-90/CE/PRO/CAL-11/99,


dated 16.09.1999 of the Calcutta Commissionerate. Commissioner v. Azad Publications - 2004 (167) ELT 59

(Tribunal), Commissioner v. lncoda - 2004 (174) ELT 65 (Tribunal) Contact Advertising Agency v. Commissioner- 2001 (132) ELT

245 (Tribunal) Star Neon Sign v. Commissioner - 2002 (141) ELT 770 (Tribunal)

Zee Telefilms Ltd. v. Commissioner - 2004 (166) ELT 34 (Tribunal) Commissioner of Central Excise, Ludhiana Vs Azad Publications

2006 (3) STR 249 (Tri. - Del.) Final Order No. ST/8/2004-NB(A), dated 03.03.2004 in Appeal No. ST/44/2003-NB(A) - Service tax - Advertising agency - Respondents permitting display of advertisement on its site and raising bills for realizing rental charges- Such activity not bring the respondents under the definition of advertising agency - Section 65(2) of Finance Act, 1994. [para 3]

Prism Ads. Vs Commissioner of C.Ex & Cus., Mumbai 2006 (2) STR 501 (Tri.-Mumbai) Order Nos. A/255/2006-WZB/C-I(C.S.T.B.) &/249/ 2006- WZB/C-I (C.S.T.B.), dated 08.03.2006 in Appeal No. ST/35/2006- Advertising agency - Service tax - Assessee hired their hoardings to advertising agency who in turn displayed or exhibited their advertisement on such hoardings - Nature of services provided not coming under category of advertising agency under Section 65(3) of Chapter V of Finance Act, 1994 as held by Tribunal in case of Azad Publications [2004 (167) ELT 59 (Tribunal)]

Commissioner v. Team UPD Ltd. - 2005 (179) ELT 469 (Tribunal)

14.4.1 They further submitted that in Para 7.3 of the show cause notice it is alleged that they had collected non-refundable franchise fee from different parties for a block period of five years, as per the franchise agreements for the services to be provided in next five years; that though they have collected the franchise fee at once before the levy of service tax on franchise service but the actual service was provided in the block of forthcoming five years; that when service is provided and amount is received for the said service, the service tax is to be paid; that in the instant case service is provided, franchise fee is received at the time of entering into franchise agreements in advance for a block period of five years, but at the time of providing the franchise service after 01.07.2003 service tax to be levied even if the payment was received by them in advance at once for the block period of five years; that at the time of providing franchise service after 01.07.2003 the franchise service was taxable; that they have collected franchise fee in advance for the block period of five years which was non-


refundable, the proportionate service tax for the period after 01.07.2003 is to be levied at the appropriate rates.

14.4.2 There are three elements for charging the service tax:

1. Service is provided or to be provided. 2. Amount is received for the service provided or to be provided. 3. At the time of providing the service, the service is taxable.

14.4.3 In the instant case following are the facts:

1. Service was provided and to be provided. 2. Amount for the service to be provided was charged at once in

advance for a block of five years period as franchise fee, which was non-refundable. They have collected franchise fee during 05.11.2001 to 25.03.2003 from different parties amounting to Rs.30,00,112/-. They have entered into franchise agreements with different parties for a block of five years.

3. At the time of providing the franchise service after 01.07.2003 the

service was taxable.

14.4.4 The proportionate figures of the Franchise Fee received by the said service provider for the years 2004-05 to 2007-08, worked out on the basis of information provided by the said service provider during recording the statement dated 25.09.2009, is as under:

Sr.No.

Name of the party from whom Franchise Fee received

2004-05 2005-06 2006-07 2007-08 Total

01. Sanket Enterprise, Anand

100022 100022 58346 0 258390

02. Tirupati Sankalp Retailers P Ltd., Vadodara

200000 200000 200000 83333 683333

03. Shital Sales India, Bhuj 100000 100000 100000 33333 333333

04. Samudra Sales, Jamnagar

100000 100000 100000 91667 391667


06. Swapna Stuti, Himmatnagar 200000 0 0 0 200000GT 800022 600022 558346 291666 2250056

Note: Figure shown at Sr. No.6 taken from Schedule – J Balance Sheet F.Y.2004-05 rest all from statement dated 25.09.2009.


14.4.5 As per Section 65(47) of the Finance Act, 1994 “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 involved; that during the period of demand the definition of “Franchise Service” under Section 65(47) the word Franchise had been defined as under – 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 under 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 franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.

;that the proportionate figures produced in above table are factious, hypothetical, fertility of mind of the investigating officer and baseless; that they don’t agree with the same; that figures shown in column No.5 of the table-A at page-12 of the SCN are wrong and misleading; that they have given below as to how & when they have received the amount of Rs.30,00,112/- as signing fee at the time of entering the agreement; that this agreement is made on principal to principal basis where the company sells the goods to franchisee for purchase; that when there is purely a trading activity of Sells and purchase, where Govt. taxes like Sales Tax/VAT & Octroi etc. has been paid there is no applicability of service tax; that this signing fees had been received by them from 05.11.2001 to 21.03.2003 where as the Franchise Service has been made taxable with effect from 01.07.2003 vide service tax notification dated 01.07.2003; that when law was not applicable, departments demand and enforcing other clauses as mentioned in the SCN are not at all justifiable nor it


is correctly shown in Column 5 of Table-A at page No.12 of the SCN; that the department had forcefully and without going proper records, enforced the demand; that such action of department is beyond the scope of law and may be rejected; that they have given the chart of signing income, which was received before applicability of law i.e. 01.07.2003 when

the franchise service was covered under service tax.

Sr.No. Name of the Party

Amt. of signing fee

received. Rs.

Date of receipt of

signing fee

Franchise service covered

under service tax net

01. Sanket Enterprises, Anand 1,50,111/- 05.10.2001 01.07.2003

02. ….do…. 3,50,000/- 29.11.2001 01.07.2003

03.Tirupati Sankalp Retailers P Ltd., Vadodara

5,00,000/- 20.09.2002 01.07.2003

04 Sheetal, Bhuj 1,00,000/- 01.08.2002 01.07.200305. ….do…. 4,00,000/- 28.08.2002 01.07.200306. Samudra Sales,

Jamnagar 1,00,000/- 05.03.2003 01.07.200307. ….do…. 4,00,000/- 25.03.2003 01.07.200308. Swapna Stuti,

Himmatnagar 1,00,000/- 13.02.2003 01.07.200309. ….do…. 4,00,000/- 21.03.2003 01.07.2003

Total Receipts 30,00,111/- Before 01.07.2003 14.4.6 They further submitted that this amount of signing fee was received before 01.07.2003 when the “Franchise Service” was covered under the service tax net; that this shows that the department has given wrong figures which are without proper and justifiable verification which led them to unnecessary harassments as well as has created inconvenience & misunderstandings; that in the interest of Justice they requested to reject the demand and other applicability of law; that since the entire receipts is as signing fee and there is no service component involved and whole activity being purely a Buy and Sell process where all Govt. taxes like Sales Tax/VAT & Octroi had been paid by them there arise no question of demand of service tax.

They further submitted that their’s is a trading Company and had entered into a logo/trademark agreement with parties allowing them to use their logo i.e. intellectual property; that in such case license production agreement is clearly exempted from franchise service in term of CBEC Circular No. 59/8/2003 dated 20.06.2003; that as the department is relying upon the agreement in question, is typical exempted & logo/ trade mark and goods supplied by them with bills where sales tax & Octroi has been paid shows only license using agreement & the same is exempted from franchise service as explained in the circular referred to as above.

14.4.7 They further submitted that Intellectual Property Service had


been brought under service tax net w.e.f. 10.09.2004 and defined u/s 65 (55B) which reads as “Intellectual property service means- (a) Transferring whether permanently or otherwise or (b) Permitting the use or enjoyment of any intellectual property right” further “intellectual property rights means any right to intangible property, mainly trade mark, design, patent or any other similar intangible right has been defined in Sec.105(22R) of the Act. Any service provided to any person by holder of intellectual property right in relation to intellectual property service; that the intellectual property right involved in their case is the use of their logo/name/goodwill; that the limited right to use has been given by them by way of license/agreement; that this arrangement of allowing these parties to use their logo/trademark/goodwill only & therefore this agreement is not a franchise agreement; that this agreement was as signing fees where law was not applicable; that Law for tangible property rights came in force w.e.f. 10.09.2004 and franchise service tax came in force w.e.f. 01.07.2003 vide trade notice no. 17/2003; that looking to the above mentioned circumstances and the amount of signing fees had been received by them before 21.03.2003, how department can enforce such service tax without going through the facts? Department has issued this SCN without verifying the facts, applicability of the service tax at that time, without any lawful justification in a very casual way hence such unlawful SCN required to be rejected, set aside.

14.4.8 They further submitted that in a franchise agreement the franchisor is bound to follow the concept of business operations, managerial expertise, market techniques etc; that during the period of demand the definition of “Franchise Service” under Section 65(47) the word Franchise had been defined as under – “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 under 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 franchisee is under an obligation not to engage in


selling or providing similar goods or services or process, identified with any other person.

14.4.9 They further submitted that any service provider who satisfy all the four conditions as mentioned herein above can be called to pay service tax under franchise service but in their case none of these ingredients/conditions from (i) to (iv) satisfied; that hence the department has issued SCN to them without any lawful justification in a very fictious manner which is bad in law and required to quashed, set aside; that the department has issued SCN on the so called premature grounds and interpretations made by them selves without any legal base or evidence or correctness of the facts as alleged; that if the department like to conduct investigation genuinely department must have extended their enquiry at the service recipient end also to confirm whether the services alleged to be provided had actually been provided or the demand raised without confirming the facts of the case at service recipients end also; that the so called agreement was not actually been executed and/or in existence; that though the said agreement was made with various firms but could not be practically operated and no business transactions were took place, and therefore no services provided in this relation; that in their case there is no scope of applicability of service tax as per the CBEC circular No. 59/8/2003 dated 20.06.2003; that their receipts as mentioned in table-A are before 21.03.2003 i.e. before the announcement of law & therefore also show cause notice may please be rejected as it is bad at law; that the department has not gone in details of the service sub-sec.47 under clause (i) to (iv) is mentioned that service would not qualify to be franchise service unless all the ingredients mentioned in above sub-see are satisfied; that they relied on following decisions in support of their claim ;

Ashok Enterprises - 2007 (5) STR-153 (Commr. Appeals- Before Commissioner of Customs & Central Excise (Appeals), Kanpur order in appeal No. 450-CE/ APPL/KVP/2006 dated 12.09.2006.

Aviat Chemicals Pvt. Ltd. Vs. Commissioner-2006 (3) STR 291 (Tri.)- 2004 (170) ELT - 466 relied on para 3.16.

Bharti Cellular Ltd.-2006 (2) STR 255 (Commissioner Appeal) 1999 (106) ELT 564 (Commr. App.) referred para-2

Bright Motors Pvt. Ltd. Vs. Commissioner-2006 (2) STR 502 (Tri.) referred para 2 –

Commissioner Vs. Rashtriya Ispat Nigam Ltd. 2004 (163) ELT A 53 (SC) referred para 2

Dewsoft Overseas Pvt. Ltd. Vs Commr. of Service Tax, New Delhi 2008 (12) STR 730 (Tri. - Del.) Final Order No. ST/218/2008-(PB),


dated 25.08.2008 in Appeal No. ST/235/2006 Franchise service - Computer training institute - Franchisees granted representational right - Appellant as franchisor provided know-how, expertise and quality control - Enquiry not made by Revenue for ascertaining whether as per agreement appellant under obligation not to engage in providing similar service with other persons - Burden to prove liability on Revenue and same not discharged - Impugned activity not covered under Franchise service - Sections 65(47) and 73 of Finance Act, 1994. [para 4.5.2J

“Tax liability (Service tax) - Burden of proof - Revenue to prove liability on particular person if Service tax sought to be imposed. [para 4.5.2J

During the period of dispute under Section 65(47) the word Franchise had been defined as under –

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 under 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 franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.

The word “franchisor” has been defined under Section 65(48) of the Act as “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”. Under Section 65(105)(zze), the taxable service with regard to franchise has been defined as “any service provided to a franchisee, by the franchisor in relation to the franchise”. There is no dispute that the first, second, and third conditions are satisfied. In other words, the franchisee of the appellants have been granted representational right, the appellants as franchisor have provided the concept of business


operations to their franchisees including know-how, method of operation, managerial expertise, marketing technique, standards of quality control etc. and the appellants as franchisor receive a consideration from the franchisees; that the Appellants, however, claim that no evidence has been produced by the Revenue that fourth condition is also satisfied i.e. the franchisee is under an obligation not to engage in providing similar services identified with any other persons. The Revenue’s contention on this point is that the Appellants, either during the investigation or during the adjudication proceedings have not produced any evidence to show that their franchisees were not providing similar service of other franchisors and in view of this, conclusion in this regard has to be drawn against the appellants; that they do not agree with this plea of the Revenue; that during the period of dispute, as per the definition of the word “franchise” as given in Section 65(47) the franchise agreement, which attracted service tax was to satisfy four conditions, and if the Revenue wants to subject a person to service tax under this entry, the burden of proving that the agreement between that person and his client is a “franchise agreement” within the meaning of this term, as defined under Section 65(47) of the Finance Act, 1994, would be on the Revenue; that if the Appellants were not coming forward with the information with regard to condition No. ‘4’, it was possible for Revenue to conduct enquiry with the franchisees for ascertaining as to whether in terms of their agreement with the Appellants, they are under an obligation not to engage in providing similar service identified with any other person; that no such enquiry has been conducted; that in view of this, they hold that this activity of the Appellant is not covered by the definition of franchisee service as given in Section 65(47) of the Finance Act, 1994 and therefore would not attract service tax; that in view of their above findings, the impugned order is not sustainable and the same is set aside. The appeal is allowed.

;that the above decision squarely applies to them; that they also relied on the decisions in the cases of ;

Tamil Nadu Kalyana Mandapam Assn. v. Union of India - 2006 (3) STR 260 (S.C.) = 2004 (167) ELT 3 (S.C.)

Basti Sugar Mills Co. Ltd. v. Commissioner - 2007 (7) S.T.R.431 (Tribunal)

Nirulas Corner House Pvt. Ltd., Vs Comm. of S.T, New Delhi (2009


(14) STR 131 (Tri. - Del.) Final Order Nos. ST/424- 425 / 2008 (PB), dated 03.12.2008 in Appeal Nos. ST/521- 522/2006,

Jetking Information Ltd. v. Commissioner - 2007 (7) STR 314 (Tribunal) - Distinguished, Franch Express Network (P) Ltd. Jetking Information Ltd. v. Commissioner - 2007 (7) STR 314 (Tribunal) - Distinguished,

Franch Express Network (P) Ltd. Vs Comm. of S.T., Chennai 2008 (12) STR 370 (Tri. - Chennai) Final Order No. 742/2008, dated 23-7-2008 in Appeal No. 5/11/2008 - Franchise service - Courier Agency - Agreement indicating representational right not granted to agents - Agents entitled to use name of appellant only as authorized agent - Agents paying courier charges after retaining income and fee not paid to appellant - Registration Certificate issued to agents with endorsement as agents - Agents were not principals in the arrangement - Accounts not showing any income under the head 'franchise' - Persons considered in impugned order as franchisees were only agents carrying out Courier Agency service on behalf of appellant - Branded service with autonomy of franchisee not carried out by agents - Impugned activity not covered under Franchise service - Sections 65(33),65(47),65(48) and 65(105)(zze) of Finance Act, 1994.

14.5.1 They further submitted that in Para 7.4 of the show cause notice it is alleged that they are also engaged in earning commission on foreign exchange through “Western Union Money Transfer” and the said service is covered under the category of banking and other financial services; that the Circular No.92/3/2007-ST dated 12.03.2007 issued from F.No.249/3/2007-CXA by CBEC on liability of ‘money changers’ to pay service tax under ‘banking and other financial service’, states that Service tax is leviable on foreign exchange (forex) broking service under the category of ‘banking and other financial service’. It was noted that ‘money changing’ and ‘foreign exchange broking’ are two distinct activities. Money changing is an activity of sale and purchase of foreign exchange at the prevalent market rates. On the other hand, foreign exchange broking is the activity performed as an intermediary, on a commission / brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange. The foreign exchange broker providing foreign exchange broking service does not hold title to the foreign exchange. Accordingly, Board is of the view that service tax is not leviable on money changing per se; as such activity does not fall under the category of foreign exchange broking; that it further appears that the benefit of Boards Circular No. 92/3/2007-ST dated 12.03.2007 issued from F.No.249/3/2007-


CXA is not admissible to them because the said service provider is not engaged in the activity of sale and purchase of foreign exchange at the prevalent market rates but they are performing the activity as an intermediary of Western Union Money Transfer, on a commission / brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange.

14.5.2 As per the provisions of Section 65 (105) (zm) taxable service means any service provided or to be provided to a customer, by a banking company or a financial institution including a non- banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services.

14.5.3 As provided under section 65(12) of the Finance Act., 1994 “banking and other financial services” means -

a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate [or commercial concern], namely:- (i) financial leasing services including equipment leasing and hire-purchase; [Explanation.-For the purposes of this item, “financial leasing” means a lease transaction where-

(i) contract for lease is entered into between two parties for leasing of a specific asset;

(ii) such contract is for use and occupation of the asset by the lessee;

(iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges;

and (iv) the lessee is entitled to own, or has the

option to own, the asset at the end of the lease period after making the lease payment;]

(ii) * * * * ] (iii) merchant banking services; (iv) securities and foreign exchange (forex) broking, and purchase

or sale of foreign currency, including money changing;] (v) asset management including portfolio management, all forms

of fund management, pension fund management, [custodial, depository and trust services];

(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on


mergers and acquisitions and advice on corporate restructuring and strategy;

(vii) provision and transfer of information and data processing; and (viii) banker to an issue services; and (ix) other financial services, namely, lending, issue of pay order,

demand draft, cheque, letter of credit and bill of exchanqe, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts;]

(b) foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorized money changer, other than those covered under sub-clause (a);]

[Explanation. - For the purposes of this clause, it is hereby declared that “purchase or sale of foreign currency, including money changing” includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately;]

14.5.4 They further submitted that it is also alleged that the said service provider also engaged in earning commission on foreign exchange through Western Union Money Transfer and the said service is covered under the category of banking and other financial services. The Circular NO.92/3/2007-ST dated 12.03.2007 issued from F.No.249/3/2007-CXA by CBEC on liability of ‘money changers’ to pay service tax under ‘banking and other financial service’, states that Service tax is leviable on foreign exchange (forex) braking service under the category of ‘banking and other financial service’; that it was noted that ‘money changing’ and ‘foreign exchange broking’ are two distinct activities. Money changing is an activity of sale and purchase of foreign exchange at the prevalent market rates. On the other hand, foreign exchange broking is the activity performed as an intermediary, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange. The foreign exchange broker providing foreign exchange broking service does not hold title to the foreign exchange. Accordingly, Board is of the view that service tax is not leviable on money changing per se; as such activity does not fallunder the category of foreign exchange broking; that it further appears that the benefit of Boards Circular No. 92/3/2007 -ST dated 12.03.2007 issued from F.No.249/3/2007-CX.4 is not admissible to them because the said service provider is not engaged the activity of sale and purchase of foreign exchange at the prevalent market rates but they are performing the activity as an


intermediary of Western Union Money Transfer, on a commission / brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange; that they have received the above mentioned amount by way of money changing per se i.e. foreign exchange; that to this effect they referred to Circular No. 92/3/2007-ST. New Delhi dated 12th March, 2007 and F.No.249/3/2007-CX-4 of Govt. of India, Ministry of Finance, Department of Revenue (CBEC) which shows that the commission earned on money exchange is not liable to service tax. In terms of provisions of the Finance Act.,1994 foreign exchange broker includes a money changer (authorized dealer of foreign exchange); that in this context a question has been arisen as to whether the service provider by a money changer in relation to exchange of foreign currency is a foreign forex broking service for applicability of service tax levy under Banking & Financial services; that this issue has been examined by the board; that it was noted that “Money changing” and “Foreign Exchange Broking” are two distinct activities of Sale and Purchase of foreign exchange at the prevailing market rates. On the other hand foreign exchange broking is the activity performed as an intermediary on a commission/brokerage basis for facilitating the clients who wish to buy or sell foreign exchange. The foreign exchange broker providing foreign exchange services does not fall or does not hold title to the foreign exchange. Accordingly board is of the view that service tax is not leviable on money changing per se, such activity does not fall under the category of foreign exchange broking; that in support of their claim they relied on the following decisions:-

Muthoot Bankers Vs Commr. of C.Ex., Cus. & S.T (A), Cochin 2009 (15) STR 432 (Tri. - Bang.) Stay Order No. 62/2009, dated 02.01.2009 in Application No. ST/ST/193/2008 in Appeal No. ST/ 298/2008

Stay/Dispensation of pre-deposit - Demand - Limitation - Suppression - Demand of Service tax under Business Auxiliary Services on amounts received as sub-representative in money transfer service - Appellant put to terms in similar matter by an earlier stay order - Appellant pleading no suppression and demand hit by time bar - Pre-deposit fully waived on account of time bar- Recovery stayed - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [para 3 ] The appellant rendered Money Transfer Service. They entered into an agreement with M/s. Weizmann Forex Ltd. Cochin (Weizmann) to act as the sub-representative of the resident company for the purpose of offering Western Union Money Transfer Service in India. Weizmann in turn has been appointed as the Indian representative


of Western Union Network (Ireland) Ltd. (Western Union) and Irish Company pursuant to the Western Union Financial Services - International Representation Agreement dated 16.02.1998. Weizmann is authorized to provide Money Transfer Service on behalf of Western Union in India and also to engage sub-representatives for the purpose of offering such services. As per the sub-representation agreement with Weizmann, the appellant is required to provide Money Transfer Service under the brand name “Western Union Money Transfer Service”. Weizmann pays compensation to the appellant, which is 50% of the Regular Fee received on each Consumer Receive Transaction paid out to a recipient at one of the locations. They also pay to the appellant 50% of any gain made in relation to the conversion of currency associated with the money transfer, at the currency conversion rates determined by Western Union. Revenue proceeded against the appellant demanding service tax of Rs.1,15,756/- (Rupees One lakh fifteen thousand seven hundred and fifty-six only) under the category of “Business Auxiliary Service” for the period from 01.07.2003 to 19.05.2004. Date of the show cause notice is 21.06.2006. In a similar matter of the same appellant, they were put to terms in the Stay Order No.1235/2008 dated 22-12-2008 [2009 (15) STR 455 (Tri. - Bang.)]. However, in this case, in the course of the hearing, the learned Advocate pleaded time bar, as there was no suppression of facts. Hence, on account of time bar, we are inclined to grant full waiver of the amount demanded in the impugned order, till the appeal is decided. All recovery proceedings are stayed and no coercive measures should be undertaken till the appeal is decided. Registry should link this with Appeal No. ST/493/2008, for final hearing on 12.03.2009.

Muthoot Fincorp Ltd. Vs Commr. of C.Ex, Cus & S.T (A) Cochin, 2009 (15) STR 455 (Tri. - Bang.) Stay Order No. 1235/2008, dated 22.12.2008 in Application No. ST/Stay/316/2008 in Appeal No. ST/493/2008

Stay/Dispensation of pre-deposit - Business Auxiliary Services - Demand of Service tax for promotion of business of money changer - Appellant paying money to person in India on whose behalf money transferred from money changers - Definitions and agreements to be gone into in detail - Prima facie case not made out for complete waiver of pre-deposit - Pre-deposit of Rs. 2 lakhs directed - Pre-deposit of balance amounts waived - Recovery stayed - Section 35F of Central


Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [paras 1, 2, 6] Stay partly granted

On a careful consideration of the issue, we find that the issue is a very contentious one. The applicant is paying the money to a person in India on whose behalf the money is transferred from Western Union through M/s. Weizmann Forex Ltd. through the applicant. The definition of the “Business Auxiliary Services” and the “banking and other financial services” needs to be gone into detail along with the agreements entered into by the applicant with the M/s. Weizmann Forex Ltd. and Others. This can be done only at the time of final hearing. As such, we find that applicant has not made out a prima facie case for complete waiver of the amounts involved. Accordingly, we direct the applicant to pre-deposit an amount of Rs.2,00,000/- (Rupees Two Lakhs Only) within eight weeks from today and report compliance on 12th March 2009. Subject to such compliance being reported, the application for waiver of pre-deposit of the balance amounts involved is allowed and the recoveries thereof stayed till the disposal of the appeal.

PENALTIES CANNOT BE IMPOSED AND OTHER ACTIONS UNDER VARIOUS SECTIONS CANNOT BE INTITIATED WHEN THE SERVICES PROVIDED ARE NOT TAXABLE SERVICES, ACTIVITIES CARRIED OUT ARE OF PURELY OF BUY AND SELL (TRADING) NATURE, SERVICE TAX NOT PAYABLE PENALTIES ALSO NOT IMPOSABLE:

14.5.5 They further submitted that it has been held in a series of cases that when question of interpretation is involved and the assessee had a bona-fide belief that service tax is not payable, even if the service tax is held to be payable, such bona-fide belief is reasonable cause for not imposing penalty in terms of provisions of Section 80 of the Finance Act, 1994 and the penalty should not be imposed in such cases. Further provisions of Section 78 of the Finance Act, 1994 as in force from 10.05.2008 86 (B) lay down that when penalty is payable under this Section, the provision of Section 76 shall not apply. A series of tribunal decisions have also held that penalties under 76 & 78 are mutually exclusive; that in their case service tax is not payable for the reasons as discussed in the foregoing para of this reply itself; that no penalty can be charged where service tax is not applicable; that they relied on

2004 (163) ELT A.53 (SC) in the matter of Rashtriya Ispat Ltd. 2006 (2) STR 502 (Tri. Delhi) in the matter of M/s Bright Motors Pvt.

Ltd, 2006 (2) STR 255-1999(106) ELT 564 (Commr. Appeal) in Bharti


Cellular case, wherein it has been held that since the service tax demand itself has been held to be not sustainable on merits, the question of demanding interest and imposition of penalties does not arise. The same are set a side. The impugned order passed by the Commissioner (Appeal) is set aside. The appeal was allowed with consequential relief. (pronounced in the court on 11.09.2007) 2006(2) STR 161 SC and 2007(7) STR 440 (Tri.)

14.6.1 They further submitted that they have taken service tax registration No. AAGFS9485DST001 and had paid the service tax of Rs.80,841/- under “Business Auxiliary Service”; that they paid this service tax on wrong belief that they shall have to pay service tax but when they came to know that there is no applicability of service tax on their activities, being purely a buy and sell activities and sales tax / VAT & octroi has been paid by them; that they stopped paying service tax thereafter; that they are regularly filing their ST-3 returns; that in support of their claim they relied on the following decisions ;

Chandra Shipping & Trading Services v. Commissioner of Central Excise & Customs, Visakhapatnam-II [2009] 21 SIT 266 (BANG. - CESTAT) Final Order No. 1108 of 2008 in Appeal No. ST/339/ 2007 AUGUST 25th, 2008 wherein it was held that, on a very careful consideration of the issue, we find that the ST-3 returns and also the Cenvat credit returns have been filed regularly by the appellant. In view of this, the larger period cannot be invoked. Therefore, we are inclined to give the benefit of time bar to the appellants………..When the returns are filed, if there is any doubt the department has to verify the correctness of the particulars given in the returns, both ST-3 returns and also the Cenvat credit returns. The department has not done that it is for the department to prove the allegations with solid evidence. The burden of proof is always on the department. In view of this above findings, we do not find that there is any suppression of facts, especially when the appellants had filed service tax returns and Cenvat tax returns regularly. Hence, we allow the appeal with consequential relief. The penalties are set aside.

Hon'ble Supreme Court in CCE Vs. HMM Ltd. reported in 1995 (76) ELT 497 (SC) wherein it was held that where the demand itself was unsustainable the imposition of penalty u/s 76, 77 and 78 cannot sustain.

Hon'ble Supreme Court in the case of Tamil Nadu Housing Board Vs.


CCE reported in 1994 (74) ELT 9 (SC) wherein it was held that an intent to evade payment of tax was not a mere failure to pay the tax it was much more. The person alleged to have evaded payment of tax must be proved to be aware of the taxability of the transaction and must deliberately have avoided payment of tax. The Hon'ble Supreme Court further held that the word evade in the context of the phrase intent to evade means defeating the provisions of law of paying the tax and it is made more stringent by the use of the word “intent”. Thus intent to evade payment of a tax was, in law, much more than a mere failure to pay the tax,; that they further relied on the judgment of the Hon'ble Supreme Court in Hindustan Steel Ltd. Vs. State of Orissa reported in 1978 (2) EL T 159 (SC) that in the absence of an intent to evade payment of duty, a penalty should not be imposed.

Where there is no mala fide intent to evade payment of duty, no penalty should be levied in terms of section 76 of the Act, that also in the case of Catalyst Capital Services Vs. CCE Mumbai reported in 2005 (184) ELT 34.

Market Force Chennai Pvt. Ltd. Vs. CST, Chennai reported in 2007 (8) STR 175 (Tri- Chennai) that there has been no mala fide intent on their part to evade the payment of duty and therefore the aforesaid cases will squarely apply to them that hence no penalty in terms of Section 76 of the Act was leviable,; that Section 80 of the Act provides that no penalty shall be imposed under Section 76, 77, 78 or 79, if there was a reasonable cause for the failure of the assessee in Complying with the relevant provisions, ; that the said provision being constructed by the use of the word “Shall” was mandatory, and the department was bound, in law, to Consider the same,; that there was a bona fide doubt as to whether the activity carried out by them was liable to service tax. That they therefore be entitled to the benefit of section 80 of the Act and no penalty u/s 76, 77 and 78 should be leviable on them.

15. PERSONAL HEARING

Vide this office letter dated 05.05.2011, the service provider was requested to appear for personal hearing on 11.05.2011. Shri V C Mehta, Vice President appeared for personal hearing and reiterated the argument communicated vide their letter dated 11.05.2011.Further hearing was given on 16.11.2011wherein Shri V C Mehta, Vice President appeared before me and in their oral submission it was submitted that (i) Show cause notice is time barred, (ii) They are in the business of selling and purchasing of goods, (iii) At page No. 12 of show cause notice, Rs. 18,50,000/- has not been


received in 2007-08, but was received in the year 2006-07and (iv) Franchise agreements was prior to law on this service. He also submitted copies of 5 franchise agreements and requested to decide case on merits.

16. DISCUSSION & FINDINGS

16.1 I have gone through the case on hand, the show cause notice, relevant documents, written submission dated 11.05.2011 submitted by the said service provider and records of personal hearing.

As regard to Issue of Time Bar:-

16.2 The noticee while disputing the show cause notice submitted that the said show cause notice demanding service tax amounting to Rs.16,74,810/- which was issued on 13.10.2009 is time barred on the ground that till 09.09.2009 the matter was kept pending at the department’s end for 16 months that too without any concrete valid tenable reason or in need of any genuine documents or any genuine query in writing; that all the required documents as desired by then concerned officers were already presented before then concerned officers at once in toto and also statements under Section 14 were recorded, no further documents were called for or any query raised at that time; that so there is no suppression of facts or concealment of any information or documents at the time of recording very first statement of Shri Vishnu Prasad Chunilal Mehta, Vice President under Section 14 on 09.05.2008; that also there appears no valid or tenable reason to keep the matter pending for so long for a period over one year; that when all the information, documents etc., as desired by then concerned officers were presented at once in toto before them on 08.05.2008 before recording the very first statement on 09.05.2008, all the facts were disclosed before then concerned officers there appears no suppression of facts; that the Show Cause Notice issued to them on 13.10.2009 that is after a lapse of 17 months of disclosure of all the facts, information, documents and record etc., completely at once as desired by then concerned officers; that under the circumstances it is illegal, improper and unfair to allege suppression of facts in a routine manner without in any way substantiating the allegations or suppression of facts discussed in the SCN; that the extended period is invoked without any justification or substantial ground or discussion in the SCN itself for reasons best known to them, over ruling and also ultra vires all the guiding principles laid down under the law; that the Show Cause Notice is issued beyond the period of one year's time limitation and is time barred, bad in law and required to quashed on the very same time barred ground


without further going into the issue; that they requested to drop the demand and the proceedings under SCN on very short ground that the SCN is served about 17 months (after lapse of one year time limit) after the departmental officers had collected all the relevant information, documents records etc. in toto at once before recording the very first statement under Section-14 on 09.05.2008; that since the SCN is not served within one year time limit from the very first date of departmental officers collecting all the required information and recording statement and all the facts, information, documents, records etc as desired by the departmental officers made available to them at once in totality without any delay or further query at the very same time; that the demand is totally time barred and bad in law, not sustainable on this very short ground and also cited various decisions in this regards in their favour.

16.3 I have examined the entire issue critically. I find that the matter was entrusted to the Preventive Wing, Service Tax, Hqrs., Ahmedabad for investigation. The investigation carried out and described in detail as above clearly reveals that the investigating officers have sought for several clarifications with regard to income earned by their company under various head as the same was not explicitly and categorically available in the Annual Reports which were produced by the said company either before audit or while recording statement or under various letters. The Last statement of the Vice President was recorded on 16.07.2008 where in details of Income received for the period 2004-05 and 2007-08 under the head “Other Receipt” by their company. Not only that, details of sales Incentives etc., for the year 2004-05 and 2006-07 were produced by the said firm vide their letter dated 01.10.2009 which is also forming part of the present show cause notice/demand which is covering period 2004-05 to 2008-09. The Show cause notice was issued to them on 13.10.2009 i.e. within 13 days of receipt of last information which is also part of this show cause notice.

16.3.1 The said service providers, while claiming demand is hit by limitation, cited various decisions which I analyze as under.

16.3.2 On going through the submission if the said service provider and citations the main submission of the said service provider is that they have given all the details on 09.05.2008 and the demand is raised on 13.10.2009. Therefore, it is their claim that they have nothing suppressed from the department and hence relevant date of last supply of information dated 09.05.2008 be considered for the purpose of section 73 of the Finance Act,


1994, demand should have been raised within one year of that date. Which is not done in their case. Hence demand becomes time barred. The contention of the said service provider is not correct. In view of the findings arrived at in foregoing para that the Last statement of the Vice President was recorded on 16.07.2008 where in details of Income received for the period 2004-05 and 2007-08 under the head “Other Receipt” by their company. Not only that, details of sales Incentives etc., for the year 2004-05 and 2006-07 were produced by the said firm vide their letter dated 01.10.2009 which is also forming part of the present show cause notice/demand which is covering period 2004-05 to 2008-09. The Show cause notice was issued to them on 13.10.2009 i.e. within 13 days of receipt of last information which is also part of this show cause notice.

16.3.3 I have also gone through the decision cited as S. D. Kemexc Industries Vs. CCE Calcutta (1995 (75) ELT 377 Tri.-Delhi) where it was held that extended period of limitation is not applicable where SCN is issued after one year after receipt of information by department; that in their case SCN is issued 17 months after the then concerned officer recording statement under Section-14 and collecting all the information in toto before recording of the very statement. However, I find that the said decision is distinguished by Hon’ble Supreme Court of India while deciding the case of appeal filed by the department in the case of M/s Punjab Stainless Steel Industries, cited as 2001 (132) E.L.T. 10 (S.C.) where in para 7 and 8 of the said decision it was held that:-

“7.The Tribunal also held that the demand in respect of consignments was time barred as the test report was received by the revenue 6 months before issue of show cause notice. In view of the finding that the charge of mis-statement and suppressing the correct quality has been established against the respondent, the demand cannot be held to be time barred. The conclusion of the Tribunal that the extended period of limitation is not available to the appellant is clearly erroneous. The reliance by the Tribunal on the order of Tribunal in the case of S.D. Kemexc Industries v. Collector of Central Excise, Calcutta [1995 (75) E.L.T. 377] was also misplaced as in that case, the misdeclaration and suppression had not been established and, therefore, it was held that the demand was time barred. Clearly, therefore, the said decision had no applicability to the facts and circumstances of the present case.

8.For the aforesaid reasons we set aside the order of the Tribunal and restore the order of the Commissioner of Customs. The appeal is accordingly allowed with costs.”

16.3.4 I have also gone through the decision cited as CCE Ahd.-I Vs. Nandeshwari Packaging (2009 (235) ELT 697 Tri.-Ahd.) where it was held that SCN issued after period of six months from date of search and even after completion of investigation is barred by limitation; that this is squarely applicable to them. I find that this decision was distinguished by the Hon’ble Tribunal in the case of Yee Key Technocart (P) Ltd Vs. CCE, Delhi IV reported at 2011 (267) E.L.T. 92 (Tri. - Del.) wherein it was held as under and dismissed the appeal filed by M/s. Yee Key Technocart (P) Ltd


“Demand - Limitation - Cenvat credit - Irregularity coming to knowledge during departmental audit - HELD : Limitation had to be reckoned with reference to obligation of assessee - Date of detection by Department was not relevant - Section 11A of Central Excise Act, 1944. - Consultant has not been able to show as to how the date of audit when the department came to know of the irregularity becomes relevant date in the light of the above provision defining the relevant date under Section 11A. [para 8]

8.Irregularly availed and utilized credit also requires to be demanded in terms of Section 11A of Central Excise Act, 1944 as per Rule 15 Cenvat Credit Rules, 2002. Learned consultant as not been able to show as to how the date of audit when the department came to know of the irregularity becomes relevant date in the light of the above provision defining the relevant date under Section 11A. The decisions relied upon by the Consultant do not discuss the definition of relevant date in the context of issue of show cause notice under Section 11A and therefore the said decisions cannot be laying down binding precedent of law and the said decisions are applicable only to the facts of the said cases.”

16.3.5 I have also gone through following remaining decisions.

Rivaa Textile Industries Vs. CCE Surat (2006 (197) ELT 555 Tri.-Mumbai) where it was held that SCN issued after 6 months from first factual panchnama is time barred; that this is squarely applicable to them.

Kathiravan Pipes Ltd. Vs. CCE Coimbatore (2002 (147) ELT 1266 Tri.-Chennai) where it was held that SCN having been issued beyond six months from date of completion of investigation by department. The demand is hit by time bar; that this is squarely applicable to them.

Mahakoshal Beverages Pvt. Ltd. Vs. Commissioner of Central Excise, Belgam reported in 2007(6) STR 148 wherein it has inter alia been held that the proviso to Section 73 of the Act. was promulgated by Finance Act, 2004 but adding proviso to Section 73 of the Central Excise Act., which is pan material to Section 11 A of Central Excise Act.

Hon'ble Supreme Court in Pahwa Chemicals Pvt. Ltd. Vs. Comm. of C.Ex. Delhi reported in 2005 (189) ELT 257 (SC) wherein it has been inter alia held that: “It is settled law that mere failure to declare does not amount to willful mis-declaration or willful suppression. There must be some positive act on the part of the party to establish either willful mis-declaration or willful suppression”.

Hon'ble Supreme Court in Anand Nishikawa Co. Ltd. Vs. Comm. of Central Excise Appeals, Meerut reported in 2005 (188) ELT 149 (SC) wherein it was observed that “Suppression of Facts” can have only one meaning that correct information was not deliberately disclosed to evade payment of duty, when facts were known to both the parties, omission by one to do what he might have done that he must have done would not render it suppression... that as none of the conditions


necessary for invoking the extended period of limitation were satisfied in the present case, the extended period of limitation cannot be invoked against them and all demands were barred by limitation and therefore cannot sustain.

Chandra Shipping & Trading Services v. Commissioner of Central Excise & Customs, Visakhapatnam-II [2009] 21 STT 266 (BANG. - CESTAT) Final Order No.1108 of 2008 in Appeal No. ST/339/2007 August 25th , 2008 wherein it was held that, on a very careful consideration of the issue, we find that the ST-3 returns and also the Cenvat credit returns have been filed regularly by the appellant. In view of this, the larger period cannot be invoked. Therefore, we are inclined to give the benefit of time bar to the appellants, when the returns are filed, if there is any doubt the department has to verify the correctness of the particulars given in the returns, both ST-3 returns and also the Cenvat credit returns. The department has not done that it is for the department to prove the allegations with solid evidence. The burden of proof is always on the department. In view of this above findings, we do not find that there is any suppression of facts, especially when the appellants had filed service tax returns and Cenvat tax returns regularly. Hence, we allow the appeal with consequential relief. The penalties are set aside.

16.3.6 In this regard I rely on the decision delivered by Hon’ble Supreme Court of India In the case of appeal filed by the department in the case of M/s Mehta & Co. in the Hon’ble Supreme Court of India cited as 2011(264) ELT 481 (SC) where in identical issue was decided as under where in Supreme Court has reversed the decision of CESTAT. Relevent para is reproduced below:-

“24. The cause of action, i.e., date of knowledge could be attributed to the appellant in the year 1997 when in compliance of the memo issued by the appellant and also the summons issued, the hotel furnished its reply setting out the details of the work done by the appellant amounting to Rs. 991.66 lakhs and at that stage only the department came to know that the work order was to carry out the job for furniture also. A bare perusal of the records shows that the aforesaid reply was sent by the respondent on receipt of a letter issued by the Commissioner of Central Excise on 27-2-1997. If the period of limitation of five years is computed from the aforesaid date, the show cause notice having been issued on 15-5-2000, the demand made was clearly within the period of limitation as prescribed, which is five years.”

16.3.7 In view of aforesaid discussion, I find that very claim of the said service provider is explicitly dealt with in the aforesaid decision by the Hon’ble Supreme Court of India. Hence, their claim for time barred is not acceptable.


16.4 Thus, the submission of the noticee in this regard is found to be mischievous and mis-conceived. Further, it is admitted facts by Shri Vishnuprasad Chunilal Mehta, Vice president of the firm that their firm have obtained service tax registration under he Category of Business Auxiliary Service only and have discontinued to pay service tax on the commission income earned on sale of goods/service subsequent to September 2004 as per the advise of their consultant. Whereas, it is on record of this show cause notice that investigation conducted clearly spelt out that during the period 2004-05 to 2008-09 the service provider had earned total Income of Rs.1,48,34,131/-towards rendering four services viz., Rs.1,05,73,703/- Business Auxiliary Service, Rs.18,50,000/- under Space Selling, Rs.22,50,056/- under Franchise Service & Rs.1,60,372/- under commission from Weisman under Money Changer’s activities, however none of these income or service rendered have been declared in the ST-3 returns filed from time to time. Therefore, I find that suppression of material facts have been established by the investigation.

16.4.1 From the above discussion I find that it is the duty of the service provider to properly classify their service, they failed to get themselves registered for the taxable services provided by them, failed to file ST-3 returns to determine and pay their correct tax liability, which they failed. What I find in the instant case that the service provider did not mention the details of taxable service and receipts against providing various service provided by them to their clients which is hold liable to service tax as discussed in para supra, viz. Business Auxiliary Service, Franchise Service, Bank and other Financial Service classifiable under section 65 of the Finance Act, 1995 though the same is required to be mentioned as prescribed in the ST-3 returns to be filed from time to time which they failed. Thus, suppression of material facts is very much evident. I find that such an act cannot be considered as bona fide. I find that the said action of the said service provider is with intention to evade service tax as alleged in the show cause notice for demand and I find that demand is not time barred and is rightly issued under extended period of limitation as prescribed under proviso to section 73(1) of the Finance Act, 1994. In view of the aforesaid findings I find that they failed to determine their correct tax liability and filed to pay service tax demanded under the present show cause notice by the due date on which they are supposed to discharge the said service tax and held them liable to penalty under section 76 as well as under section 78 of the Finance Act, 1994 on the ground mentioned below.

16.5 Therefore, I find that Show Cause Notice survives on the ground of


Suppression of Facts and extended period as provided under proviso to section 73(1) of the Finance Acts, 1994 is rightly invoked.

17. With regard to data Reported in TABLE-A:

17.1 The contention of the said service provider that the data reported in at page No. 12 of Table-A of the impugned SCN are wrongly implied on them are fictious, hypothetical and incorrect; that they don’t agree with the same and strongly oppose the same. In this regard, I have gone through the Table-A [ page 12of the show cause notice ] and find that Table-A on page 12 of the show cause notice is nothing but the summery of the tax liabilities calculated service wise by the department, based on the categorical explanation given by the Vice President of the said service provider in his various statement. Therefore Table-A is nothing but the data entered in, reflecting details of Income earned by the said service provider during the period 2004-05 to 2008-09 under the head of commission amount shown in column no.3, Income towards Space Selling (Renting of space Hording) col.no.4, Income earned on Franchise Service shown in col. no. 5 and Commission received from Weizman etc., shown in column no. 6 of the said Table-A. The said data were gathered during the scrutiny of Annual reports followed by explanation with regard to income shown in the Annual reports by Shri Vishnuprasad Chunilal Mehta, the Vice President. Based on this explanation and reasoning given for earning on the activities carried out by the said service provider, the services have been categorized and tabulated in Table-A for indicating their year wise tax liabilities which they have not discharged. The data can not be fictious, hypothetical and incorrect as the same are given by themselves, that too the same are based on the annual reports of the respective years. I find that the said service providers is intend to challenge merit/ classification/ taxability of the services on which service tax has been demanded on the value shown in the afore said table A of page 12 of the impugned show cause notice. Therefore, I find that submission of the said service provider is not correct in this regard as discussed above.

17.2 From the show cause notice, I observe that in the impugned show cause notice, service tax under following categories have been demanded for the services rendered/activity carried out by the said service provider

(i) Business Auxiliary Service(ii) Sale of Space for display of goods(iii) Franchise Service(iv) Money Changers service- Banking and other Financial

Service


18. Now I proceed to decide aforesaid demand of service tax one by one as under.

18.1 (i) As regards the taxability under Business Auxiliary Service:-

18.1.1 As reflected in table A of show cause notice page no.12, the noticee have earned an amount of Rs.1,05,73,703/- as a commission during the period 2004-05 to 2008-09 on which service tax is demanded. The said commission income was worked out on the basis of explanation given by the Vice President Shri Vishnuprasad Chunilal Mehta in his statement with regard to the “other receipt” reflected in their Annual reports. As per his version, the income shown under the head ‘Other Receipts’ was the income received by their company from the Finance companies, which are providing consumer goods finance to their customers, who wants to purchase the goods from their show rooms. I further find from his further contention that the Finance Companies tie-up with their company under an agreement, as per which depending upon the amount of business of financing for consumer goods to the customers visiting their showrooms was received by them, they payout a pre-decided amount of consideration to their company. Further, on the total amount of such transactions carried out by the finance companies, these finance companies give pay-outs (i.e. payments) in the form of cheques. The finance companies doing such business with their company are:


18.1.2 Therefore, the aforesaid income of Rs.1,05,73,703/- which was recorded as “other receipt” is nothing but commission received by the said service provider during the period 2004-05 to 2008-09 from the aforesaid three Finance Companies. The said commission has been earned by M/s Sales India Pvt. Ltd, for making finance available to their needy customers through the aforesaid three finance companies. Therefore, the aforesaid activities clearly falls under clauses (ii) and (vi) of “Business Auxiliary Services”. The clauses (ii) and (vi) read as under;

(ii) promotion or marketing of service provided by the client; or


(vi) ‘provision of service on behalf of the client”.

18.1.3 I have gone through the decision of Supreme Court in the case of Bharat Sanchar Nigam Limited Vs. Union of India 2006 (2) STR 161 (SC) 2006 TIOL 15 SC CT LB) wherein it was held that anything on which sales tax/VAT is paid is goods and therefore service tax cannot be levied thereon. Though Central Excise duty may be leviable, if the goods are found to be excisable & dutiable ; that the ratio laid down by the Supreme Court ruling in BSNL case cited supra has been followed by the tribunal in the case of BPL Mobile Communications Ltd. Vs. CCE (2007 (7) STR 440 (4) (Tribunal)= 2007 (209) ELT 67 Tribunal 2007-TIOL-435- CESTAT-Mumbai wherein tribunal held that Service Tax cannot be levied on the value of SIM card, once sales tax has been paid on the same.

18.1.4 I have also gone through the decision cited as R. Venkatramanan Vs Comm. of Central Excise, Trichy, 2009 (13)

STR 187 (Tri.- Chennai) Final Order No. 977/2008, Stay Order No. 803/2008 and Misc. Order No. 382/2008, dated 04.09.2008 in Application Nos. S/COD/ 135/2008 and S/PD/97/2008 in Appeal No. S/113/2008/MAS - Business Auxiliary Services. -

Pepsico India Holdings Pvt. Ltd., Vs Comm. of C.Ex Pondichery 2007 (6) STR. 266 (Tri. - Chennai) Stay Order No. 1220/2006, dated 11.12.2006 in Application No. S/PD/74/2006 in Appeal No. S/193/ 2006 Sales Tax was paid on the above charges as evidenced by the relevant invoices. In this connection, reliance is placed on the Supreme Court's Constitution Bench judgment in Bharat Sanchar Nigam Ltd. v. Union of India [2006 (2) S.T.R.161 (S.C.) = 2006- TIOL -15-SC-CT -LB].

JR Communications & Power Control Vs. CCE reported in 2009 (91) RLT 398 wherein the Tribunal held that there was no service carried out by the assessee, but the assessee had done the activity of purchase and sales which comes within the purview of “Sales of Goods” and sales tax attracted,; that it was held that amount of discount does not attract service tax as sales tax was paid on SIM card / recharge coupons.

18.1.5 In this regard I find that the facts of the aforesaid case is different than the facts of case on hand. In the aforesaid case sim card was sold by the dealer on payment of VAT/ST. Whereas in the instant case M/s Sales India is the seller paying VAT/ST on the product sold to their customers. However, they are getting certain amount from various Finance Companies who


finance to the customer identified by M/s Sales India. Therefore, aforesaid decisions cited are found to be not applicable in the present case.

18.1.6 Therefore, I find that three finance companies are the clients of M/s Sales India Pvt. Ltd., to whom they had rendered the service of promotion or marketing finance of the said three companies among their customers and thereby earned the commission of Rs.1,05,73,703/- from the aforesaid three finance companies [the clients] is the taxable value under Section 66 of the Finance Act, 1994 charged from the aforesaid three Finance Companies. Therefore, the contention of the noticee with regard to “Business Auxiliary Service”, that they are not providing any service defined under clause (i) to (vii) of the definition of “Business Auxiliary Service” and hence they are not liable to service tax under this category is not acceptable at all. I have also gone through the various decisions cited in this regard by the said service provider, however the same are not applicable to the case on hand as the fact and circumstances are not relevant to the present case.

18.1.7 Accordingly, I hold that M/s Sales India Pvt. Ltd have provided Business Auxiliary Services as discussed above and are accordingly liable to payment of service tax on the taxable value of Rs.1,05,73,703/-.

Dispute with regard to Rs.6,33,841/- deposited under the category of Business Auxiliary Service, during the course of Investigation.

18.1.8 I further observe that the said noticee while, on going investigation, had discharged/paid voluntarily Rs.6,33,841/- towards the probable service tax liability under the category of Business Auxiliary Service, however, it is their submission that the department while recording the statement of Shri Vishnu Prasad Chunilal Mehta on 09.05.2008, 29.05.2008 and 16.07.2008 under Section 14 had shown the definition of “Business Auxiliary Service” as defined under section 65(105) of (zzb) of Finance Act, 1994, Mr. Vishnu Prasad Chunilal Mehta had already clarified before recording officer of department that he was ignorant of law & therefore service tax on such amount was not paid; that Mr. Vishnu Prasad Chunilal Mehta had no alternative but to agree about paying the service tax & as per fear of applicability of law as explained by recording officer they paid service tax amounting to Rs. 6,33,841/- erroneously; that this service tax amounting to Rs. 6,33,841/- has been paid under the fear created during recording the statement by then officers, though they were not required to pay the same as the law was not applicable or they have carried out any


activity which attracts service tax; that the recording officers has wrongly explained the applicability of law and forced them to pay service tax on above amount and he threatened them & said that they will have to face the consequences if they don’t pay and therefore they paid the above amount under threat and fear of then departmental officers; that the amount of service tax paid by them erroneously under the threat of facing the consequences, pressure and fear created by then officers may please be refunded to them along with interest at the applicable rates. They further submitted that looking to above mentioned facts, reality of the case, their bona fide belief of not to pay service tax & there was no alternative for them but to pay the service tax, they paid the service tax; that SCN issued to them is not correct, not legally tenable, erroneous and bad at law may please be ignored, set aside and may please be rejected as the then investigating officer has not applied his mind about applicability of the law and who enforced them badly to pay the service tax even if this was not applicable to them and also requested to refund the above amount they have paid erroneously, unwillingly, under the threat, fear and pressure of the departmental officers, is not at all convincing.

18.1.9 I have read the statement of Shri Vishnu Prasad Chunilal Mehta which was recorded under Section 14 of the Central Excise Act, 1944 made applicable to the service tax matter vide Section 83 of the Finance Act,1994. In the opening paragraph of the statement of Shri Vishnuprasad Chunilal Mehta dated 29.05.2008, he was explained the content of the provisions of Section 14 ibid. The statement was recorded as per his say and version. No pressure, threat, duress coercion or impediments had been applied on him. He gave his statement willingly in a conscious state of mind. He also admitted hat he can/ could read write and understand English language very well. He had carefully gone through contents of his statement, and after fully understanding the contents thereof, and he had put his dated signature in token of complete acceptance.

18.1.10 Further, I observe from the office record that the said service provider or Shri Vishnu Prasad Chunilal Mehta, had neither retracted the statement till the date of present written submission i.e. 11.05.2011, nor had refuted any of the content of his earlier statement. Had the officer threatened Shri Vishnu Prasad Chunilal Mehta, i.e. Vice President of the Company, he should have brought the facts to the notice of the Senior Officers of his companies or he being a vice president a responsible person the same could have brought to the notice to the Senior officers of this department, however he did not do so & continued to remain silent on the matter.


18.1.11 Thus, contention of the said service provider in this regard appears to have hatched and is an after thought, mis-conceived and mis-placed. Therefore, their claim in this regard is not acceptable.

18.2 (ii) As regard the taxability under the category of Sale of Space and Time:-

18.2.1 I have gone through the submission of the said service provider with regard to alleged demand of service tax for providing space for display of the goods and hoardings belonged to their client, I find that it is alleged in the show cause notice that the activities of allocating space for display of consumer durables in their show room by the said service provider is squarely covered under the definition of “Sale of Space or time for advertisement” as defined under Section 64(105) (zzzm) of the Finance Act,1994, and the entire amount received for providing above service is the taxable value and service tax is demanded from the said service provider.

18.2.2 In this regard I have gone through the content of Section 65(105) (zzzm) of the Finance Act,1994.

18.2.3 As per the provisions of Section 65 (105) (zzzm) any service provided or to be provided to any person, by any other person, in relation to sale of space or time for advertisement, in any manner; but does not include sale of space for advertisement in print media and sale of time slots by a broadcasting agency or organization.

Explanation 1.- For the purposes of this sub-clause, “sale of space or time for advertisement” includes, -

(i) providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet;

(ii) selling of time slots on radio or television by a person, other than a broadcasting agency or organization; and

(iii) aerial advertising.

Explanation 2. - For the purposes of this sub-clause, “print media” means,-

(i) “newspaper” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867 (25 of 1867);

(ii) “book” as defined in sub-section (1) of section 1 of the Press and Registration of Books Act, 1867 (25 of 1867), but does not include business directories, yellow pages and trade catalogues which are


primarily meant for commercial purposes;

18.2.4 In this regard it is the defence of the noticee that they have received rent of Rs.18,50,000/- [as referred in Column no.4 of Table-A at page 12 of the SCN] was in the year of 2006-07 and not in the year 2007-08 for providing the afore said space; that during that year the renting of space service was not taxable; that Renting of Space, law came into force from 01.06.2007; 18.2.5 Another defence lodged is that department have ignored the very important fact that the service relating to Display of advertisement on its site and raising rental charges does not get covered under advertising agency service as held in a series of cases. I have also gone through the cases cited by the said service provider in this regard.

18.2.6 I observe that it is not disputed fact that the said service provider have provided space for consumer durables of different manufacturers for display in to their show room and have charged certain amount as discussed in the show cause notice. It has to be decided whether the activities of providing space for display of consumer product by the said service provider was liable to be classified under “sale of space for advertisement” or other wise.

18.2.7 I find that the activities carried out by the said service provider does not falls under the category of “sale of space for advertisement” as defined under section 65 (105) (zzzm) of the Finance Act, 1994. The space provided by the service provider was not in relation to advertisement of the produce, however the said space was provided on the rent basis. Further, the receipt of the amount is claimed for the service rendered in the year 2006-07. At that time no service tax was leviable on renting of immovable property. Further, the Explanation below the definition clarify the that “sale of space or time for advertisement ” includes, - providing space or time, as the case may be, for display, advertising, showcasing of any product or service in video programmes, television programmes or motion pictures or music albums, or on billboards, public places, buildings, conveyances, cell phones, automated teller machines, internet. I find that space provided by the said service provider does not fall under the category of “sale of space or time for advertisement.”

18.2.8 Therefore, demand of service tax under this category is not tenable under the law and liable to be dropped.


18.3 (iii) As regard the taxability under to Franchise Service:-

18.3.1 As regard the demand of service tax Franchise Service, I find that it is not disputed by the said service provider that they have not provided the Franchise Service as per the agreements to their clients referred in the show cause notice. However, submissions made in this regard by the said service provider that they have entered in to an franchise agreement for five years; that when the agreements were made, no service tax were payable under the Finance Act, 1994 as the Franchise Service came into service tax net on 01.07.2003; that they had collected entire payment in advance for five years. Under the circumstances they are not liable to service tax. I find that this contention of the said service provider is not correct. With effect from 01.07.2003 franchise services provided under agreements were made liable to service tax.

18.3.2 However, another question remained to be determined whether the amount recovered in advance for five years, i.e. when the franchise service was not taxable, can the value for the purpose of service tax be considered on proportionate basis out of the said amount for the service rendered subsequent to introduction of such service in the service tax net ?

18.3.3 In my view answer is yes. Because, once it is established that service is rendered after 01.07.2003, whatever consideration in this regard received prior to date of rendering service or after the rendering service can be taxed. Further as regard to the dispute lodged with regard to the quantum of taxable value by the said service provider can not be considered as mis leading one. The officers while working out the show cause notice in this regard have given the proportionate amount excluded from the total amount of Rs.30,00,111/- which they have recovered as signing fees. Against amount of Rs.30,00,111/- the department had demanded service tax on Rs.22,50,056/- covering period 2004-05 to 2007-08, thus an amount of Rs.7,50,055/- covering period from date of entering contract to 01.07.2003 is excluded from the signing fee i.e. the said deduction was towards the services rendered prior to 01.07.2003. The said details have been worked out on the basis of details provided by Shri Vishnuprasad Chunilal Mehta, Vice president of the said service provider therefore there is no reason to believe that the details given by Shri Vishnuprasad Chunilal Mehta is wrong and mis-leading one. Therefore these two arguments advanced are of no use.

18.3.4 The said service provider have further submitted that their’s is a trading Company and had entered into a logo/ trademark agreement


with parties allowing them to use their logo i.e. intellectual property; that in such case license production agreement is clearly exempted from franchise service in term of CBEC Circular No. 59/8/2003 dated 20.06.2003; that as the department is relying upon the agreement in question, is typical exempted & logo/trade mark and goods supplied by them with bills where sales tax & Octroi has been paid shows only license using agreement & the same is exempted from franchise service as explained in the circular referred to as above; that Intellectual Property Service had been brought under service tax net w.e.f. 10.09.2004 and defined u/s 65(55B) which reads as “Intellectual property service means-(a) Transferring whether permanently or otherwise or (b) Permitting the use or enjoyment of any intellectual property right” further “intellectual property rights means any right to intangible property, mainly trade mark, design, patent or any other similar intangible right has been defined in Sec.105(22R) of the Act. Any service provided to any person by holder of intellectual property right in relation to intellectual property service; that the intellectual property right involved in their case is the use of their logo/name/goodwill; that the limited right to use has been given by them by way of license/agreement; that this arrangement of allowing these parties to use their logo/trademark/goodwill only & therefore this agreement is not a franchise agreement; that this agreement was as signing fees where law was not applicable; that Law for tangible property rights came in force w.e.f. 10.09.2004 and franchise service tax came in force w.e.f. 01.07.2003 vide trade notice No. 17/2003; that looking to the above mentioned circumstances and the amount of signing fees had been received by them before 21.03.2003, how department can enforce such service tax without going through the facts ? Department has issued this SCN without verifying the facts, applicability of the service tax at that time, without any lawful justification in a very casual way hence such unlawful SCN required to be rejected, set aside.

18.3.5 It is further contended by the said service provider that in a franchise agreement the franchisor is bound to follow the concept of business operations, managerial expertise, market techniques etc; that during the period of demand the definition of “Franchise Service” under Section 65(47) the word Franchise had been defined as under – “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 under 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 franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.

18.3.6 Accordingly, it is further submitted that any service provider who satisfy all the four conditions as mentioned herein above can be called to pay service tax under franchise service but in their case none of these ingredients/conditions from (i) to (iv) satisfied; that hence the department has issued SCN to them without any lawful justification in a very fictious manner which is bad in law and required to quashed, set aside.

18.3.7 To verify the correctness of their claim in this regard out of 5 franchise agreement produced during the personal hearing held on 16.11.2011 one specimen copy of such agreement entered with M/s Tirupati Sankalp Retailers Pvt. Limited, Vadodara is scanned and is reproduced as under.

SALES INDIA - (ANAND)FRANCHISEE AGREEMENT

THIS AGREEMENT made on this 28th Day of November 2001 BETWEEN SALES INDIA (PVT) LIMITED, a Company incorporated under the Companies Act, 1056, having its registered office at Jadav Chambers , Ashram Road, Ahmedabad (hereinafter referred to as the “Company” which expression where the context so admits sha1 include its successors and assigns of the one part AND SANKET ENTERPRISE a firm at SANKET TOWERS, GRID, ANAND, GUJARAT referred to as “the Franchisee” which expression where the context so permits shall include its successors and assigns) of the other part.

WHEREAS the Company markets various product and services of leading consumer durables/home appliances/electronic goods/new technology products and others as per Annexure I through brand neutral outlets (hereinafter referred to as “products”), intends to appoint Franchisees who could meet the norms and standards of the Company with respect to display, stocking, selling and servicing the products and Sanket Enterprise has offered to be a Franchisee for the Company.

WHEREAS the Franchisee has represented that he has ownership I legal right etc. to represent the firm and premises suitable for a premium Showroom on


the 1st Floor, Sanket Towers, Grid, Anand (the location and plan of which is attached hereto) and has therefore requested the Company to permit him to display, stock and sell the products at the premises as per the norms, standards and guidelines laid down by the Company;

WHEREAS the Franchisee has confirmed that he will carry out interior decoration of the Showroom including making structural modifications and installing furniture, fittings and requisite services at his own cost, in accordance with the interior design concept, schematic drawings and specifications as mutually agreed; and changed from time to time.

Whereas the Franchisee has confirmed that he has full right and authority to enter into this Agreement and that he has obtained the necessary approval / consent from all his family members and / or other persons who are entitled to or required to be consulted in that behalf and that all are in agreement and further that there is no circumstance whatsoever prohibiting the Franchisee from entering into this Agreement or preventing or obstructing implementation of the Agreement / obligations undertaken by him;

Whereas the Franchisee has agreed to take the necessary approvals and sanctions from the relevant Government / local authorities that will have to be obtained and that in the event of the Franchisee being unable to obtain such approvals the Company shall have the right to obtain such sanction and approvals at the cost of the Franchisee; and recover the same from the franchisee.

Whereas the Franchisee recognizes that the Company has incurred and will be incurring substantial expenses and investments including investments in establishing the Sales India brand and expenditure on staff training and business promotion, and the Franchisee hereby acknowledges the efforts and investments by the Company and has, therefore, agreed to comply with the special conditions laid by the Company so that the full benefit of such investments/expenditure can be derived by both parties.

THE PARTIES HEREBY AGREE AS FOLLOWSTERM OF THE AGREEMENT

1. The term of this agreement shall be for a period of five years commencing from 28th November 2001 to 27th November 2006. At the end of the fifth year, i.e. 27th November 2006 the Franchisee and the Company may renew or modify this agreement on mutually convenient terms and conditions for any further duration beyond this five years period. The option to renew or modify the agreement may be exercised at least six months before the expiry of the period by both the parties.

SIGNING FEE

2. Rs. 5 lacs (Rupees Five lacs only) non-refundable at the time of entering the agreement and every renewal thereafter.

SCOPE

3. This Agreement is made on a principal-to-principal basis where the Company sells the goods to the Franchisee for purchase. This agreement shall not be deemed to create any other relationship except as expressly stipulated herein unless specially entered into at any point of time.

4. The Franchisee acknowledges that the Company has developed an unique Showroom design and concept at its own cost and offered the same to the Franchisee subject to the condition that the Franchisee shall not copy,


duplicate or infringe the design and copyright involved in the Showroom and concept in any manner even subsequent to the termination of this agreement. The Franchisee hereby assures that he will protect the Company’s interest in the Showroom design and concept.

SHOP DESIGN

5. It s the intention of the Company and the Franchisee that the Showroom shall at all times be among the best designed, maintained and operated Showrooms. The Franchisee shall ensure compliance of this intention at all times to both safeguard and further the reputation of the Company and its products and in so doing accord with the advice of the Company.

INTERIORS

6. The Franchisee shall use the requisite expertise provided or approved or nominated by the Company for the purposes of the execution of the interior design concept and allied services. The Franchisee shall, as required from time to time, modify, refurbish and appropriately equip the Showroom at his own cost in accordance with the Company’s approved policy and scheme. The Franchisee shall also be responsible for the proper upkeep and maintenance of the Showroom. Further, the Franchisee shall not carry out any modifications of the interior or outward appearance of the Showroom without the prior permission of the Company.

7. The Franchisee hereby expressly undertakes not to copy, duplicate, infringe or violate the Showroom design, concept and ambience of the Showroom for any other store or establishment. The Franchisee accepts that the Showroom interior design, drawings and concepts are exclusively the property of the Company and at no point of time shall be considered to have been transferred to the Franchisee or any other third party during the term of this Agreement and subsequent thereto. Any breach of this provision will be viewed as a serious default and the Franchisee shall pay the Company liquidated damages cited under clause 46 of this Agreement.

INSURANCE

8. The Franchisee shall at his own cost, adequately insure the premises, the stock, furniture and fittings and allied services to the satisfaction of the Company. In case the Franchisee fails to insure the premises, the interiors and the equipment to the satisfaction of the Company, the Company may take appropriate steps to do so and recover the cost of the Franchisee in such manner as the Company in its absolute discretion deems fit.

ADDITIONAL AGENTS

9. The Company reserves the right to and is expressly permitted to appoint any number of additional agents/ franchisees, ii such or similar capacities anywhere in India and enter into the same/ similar Agreements with them. Such an arrangement can also include an agreement on a “principal to agent” basis.

STOCK AND SALE

10. In view of the special nature and value of the product and the interior design concept of Sales India, Anand and in order to preserve the identity and uniqueness of the retail network of the Company and for diverse other reasons known to both parties, the Franchisee shall, in the Showroom display, sell or otherwise deal only with the products Supplied by the


company and with no other products except with the prior written consent of the Company.

11. The Franchisee shall at all times hold and display at the Showroom adequate stock of the products. The quantity and range of products will be decided by the Company from time to time.

12. The Company shall make available to the Franchisee such of the products forming part of the Company’s product range from time to time as may be required by the Franchisee, provided they are deemed suitable by the Company for the market served by the Franchisee through the Showroom.

13. Subject to legal requirements for the time being in force, the Franchise will sell the products in his own name at prices not exceeding the maximum recommended consumer price fixed by the Company from time to time.

14. The cash memos raised by the Franchisee shall carry the name of the Franchisee, clearly describing himself as the Franchisee of Sales India. The cash memo shall also carry the Sales Tax Registration Number of the Franchisee.

OPERATIONS

15. The Franchisee shall comply and abide with policies and guidelines of the Company in relation to display, staffing, training, selling systems and operations of the showroom and shall not commit a breach thereof. The Franchisee shall carry on the business in accordance with the direction of the Company and with all due diligence.

16. The Franchisee shall keep the Showroom open for business during the hours and days specified by the Company, subject to local laws.

17. The Franchisee shall provide to the Company, on a regular basis, information on customer preferences with regard to the products in general, the Showroom in particular and general trade practices in the city in which the Showroom is located.

18. The Franchisee shall use his very best endeavors to develop a strong customer base for the products retailed through the showroom through active solicitation of business on a person-to-person basis in the city in which the Showroom is located.

EXPENSES

19. The Franchisee shall be responsible for and shall bear all expenses whatsoever incurred or to be incurred in carrying on the business in the Showroom unless specifically provided otherwise in this Agreement. Without prejudice to the generality of the foregoing, the Franchisee shall pay:

a) expenses pertaining to rent, rates and taxes and other statutory and legally mandatory payments that are required to be paid in the normal running of the Showroom.

b) Expenses pertaining to employees’ remuneration.

c) Expenses pertaining to utilise and public services including telephones, electricity and water, that are required for the day to day running of the Showroom.


d) Expenses in connection with the decoration of the shop and display and merchandising of goods.

e) Entertainment expenses incurred on customer relationship development and management.

f) Expenses pertaining to promotional activities i.e. hoardings, Cable TV, Cinema Slides, Wall paintings, Festival schemes etc. undertaken during the normal course of business are required to be shared, as mutually agreed upon with the company.

STAFFING

20. The Franchisee shall at his own expenses and the cost employ suitable personnel i.e. store manager, floor manager of counter sales persons as well as support staff as the Company may consider necessary for providing efficient service to customers, for maintaining the premises, for display stocks and for performing other functions.

21. All staff appointments shall be in conformity with the criteria and qualifications suggested by the Company.

22. The Company shall assist the Franchisee in the recruitment and training of such personnel.

23. The Company and the Franchisee hereby agree that all personnel working under the Franchisee, shall be the employees of the Franchisees only and they shall at no point of time be employees of the Company.

24. The Franchisee shall be entirely responsible for all acts of omission and commission by such personnel and shall indemnity the company against any act of omission or commission resulting in claim against the Company or damage to the property, image or reputation of the Company.

25. If the performance of any employee of the Franchisee is found unsatisfactory by the Company, then the Company shall advise the Franchisee to find a suitable alternative including recommending a reason of the Company’s choice. Any cost or expenses incurred as a consequence of this recommendation shall be borne by the Franchisee.

26. The Franchisee hereby acknowledges that the Company has reposed its trust and confidence in the Franchisee and appointed him as the Franchisee for the Showroom operations on the basis of the Franchisee’s direct and regular involvement in the management of the Showroom, If the performance of the Showroom is affected due to inadequate involvement of the Franchisee in the management of the Showroom, then the Company shall have the option to appoint a Manager of its choice to run the Showroom operations. The cost of this action will be borne by the Franchisee.

COMPLIANCE WITH THE LAW

27. The Franchisee shall comply with all applicable laws, rules and regulations and shall indemnify the company against any service consequence arising out of non-compliance. Specifically, the Franchisee shall be responsible for the payment of all applicable Taxes and the completion of necessary assessment proceedings in this regard.

28. The Franchisee shall at his own cost obtain such local licenses, registrations, permissions etc. and submit such returns, papers or documents as may be required by law to be obtained or submitted from time to time.


29. The Franchisee shall submit periodic statements / reports to the Company confirming compliance with the various legal requirements.

30. All rates, taxes, fees, charges and other statutory payments shall be responsibility of the Franchisee and the Franchisee hereby undertakes to indemnify the Company against all such liabilities.

31. The authorised representatives of the Company shall have access to and shall be entitled to inspect records and make photocopies or certified copies of all such records.

32. Any loss or penalty imposed on account of the failure to comply with legal requirements shall be borne by the Franchisee and the company shall not be liable for any damages or payments in this regards.

RECORDS

33. The Franchisee shall maintain records of receipt of stocks, purchases and sales at the Showroom in the form and manner specified by the company.

34. The Franchisee shall make such records available for inspection to the officers of the Company to enable verification of compliance with the terms and conditions of this Agreement and shall also furnish certified photo copies o all such records as may be required by the Company.

FORCE MEJEURE

35. If the performance by either Party of any of its obligations under this Agreement shall be in any way prevented or hindered in consequence of any Act of god or State, strike, lock-out, legislation or restriction of any Government or other authority or any other circumstances beyond the parties anticipation or control, the performance of this Agreement shall be wholly or partially suspended during the continuance of the Agreement and to the extent of such prevention, interruption or hindrance, provided that notice in writing of such happening/s or event/s is given to the other party within 15 days of such happening/s or event/s.

LITIGATION AND RESTRAINTS

36. The Franchisee does not have any authority to enter into any agreement on behalf of the Company, draw, accept, or endorse any bill on behalf of the Company or to use the name of the Company except to the extent authorised by the Company in writing. The Franchisee is authorised, subject to the terms of this Agreement, only to enter into transactions for retail and institutional sales of the products in the normal course of business, restricted to Anand town/district. The franchisee shall not appoint any sub-dealer for the products in Anand town/ District or anywhere else in the country.

37. The Franchisee shall not use any of the Company’s trade names, trade marks, symbols, logos or the words Sales India or any other name owned or used by the Company, in any stationery, letterhead, name board or otherwise, except to the extent and in the form and manner approved by the Company in writing. The Franchisee shall use only such stationery, letterheads, name boards and other items in the Showroom as have been supplied by the Company or expressly approved for use by the Company or expressly approved for use by the Company in writing. The Franchisee shall enjoy only limited and non-assignable right to use the Company’s trademarks, names, symbol or logo when permission to use is granted by the Company during the term of this Agreement. Specifically, the use of any name, logo, trademark or symbol other than the Company’s is expressly


forbidden except to the extent and in manner specifically approved in writing.

38. The Franchisee shall not at any time release advertisements in newspapers or other publications, brochures, pamphlets, direct mail, etc. or undertake any other form of sales promotion in the name of or on behalf of the Company, either during the subsistence of this Agreement or subsequent to termination, except to the extent and in the form and manner approved by the Company in writing.

39. Any violation of the provision of clause 32 to 39 shall be considered a serious breach and can be remedied by injunctive relieve in addition to damages and by termination of this Agreement of the Company without any notice period.

ARBITRAION

40. Any dispute, disagreement or question arising out of and in connection with this Agreement shall be referred to arbitration in accordance with the Arbitration and Conciliation Act, 1996 or any of its successor legislation/ordinances. In the event of there being any proceedings before the court, jurisdiction shall be vested with the Courts of Ahmedabad City.

NOTICE AND TERMINATION

41. The Agreement is for the Showroom located at Sanket Towers, Anand any change in the above address without the approval of the Company shall be construed as a default and at the Company’s sole discretion might lead to termination of the Agreement.

42. The occurrence of any one of the following events shall be construed as an event of default:

a) any change occurring in the constitution or change in the management of the Franchisee (whether or not involving a change in; the ownership structure) or conversion of the business to a partnership or joint stock company without express approval of the Company.

b) any attachment, distress or warrant being levied on the Franchisee or any assets in the Showroom.

C) failure of the Franchisee to render accounts, furnish information or pay the amounts due to the Company under this Agreement on the due dates thereof or in the event of the Franchisee violating any term and condition or covenant of this Agreement.

d) the Franchisee being convicted by a Court for any offence involving moral turpitude.

e) The Franchisee being found to be a person of unsound mind or being adjudged an insolvent;

f) the Franchisee not complying with the Company policy on price, staffing, training, promotion customer service and/ or generally doing any act, deed or thing or omitting to do so, whici1 is in any way prejudicial to the Company’s reputation or business interests.

g) the Franchisee selling goods or providing services other than the products.


h) Any action taken or omitted to be taken by the Franchisee or the occurrence of any other event which in the opinion of the Company is prejudicial or detrimental to the Company’s interests. Such opinion of the Company shall be final and binding on the Franchisee.

TERMINATION

43. The Company reserves the right to terminate this Agreement without giving notice in the event of violation by the Franchisee of any of the terms contained in this Agreement including the occurrence of an event of default as above. The Company’s decision in respect of the violation of any of the terms of this Agreement shall be final and binding on the Franchisee. The Company shall not be liable for any damage claims for loss of profit, loss of investment or any consequential losses and liabilities or any such claims of a similar nature, in the case of termination of this Agreement by any party by any mode or for whatsoever reasons.

44. This Agreement may be terminated by either party at any time during the term of this Agreement by six months prior notice in writing. Upon the expiry of this six months period, this Agreement shall stand terminated. The notice will be deemed to have been served on proof of it having been posted I delivered to the addresses given under clause 54 below.

45. Upon termination of this Agreement the Franchisee shall;

a) cease to use the name, trade mark, symbol or logo of the Company on any stationery, letterhead, document, name plate, furniture representation or in any other manner or any other mark or logo which is deceptive or likely to confuse with the marks or logos owned or used by the Company:

b) Return to the Company all stocks of the products in his possession, regardless of the title to the same at a mutually agreed price:

C) Return to the Company all stocks of stationery, display material of any kind, sales literature, brochures and all other items ofLiterature, brochure and all other items of similar nature.

d) Immediately repay all amounts owing to the Company, as per the Company’s books, regardless of whether or not such amounts have become due and without claiming any lien in respect thereof on any property or assets of the Company.

e) Change the Showroom interior design concepts to the satisfaction of the Company.

f) Not deal with any of the products or with goods of a similar nature in the Showroom covered by this Agreement, for a period of three years from the date of termination of this Agreement.

The Franchisee expressly agrees to abide by the exit policy and post termination bar in dealing with goods of similar nature stated above in clause 45(i) in view of the fact that the Company during the course of performance of this agreement will be transferring its goodwill to the Franchisee and the Franchisee stands to gain and benefit from this goodwill which property is owned by the company.

EXIT CLAUSE

46. In case of termination of this Agreement by the Franchisee prior to the expiry of the five year period or any mutually extended period for any reason whatsoever or in the event of termination by the Company for breach of


contract or default by the Franchisee, the Franchisee shall pay a sum of Rupees Fifty lakhs only as damages suffered including the loss of reputation and business opportunity. This is without prejudice to any other remedy available to the Company. The Franchisee agrees to abide by this exit clause in accordance with his acknowledgement herein above that the Company has incurred huge investment and expenditure on behalf of the Showroom.

47. Not withstanding any other provisions in this Agreement, the Franchisee need not pay liquidated damages defined in Clause 46 in the event of the occurrence of any of the following:

a) The Company decides to take over the running of Sales India. Anand operations.

b) Inadequacy of profits as agreed to by both parties for two consecutive years despite the best endeavor of both the parties to the agreement. Inadequacy of profits shall mean a net return on investment before taxes lower than the Prime Lending Rate by one percentage point.

APPLICABLE LAW

48. The law applicable to all disputes, differences, disagreements and I or questions of law arising out of and with reference to this Agreement shall be the Laws of the Republic of India.

AGREEEMNT FAIR AND REASONABLE

49. It is expressly recognized by the Franchisee that developing retail sales of the products through the Showroom involves divulging information and data of considerable value and strategic importance by the Company and accordingly the provisions of this Agreement inter alia seek to protect the position of the Company and in this context the Franchisee after careful consideration of this Agreement finds the same fair and reasonable and has voluntarily agreed to this Agreement and hereby expressly waives and I or foregoes any objection in present or future to the same.

NOTICE

50. Any notice or communication given by the Franchisee or the pany shall be in writing and shall be addressed:

By the Company to: Sanket EnterpriseSanket Towers, 1st Floor,Grid, Anand, Gujarat.

Alternative address for communication by fax NIL

Alternative address for communication by telegram:

NIL

By the Franchisee to:Sales India (P) Ltd.Jadav Chambers,Ashram Road,AHMEDABAD - 380 009

SUCCESSORS AND ASSIGNS


51. The provisions of this Agreement shall bind the successor and assigns of the company. The provisions of this Agreement shall bind the heirs, executors, legal representative of the Franchisee and/or such assigns of the Franchisee as are expressly permitted in writing by the Company (“permitted assigns”). In the event of insolvency of the Franchisee, then the Company may without prejudice to its right to terminate this Agreement, choose to take over and/or carry on the business in accordance with clause 47 of this Agreement and shall be entitled to call upon the Franchisee and/or the official assign to execute all such acts, deeds and matter and things as are required for this purpose. It is expressly agreed that the provisions contained in this paragraph are without prejudice to the rights of the Company to terminate this Agreement on the death of the Franchisee.

52. During the continuance of this Agreement, the Franchisee shall not except with the prior written permission of the Company, be entitled to transfer or dispose of or alienate the Showroom in any manner or enter into any other party in any manner, the transferee or successor as the case may be, shall be bound by the provisions of this Agreement and shall acquire the same subject to Company’s approval.

53. All permissions and approvals to be obtained from the relevant authorities and notifications required to be given by the Company under this Agreement shall be issued and signed on behalf of the Company, or any other person nominated by the Company under the signature of an authorized signatory of the Company.

FULL AND COMPLETE UNDERSTANDING BY BOTH PARTIES

54. This Agreement shall constitute the full and complete understanding between the parties with respect to the subject matter of this Agreement. Any amendments or additions to this Agreement shall be in writing and duly signed by representatives of both parties.

LIABILITY FOR NON-COMPLIANCE

55. The Franchisee will be liable for all damages arising out of non-performance of the obligations under this Agreement and the Franchisee will make good any losses incurred by the Company in this regard.

In WITNESS WHEREOF the parties hereto have executed this Agreement, in duplicate with one copy provided to each party, on the date appearing on top of this Agreement.

SALES INDIA (P) Ltd. (COMPANY) For Sanket EnerpriseSd/- Sd/- Authorized signatory

18.3.7 From the aforesaid Franchise agreement what I find is that it is not mere agreement for using LOGO/Trade Mark of M/s Sales India Pvt. Ltd. Clause look of the content of the said agreement clearly reveals that following conditions as laid down under board’s circular No.59/8/2003 dated 20.06.2003 are clearly satisfied.


(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 under 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 franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.

18.3.8 Therefore, I am unable to accept their contention that their agreement with franchise were mere agreement for using Logo/Trademark. Accordingly service rendered by the said service provider under the aforesaid agreement is liable to be classified under the category of Franchisee service and accordingly liable to be taxed.

18.3.9 Under the circumstance their reliance on the following decisions does not come to their rescue.

Ashok Enterprises - 2007 (5) STR-153 (Commr. Appeals- Before Commissioner of Customs & Central Excise (Appeals), Kanpur order in appeal No. 450-CE/ APPL/KVP/2006 dated 12.09.2006.

Aviat Chemicals Pvt. Ltd. Vs. Commissioner-2006 (3) STR 291 (Tri.)- 2004 (170) ELT - 466 relied on para 3.16.

Bharti Cellular Ltd.-2006 (2) STR 255 (Commissioner Appeal) 1999 (106) ELT 564 (Commr. App.) referred para-2.

18.3.10 As regard to decision in the case of; Dewsoft Overseas Pvt. Ltd. Vs Commr. of Service Tax, New Delhi 2008 (12) STR 730 (Tri. - Del.) Final Order No. ST/218/2008-(PB), dated 25.08.2008 referred by the party it is the submission as under.


Dewsoft Overseas Pvt. Ltd. Vs Commr. of Service Tax, New Delhi 2008 (12) STR 730 (Tri. - Del.) Final Order No. ST/218/2008-(PB), dated 25.08.2008 in Appeal No. ST/235/2006 Franchise service - Computer training institute - Franchisees granted representational right - Appellant as franchisor provided know-how, expertise and quality control - Enquiry not made by Revenue for ascertaining whether as per agreement appellant under obligation not to engage in providing similar service with other persons - Burden to prove liability on Revenue and same not discharged - Impugned activity not covered under Franchise service - Sections 65(47) and 73 of Finance Act, 1994. [para 4.5.2J

“Tax liability (Service tax) - Burden of proof - Revenue to prove liability on particular person if Service tax sought to be imposed. [para 4.5.2J

During the period of dispute under Section 65(47) the word Franchise had been defined as under –

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 under 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 franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person.

The word “franchisor” has been defined under Section 65(48) of the Act as “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”. Under Section 65(105)(zze), the taxable service with regard to franchise has been defined as “any service provided to a franchisee, by the franchisor in relation to the franchise”. There is no dispute that the first, second,


and third conditions are satisfied. In other words, the franchisee of the appellants have been granted representational right, the appellants as franchisor have provided the concept of business operations to their franchisees including know-how, method of operation, managerial expertise, marketing technique, standards of quality control etc,. and the appellants as franchisor receive a consideration from the franchisees; that the Appellants, however, claim that no evidence has been produced by the Revenue that fourth condition is also satisfied i.e. the franchisee is under an obligation not to engage in providing similar services identified with any other persons. The Revenue’s contention on this point is that the Appellants, either during the investigation or during the adjudication proceedings have not produced any evidence to show that their franchisees were not providing similar service of other franchisors and in view of this, conclusion in this regard has to be drawn against the appellants; that they do not agree with this plea of the Revenue; that during the period of dispute, as per the definition of the word “franchise” as given in Section 65(47) the franchise agreement, which attracted service tax was to satisfy four conditions, and if the Revenue wants to subject a person to service tax under this entry, the burden of proving that the agreement between that person and his client is a “franchise agreement” within the meaning of this term, as defined under Section 65(47) of the Finance Act, 1994, would be on the Revenue; that if the Appellants were not coming forward with the information with regard to condition No. ‘4’, it was possible for Revenue to conduct enquiry with the franchisees for ascertaining as to whether in terms of their agreement with the Appellants, they are under an obligation not to engage in providing similar service identified with any other person; that no such enquiry has been conducted; that in view of this, they hold that this activity of the Appellant is not covered by the definition of franchisee service as given in Section 65(47) of the Finance Act, 1994 and therefore would not attract service tax; that in view of their above findings, the impugned order is not sustainable and the same is set aside. The appeal is allowed.

18.3.11 The aforesaid decision is not applicable as cited by the service provider. I find that clause 37 of the said agreement clearly stipulates that “The Franchisee shall not use any of the Company’s trade names, trade marks, symbols, logos or the words Sales India or any other name owned or


used by the Company, in any stationery, letterhead, name board or otherwise, except to the extent and in the form and manner approved by the Company in writing. The Franchisee shall use only such stationery, letterheads, name boards and other items in the Showroom as have been supplied by the Company or expressly approved for use by the Company or expressly approved for use by the Company in writing. The Franchisee shall enjoy only limited and non-assignable right to use the Company’s trademarks, names, symbol or logo when permission to use is granted by the Company during the term of this Agreement. Specifically, the use of any name, logo, trademark or symbol other than the Company’s is expressly forbidden except to the extent and in manner specifically approved in writing”

18.3.12 I have also gone through the several decisions cited by the said service provider, however find that the ratio of these decision is also not applicable in view of aforesaid findings.

Tamil Nadu Kalyana Mandapam Assn. v. Union of India - 2006 (3) STR 260 (S.C.) = 2004 (167) ELT 3 (S.C.)

Basti Sugar Mills Co. Ltd. v. Commissioner - 2007 (7) S.T.R.431 (Tribunal)

Nirulas Corner House Pvt. Ltd., Vs Comm. of S.T, New Delhi (2009 (14) STR 131 (Tri. - Del.) Final Order Nos. ST/424- 425 / 2008 (PB), dated 03.12.2008 in Appeal Nos. ST/521- 522/2006,

Jetking Information Ltd. v. Commissioner - 2007 (7) STR 314 (Tribunal) - Distinguished, Franch Express Network (P) Ltd. Jetking Information Ltd. v. Commissioner - 2007 (7) STR 314 (Tribunal) - Distinguished,

Franch Express Network (P) Ltd. Vs Comm. of S.T., Chennai 2008 (12) STR 370 (Tri. - Chennai) Final Order No. 742/2008, dated 23-7-2008 in Appeal No. 5/11/2008 –

18.3.13 In this regard I have gone through the definition of “Franchise” Service and “ Franchisor” defined under section 65(47) and clause 65(48) of the Finance Act,1994 which read as under.

(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;

(Clause (47) has been substituted vide Finance Bill 2005-2006)


[OLD-(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 franchisee is under an obligation not to engage in selling or providing similar goods or services or process, identified with any other person; ]

(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;

In this regard I further rely on the decision delivered in the stay application by the CESTT, Principal Bench, New Delhi, in the case of Delhi Public School Society vs. Commissioner of Service tAx, New Delhi cited as 2009 (14) S.T.R. 399 (Tri. - Del.) where in it was held that:-

“Stay/Dispensation of pre-deposit - Franchise service - Scope of, after amendment from 16-6-2005 - Demand assailed submitting that after deletion of sub-clauses (ii), (iii) and (iv) of clause 65(47) of Finance Act, 1994, applicant would not fall under definition of Franchise service - By reason of deletion definition of ‘franchise’ made wider - True test is whether agreement is for grant of representational right to provide service or undertake any process identified with franchisor - Prima facie said sub-clauses incidental to grant of representational right to provide service - Applicant if held prima facie liable on basis of erstwhile definition, liablity after amendment cannot be shirked - Directed to pre-deposit partly - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [para 3]”

Stay partly granted.

The relevant text of para 3 of the aforesaid decision is as under:-

“3. After hearing the parties at length, we are of the view that by reason of deletion of sub-clauses (ii), (iii) and (iv) the definition of ‘franchise’ has been made wider. In our opinion, the true test to determine whether the agreement amount to ‘franchise’ under Section 65(47) or not is whether the agreement is for grant of representational right to provide service or undertake any process identified with the franchisor. We find, prima facie, substance in the submissions of the learned SDR that sub-clauses (ii), (iii) and (iv) were incidental to the grant of representational right to provide the service. If the applicant was held, prima facie, liable on the basis of the erstwhile definition, it is not understandable how it can shirk this liability after the amendment. It is not in dispute that the agreement in question provides for grant of representational right of the franchisor to provide services or undertake the


process associated with it. In this view of the matter, we are inclined to pass a similar order as in the previous case.”

18.3.14 I find that all the four clauses stipulated in the definition of the erstwhile definition of Franchisee service and stipulated in Board’s circular referred above are satisfied and also find that some of the stipulation is done away with the substituted section vide Finance Act, 2005-06, however are not in much variance with erstwhile definition. Further, as their service liable to be classified under Franchise Service, their claim that their service is classifiable under the category of Intellectual property introduced in the Finance Act,1994 vide Finance Act, 2004 with effect from 10.09.2004 is not tenable and not acceptable.

18.3.15 Accordingly, I held that their service rendered under the Franchise agreements are classifiable under clause 47 of the Finance Act,1994 and accordingly is liable to be taxed under clause 65 (zze) of the Finance Act,1994.

18.3.16 Further, I have also gone through the following decisions relied by the said service provider and find that the same are related to non imposition of penalty proposed under section 76,77,78 and for allowing benefit under section 80 of the Finance Act,1994.

Bright Motors Pvt. Ltd. Vs. Commissioner-2006 (2) STR 502 (Tri.) referred para 2 –

Commissioner Vs. Rashtriya Ispat Nigam Ltd. 2004 (163) ELT A 53 (SC) referred para 2

The ratio of the aforesaid decisions are not applicable in view of my aforesaid findings.

18.3.17 In view of the aforesaid discussion I find that service rendered by the said service provider is correctly proposed to be classified under “Franchise service” and accordingly the service tax of Rs. 2,47,196/- on the taxable value on proportionate basis as discussed herein above is liable to be recovered.

19. As regard to Money Changer service under Banking and Other Financial Services:

19.1 With regard to the service tax demanded on the alleged earning of commission on foreign exchange through “Western Union Money Transfer”


proposed to be classifiable and taxable service the category of “banking and other financial services” it is submitted by the said service provider that their service is not liable to service tax in terms of Circular No.92/3/ 2007-ST dated 12.03.2007 issued from F.No.249/3/2007-CXA by CBEC, where it was clarified that Money changing not liable to Service tax under ‘banking and other financial service’. In support of their claim they cited following decisions.

Muthoot Bankers Vs Commr. of C.Ex., Cus. & S.T (A), Cochin 2009 (15) STR 432 (Tri. - Bang.) Stay Order No. 62/2009, dated 02.01.2009 in Application No. ST/ST/193/2008 in Appeal No. ST/ 298/2008

Stay/Dispensation of pre-deposit - Demand - Limitation - Suppression - Demand of Service tax under Business Auxiliary Services on amounts received as sub-representative in money transfer service - Appellant put to terms in similar matter by an earlier stay order - Appellant pleading no suppression and demand hit by time bar - Pre-deposit fully waived on account of time bar- Recovery stayed - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [para 3 ]

The appellant rendered Money Transfer Service. They entered into an agreement with M/s. Weizmann Forex Ltd. Cochin (Weizmann) to act as the sub-representative of the resident company for the purpose of offering Western Union Money Transfer Service in India. Weizmann in turn has been appointed as the Indian representative of Western Union Network (Ireland) Ltd. (Western Union) and Irish Company pursuant to the Western Union Financial Services - International Representation Agreement dated 16.02.1998. Weizmann is authorized to provide Money Transfer Service on behalf of Western Union in India and also to engage sub-representatives for the purpose of offering such services. As per the sub-representation agreement with Weizmann, the appellant is required to provide Money Transfer Service under the brand name “Western Union Money Transfer Service”. Weizmann pays compensation to the appellant, which is 50% of the Regular Fee received on each Consumer Receive Transaction paid out to a recipient at one of the locations. They also pay to the appellant 50% of any gain made in relation to the conversion of currency associated with the money transfer, at the currency conversion rates determined by Western Union. Revenue proceeded against the appellant demanding service tax of Rs.1,15,756/- (Rupees One lakh fifteen thousand seven hundred and fifty-six only) under the


category of “Business Auxiliary Service” for the period from 01.07.2003 to 19.05.2004. Date of the show cause notice is 21.06.2006. In a similar matter of the same appellant, they were put to terms in the Stay Order No. 1235/2008 dated 22-12-2008 [2009 (15) STR 455 (Tri. - Bang.)]. However, in this case, in the course of the hearing, the learned Advocate pleaded time bar, as there was no suppression of facts. Hence, on account of time bar, we are inclined to grant full waiver of the amount demanded in the impugned order, till the appeal is decided. All recovery proceedings are stayed and no coercive measures should be undertaken till the appeal is decided. Registry should link this with Appeal No. ST/493/2008, for final hearing on 12.03.2009.

19.2 In the aforesaid citation it is observed that CESTAT have granted stay order against demand by the department to the appellant under the Business Auxiliary Services who rendered Money Transfer Service. They entered into an agreement with M/s. Weizmann Forex Ltd. Cochin (Weizmann) to act as the sub-representative of the resident company.

19.3 The another decision cited by the said service provider is as under:-

Muthoot Fincorp Ltd. Vs Commr. of C.Ex, Cus & S.T (A) Cochin, 2009 (15) STR 455 (Tri. - Bang.) Stay Order No. 1235/2008, dated 22.12.2008 in Application No. ST/Stay/316/2008 in Appeal No. ST/493/2008

Stay/Dispensation of pre-deposit - Business Auxiliary Services - Demand of Service tax for promotion of business of money changer - Appellant paying money to person in India on whose behalf money transferred from money changers - Definitions and agreements to be gone into in detail - Prima facie case not made out for complete waiver of pre-deposit - Pre-deposit of Rs. 2 lakhs directed - Pre-deposit of balance amounts waived - Recovery stayed - Section 35F of Central Excise Act, 1944 as applicable to Service tax vide Section 83 of Finance Act, 1994. [paras 1, 2, 6] Stay partly granted

On a careful consideration of the issue, we find that the issue is a very contentious one. The applicant is paying the money to a person in India on whose behalf the money is transferred from Western Union through M/s. Weizmann Forex Ltd. through the applicant. The definition of the “Business Auxiliary Services” and the “banking and other financial services” needs to be gone into detail along with the agreements entered into by the applicant with


the M/s. Weizmann Forex Ltd. and Others. This can be done only at the time of final hearing. As such, we find that applicant has not made out a prima facie case for complete waiver of the amounts involved. Accordingly, we direct the applicant to pre-deposit an amount of Rs.2,00,000/- (Rupees Two Lakhs Only) within eight weeks from today and report compliance on 12th March 2009. Subject to such compliance being reported, the application for waiver of pre-deposit of the balance amounts involved is allowed and the recoveries thereof stayed till the disposal of the appeal.

19.4 In the aforesaid citation it is observed that CESTAT have granted stay order against demand by the department to the appellant under the Business Auxiliary Services to the Appellant. In that case the appellant was paying money to person in India on whose behalf money transferred from money changers. While deciding the said stay application the CESTAT observed that - Definitions and agreements to be gone into in detail - Prima facie case not made out for complete waiver of pre-deposit -. 19.5 The said appeal in the CESTAT has not yet finalized. Therefore, the same can not be relied in the present case as in the case on hand, demand is raised to the noticee under “banking and other financial service”.

19.6 In this regard, I have gone through the definition taxable service in relation to “banking and other financial services” as defined under Section 64(105)(zm) of the Finance Act,1994. As per the provisions of Section 64 (105) (zm) taxable service means:-

“any service provided or to be provided to a customer, by a banking company or a financial institution including a non- banking financial company, or any other body corporate or commercial concern, in relation to banking and other financial services.”

19.7 The definition of Banking and other Financial services as referred in Section 65(12) of the Finance Act,1994 read as under.

“banking and other financial services” means —

(a) the following services provided by a banking company or a financial institution including a non-banking financial company or any other body corporate [or commercial concern], namely :—


(i) financial leasing services including equipment leasing and hire-purchase;

[Explanation. — For the purposes of this item, “financial leasing” means a lease transaction where —

(i) contract for lease is entered into between two parties for leasing of a specific asset;

(ii) such contract is for use and occupation of the asset by the lessee; (iii) the lease payment is calculated so as to cover the full cost of the asset together with the interest charges; and (iv) the lessee is entitled to own, or has the option to own, the asset at the end of the lease period after making the lease payment;]

[(ii) * ] * * *

(iii) merchant banking services;

[(iv) securities and foreign exchange (forex) broking, and purchase or sale of foreign currency, including money changing;]

(v) asset management including portfolio management, all forms of fund management, pension fund management, [custodial, depository and trust services];

(vi) advisory and other auxiliary financial services including investment and portfolio research and advice, advice on mergers and acquisitions and advice on corporate restructuring and strategy;

(vii) provision and transfer of information and data processing;

[(viii) banker to an issue services; and

(ix) other financial services, namely, lending, issue of pay order, demand draft, cheque, letter of credit and bill of exchange, transfer of money including telegraphic transfer, mail transfer and electronic transfer, providing bank guarantee, overdraft facility, bill discounting facility, safe deposit locker, safe vaults; operation of bank accounts;]

[(b) foreign exchange broking and purchase or sale of foreign currency, including money changing provided by a foreign exchange broker or an authorised dealer in foreign exchange or an authorised money changer, other than those covered under sub-clause (a);]


[Explanation. — For the purposes of this clause, it is hereby declared that “purchase or sale of foreign currency, including money changing” includes purchase or sale of foreign currency, whether or not the consideration for such purchase or sale, as the case may be, is specified separately;]

19.8 In his regard on perusing the statement of Shri Vishnuprasad Chunilal Mehta [recorded under Section 14 of the Central Excise Act,1944 applicable to service tax matters under Section 83 of the Finance Act,1994] I find that in the said statement he, inter-alia, stated that their firm is receiving commission from Weisman. In this regard he clarified that the said commission is received by their firm for providing service to the customers of Wisman who comes to their show room with the ten digit secret number received from the sender party from the foreign country through their payers. After that they verify the secret number in their system at the site of Weisman Forex Ltd. / Western Union Money Transfer and generate sheet / print out the details and as per the statement generated they pay the said amount to the customer in Indian currency. They receive commission from Weisman Forex Ltd. / Western Union Money Transfer for such transactions at the pre-decided rates. He further clarified that their company is not engaged in purchase or sell of foreign currency they are acting as intermediary between the Weisman Forex Ltd. / Western Union Money Transfer and the customer, to facilitate the customer. In their view as per the circular No.92/3/2007-ST dated 12.03.2007 service tax is not leviable on such activity to them. 19.9 It was also submitted by the said service provider that ‘penalties cannot be imposed and other actions under various sections cannot be initiated when the services provided are not taxable services, activities carried out are of purely of buy and sell (trading) nature, service tax not payable penalties also not imposable’. 20.1 As regard to the activities carried out by the said provider which is not a banking or financial institution, I have examined the entire issue as under.

20.2 Vide Circular No. 62/11/2003-S.T., dated 21-8-2003 issued from F.No. 3/7/2003-TRU by the Government of India, Ministry of Finance (Department of Revenue), Central Board of Excise & Customs, New Delhi in para 4 it was clarified as under.

“4. Foreign exchange broking :


With regard to 4.1 services provided by money changers, a doubt has been raised whether all trading in foreign exchange will be chargeable to service tax.

Prior to 01.07.2003 the service of 4.2 “securities and foreign exchange (forex) broking”, when provided by banking company/financial institution/ body corporate was liable to service tax. Through Finance Act, 2003 “foreign exchange broking” when provided by foreign exchange brokers, other than banking company/financial institution/body corporate, were also brought under the tax net w.e.f. 1-7-2003. As per the definition in law foreign exchange brokers include authorized dealers of foreign exchange. Authorized dealer of foreign exchange has been assigned the meaning of “authorized person” under the FEMA, 1999. Accordingly, authorized dealers/money changer etc. which are authorized to deal in foreign exchange are covered in the definition of “foreign exchange brokers” under service tax provisions. However, as explained above only the service of “foreign exchange broking” when provided by foreign exchange brokers (other than banking company/financial institution/body corporate which are already covered) has been brought under the tax net.”

20.3 I find that M/s Sales India i.e. the said service provider is not a authorized dealer under FEMA, 1999.

20.4 Further, I have gone through the aforesaid definition of “banking and other financial service” defined under the act and clarification given by CBEC vide their letter No. 341/44/2005-TRU, dated 6-10-2005 where under it was clarified that Money changers providing service in relation to foreign exchange covered under banking and financial services. The text of the said letter is reproduced as under.

“2.On perusal of the statutory provisions regarding taxation of services provided in relation to foreign exchange broking it is seen that :

Authorized dealers of foreign exchange are defined under Section 65(8) of Finance Act, 1994. According to this section, authorized dealers are all person authorized under clause 2(c) of Foreign Exchange Management Act, 1999. (FEMA).

All Money changers are authorized persons in terms of clause 2(c) of Foreign Exchange Management Act, 1999 (FEMA).


Therefore all money changers are authorized dealers of foreign exchange under Section 65(8) of the Finance Act for the purpose of service tax levy.

Authorized dealers of foreign exchange under Section 65(8) are included under the category of foreign exchange brokers defined under Section 65(46) of the Finance Act, 1994.

Thus all money changers are foreign exchange brokers and are leviable to Service Tax under Section 65(12A) or 65(12b) depending on their constitution.

4. All money changers under Section 2(c) of FEMA are foreign exchange brokers as inferred above the therefore any service provided by such money changers would amount to foreign exchange broking. Money changers are licensed by the Reserve Bank of India in terms of Section 10(1) of FEMA, 1999.

5. The following points which govern the relationship between RBI and the money changers are relevant:

Money changers are licensed by the RBI for the purpose of undertaking activities covered under section 10(1) of FEMA, 1999.

Their activity of dealing in foreign currency is subject to conditions imposed by RBI.

In terms of para 1.7 of the Exchange Control Manual, RBI may revoke the licence/authorization granted by it to a money-changer at any time if the holder of the licence authorization is found to have failed to comply with any condition subject to which it was granted or to have contravened any provisions of FERA 1973 or of any Rule, Notification, Direction or Order made there under.

Thus it is clear that money changers are only dealing in foreign currency as agents/licensees of RBI.

6.Service tax on foreign exchange broking services is applicable to services provided by any foreign exchange broker including banking company, financial institution, non banking finance company any body corporate, or commercial concern. Statutory provisions are the same in respect of all these entities which are engaged in the same activity. Money changers cannot go out of the purview of service tax on the plea that they are merely selling and purchasing foreign


currency and not dealing or brokering on foreign exchange. Under Sale of Goods Act, Goods means every kind of moveable property but excludes money. Therefore transactions in foreign exchange do no fall under scope of sale.”

[emphasis provided]

20.5 However the said circular was superseded vide CBEC’ Circular No. 92/3/2007-S.T., dated 12.03.2007 where under it was clarified that Money changing not liable to Service tax — Clarification dated 06.10.2005 superseded. The text of the said circular is reproduced as under.

“Service tax is leviable on foreign exchange (forex) broking service under the category of ‘banking and other financial service’. In terms of the provisions of the Finance Act, 1994, foreign exchange broker includes a money changer (authorized dealer of foreign exchange). In this context, a question has arisen as to whether the service provided by a money changer in relation to exchange of foreign currency is a forex broking service for applicability of service tax levy under ‘banking and other financial services’.

2. The issue has been examined by the Board. It was noted that ‘money changing’ and ‘foreign exchange broking’ are two distinct activities. Money changing is an activity of sale and purchase of foreign exchange at the prevalent market rates. On the other hand, foreign exchange broking is the activity performed as an intermediary, on a commission/brokerage basis, for facilitating the clients who wish to buy or sell foreign exchange. The foreign exchange broker providing foreign exchange broking service does not hold title to the foreign exchange. Accordingly, Board is of the view that service tax is not leviable on money changing per se, as such activity does not fall under the category of foreign exchange broking.

3. The instruction issued earlier vide letter F. No. 341/44/2005-TRU, dated 6-10-2005 [2006 (1) S.T.R. (C69)] stands superseded.”

[emphasis provided]

20.6 Further vide letter M.F. (D.R.) Letter D.O.F. No. 334/1/2008-TRU, dated 29-2-2008 (Extracts)

5. Scope of specified taxable services is being amended as follows :


5.1 Foreign Exchange Broker Service:

5.1.1 Foreign Exchange (Forex) broking service is leviable to service tax. Foreign exchange brokers provide services as an intermediary in relation to purchase or sale of foreign currency on a commission/brokerage basis. Purchase or sale of foreign currency is undertaken by foreign exchange broker and also by persons authorised under Foreign Exchange Management Act, 1999 to deal in foreign exchange and having licence issued by RBI. Such authorised persons are known as money changers or authorised dealers of foreign exchange. Services in relation to purchase or sale of foreign currency is, therefore, provided by foreign exchange broker, money changer and also authorised dealer of foreign exchange.

5.1.2 Foreign exchange broker indicates the consideration for the services provided (commission) explicitly. Whereas money changers/authorised dealers of foreign exchange providing same services may not necessarily indicate the consideration explicitly.

5.1.3 Section 65(12) is being amended so as to levy service tax on purchase or sale of foreign currency, including money changing, provided by an authorized dealer in foreign currency or an authorised money changer, in addition to a foreign exchange broker. An explanation is being added to the effect that explicit mention of the consideration for the services provided in relation to purchase or sale of foreign currency is not relevant for the purpose of levy of service tax. Taxable services [Sections 65(105)(zzk) and 65(105)(zm)] are being amended suitably. With these amendments, services provided in relation to purchase or sale of foreign currency by a foreign exchange broker, money changer and authorized dealer of foreign exchange shall also be leviable to service tax.

5.1.4 To enable determination of taxable value, where the consideration for the services provided in relation to purchase or sale of foreign currency is not explicitly indicated by the service provider, a method under rule 6(7B) of the Service Tax Rules, 1994 shall be prescribed. As per this provision, the service provider has the option to pay service tax calculated at the rate of 0.25% of the gross amount of currency exchanged.

Illustration :


Buying rate : US$ 1 = Rs. 38 // Selling rate : US$ 1 = Rs. 40

(i) Purchase of US$ 100 by the service provider :

Gross amount of currency exchanged in rupees

= Rs. 3800 (Rs. 38 x 100)

Service tax payable = Rs. 9.5 (0.25% x 3800)

(ii) Sale of US$ 100 by the service provider :

Gross amount of currency exchanged in rupees

=

Rs. 4000 (Rs. 40 x 100)

Service tax payable = Rs. 10 (0.25% x 4000)

20.7 In the instant case the said service provider is receiving consideration in the form of commission hence aforesaid illustration for the purpose of determining taxable value is not relevant in the present case.

20.8 Therefore, in view of para no. 5.1.3 referred above “money changer’ is liable to pay service tax from 29.02.2008 onwards. Accordingly demand for the period 01.03.2008 onward and 2008-09 is liable to be confirmed. The said service provider have earned Rs. 32,456/- during the period 01.03.2008 to 31.03.2009 and service tax thereon worked out to Rs.4012/- is liable to be confirmed under this category of service.

20.9 Thus, I find that the activities carried out by the said service provider falls under “banking and other financial service”, however in view of the clarification vide circular dated 12.03.2007 and aforesaid discussions, I, hold that demand for the period prior to 29.02.2008 no service tax is payable and hold that service tax for the period 01.03.2008 onward is payable by the said service provider on the services under the Money Changers in relation to foreign exchange.

21. As regard to Claim under Section 80 of The Finance Act,1994

21.1 I have gone through the submissions and various citations made by the said service provider with regards to their claim under Section 80 of the Finance Act, 1994.


21.2 I observed that they further had taken service tax registration No. AAGFS9485DST001 and had paid the service tax of Rs.80,841/- under “Business Auxiliary Service”. It was their contention that they paid this service tax on wrong belief that they shall have to pay service tax but when they came to know that there is no applicability of service tax on their activities. From where and how they had arrived at this belief have not been stated by them. They further submitted that they are purely engaged in buying and selling activities and sales tax/VAT & octroi has been paid by them and had decided to stop paying service tax thereafter. The aforesaid contention is not acceptable as regard to the Demand of service tax of Rs.11,79,811/-on Business Auxiliary Service, Rs.2,47,196/- under “Franchise Service” and Rs.4012/- under “Money Changer” under the Banking and other Financial Service” as discussed in details herein above are liable to be confirmed and recovered along with interest under Section 73(2) of the Finance Act,1994 as there exists sufficient ground which indicates suppression of facts. Therefore, I find that this is a fit case for imposing penalty under Section 76 and 78 of the Finance Act, 1994 and their claim under section 80 is not appear to be entertained.

21.3 Thus, out of total amount of Rs. 16,74,810/- demanded under the aforesaid show cause notice Rs. 14,31,019/- is liable to be confirmed and amount of Rs. 2,43,791/- is liable to be dropped. Further, the said service provider had paid Rs. 6,33,841/- during the course of Investigation is required to be appropriated against the demand being confirmed. The summary detail is tabulated as under.

Head of Service

Demand as per SCN

Confirmed

Dropped

Amount paid to be appropriat

edBusiness Auxiliary Service

1179811 1179811 0 633841

Franchisee Service 247196 247196 0 0Banking and Other Financial Service

19143 4012 15131 0

Sales of Space 228660 0 228660 0

Total 1674810 1431019 243791 633841

22. Penalty under Section 76:-


22.1 I further observe that during the relevant period M/s Sales India Ltd have defaulted in payment of service tax which has been established as not paid, in accordance with the provisions of Section 68 of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1994, and thereby rendered liable to pay mandatory penalty under the provisions of Section 76 of the Finance Act, 1994 for default in payment of service tax on time till the final payment. It has come to my notice that till date M/s Sales India Ltd., have not paid the service tax, hence imposition of mandatory penalty under Section 76 is once again justified.

22.2 Accordingly, I hold that M/s Sales India Ltd., are liable to imposition of penalty under Section 76 of the Finance Act, 1944. My conclusion is also based on various decisions of Hon’ble High Courts & Tribunals as mentioned below;

CCE & ST Vs First Flight Couriers Ltd reported at 2007(8) STR 225 (Kar.)

UOI Vs Aakar Advertising, reported at 2008 (11) STR.5 (Raj.)

UOI Vs Shiv Ratan Advertisers reported at 2008 (12) STR 690 (Raj.)

Shiv Network Vs CCE, Daman reported at 2009 (14) STR 680 (Tri-Ahmd)

CCE, Vapi Vs Ajay Sales Agencies reported at 2009 (13) STR 40 (Tri–Ahmd)

Siddhi Motors Vs CCE, Rajkot reported at 2009 (15) STR 422 (Tri-Ahmd)

22.3 I further observe that the Hon’ble CESTAT in a recent judgment in the case of M/s Gujarat Industrial Security Force Society Vs CST, Ahmedabad, vide order No. A/1110/WZB/AHD/2010 dated 05.08.2010, has held that no lenient view can be taken under Section 76 of the Finance Act, 1994. The relevant paras are reproduced below ;

“2. After hearing both the sides, I find that in this case, the assessee was registered more than 6 years back and no explanation has been given by them for delayed filing of return and delayed payment of service tax. Under these circumstances, I am not finding fault in stand taken by the lower authority that penalty is imposable under section 76 and once it is held that penalty is imposable under section 76, the amount fixed as per the provision of section 76 is required to be


imposed. Under these circumstances, even though the Ld. Advocate submitted that the appellant is a non profit organization, no lenient view can be taken in view of the provisions of law.

3. Accordingly, the appeal is rejected.”

22.4 Hon’ble High Court of Gujarat in the case of CCE & Cus. Vs Port Officer, reported at 2010 (19) STR 641 (Guj) has now settled the issue of penalty under Section 76. The relevant para is reproduced below ;

“10. A plain reading of Section 76 of the Act indicates that a person who is liable to pay service tax and who has failed to pay such tax is under an obligation to pay, in addition to the tax so payable and interest on such tax, a penalty for such failure. The quantum of penalty has been specified in the provision by laying down the minimum and the maximum limits with a further cap in so far as the maximum limit is concerned. The provision stipulates that the person, who has failed to pay service tax, shall pay, in addition to the tax and interest, a penalty which shall not be less than one hundred rupees per day but which may extend to two hundred rupees for everyday during which the failure continues, subject to the maximum penalty not exceeding the amount of service tax which was not paid. So far as Section 76 of the Act is concerned, it is not possible to read any further discretion, further than the discretion provided by the legislature when legislature has prescribed the minimum and the maximum limits. The discretion vested in the authority is to levy minimum penalty commencing from one hundred rupees per day on default, which is extendable to two hundred rupees per day, subject to a cap of not exceeding the amount of service tax payable. From this discretion it is not possible to read a further discretion being vested in the authority so as to entitle the authority to levy a penalty below the stipulated limit of one hundred rupees per day. The moment one reads such further discretion in the provision it would amount to re-writing the provision which, as per settled canon of interpretation, is not permissible. It is not as if the provision is couched in a manner so as to lead to absurdity if it is read in a plain manner. Nor is it possible to state that the provision does not further the object of the Statute or violates the legislative intent when read as it stands. Hence, Section 76 of the Act as it stands does not give any discretion to the authority to reduce the penalty below the minimum prescribed.”

22.5 The Hon’ble High Court of Gujarat has further confirmed the above


view in the case of CCE Vs S J Mehta & Co., reported at 2011 (21) STR 105 (Guj.) and CCE Vs Bhavani Enterprises reported at 2011 (21) STR 107 (Guj.).

23. Penalty under Section 75 A & 77:

23.1 I further find that the service provider has failed to file prescribed ST -3 returns for all the taxable services provided by them within the prescribed time, as they have filed ST-3 return only for Business Auxiliary Service showing taxable value of service as NIL and hidden all other taxable services and escaped from self assessment & hence they are liable for penalty under Section erstwhile Section 75 A and 77 for not taking service tax registration and not filing service tax returns.

24 Penalty under Section 78:-

24.1 I further observe that the show cause notice also proposes imposition of penalty under Section 78 of the Finance Act, 1994. I find that fraud, suppression of facts and wilful mis-statement on the part of M/s Sales India Ltd., has been established beyond doubt as discussed and concluded in the earlier part of this order. Accordingly, I hold that M/s Sales India Ltd are also liable to penalty under the provisions of Section 78 of the Finance Act, 1994.

24.2 As it is already proved that the service provider had suppressed the facts, the consequences shall automatically follow. Hon’ble Supreme Court has settled this issue in the case of U.O.I Vs Dharmendra Textile Processors reported in 2008 (231) ELT 3 (S.C) and further clarified in the case of U.O.I Vs R S W M reported in 2009 (238) ELT 3 (S.C). Hon’ble Supreme Court has said that the presence of malafide intention is not relevant for imposing penalty and mens rea is not an essential ingredient for penalty for tax delinquency which is a civil obligation.

24.3 I, therefore, hold that they have rendered themselves liable to penalty under Section 78 of the Finance Act, 1994. My above view gets support from below mentioned case laws ;

Shiv Network Vs CCE, Daman reported in 2009 (14) STR 680 (Tri.Ahmd.)

CCE, Vapi Vs Ajay Sales Agencies reported in 2009 (13) STR 40 (Tri. Ahmd.)


Order No. A/754/WZB/AHD/2010 dt. 09.06.2010 / 23.06.2010 in the case of M/s Bajrang Security Services Vs CST, Ahmedabad.

Order No. A/1937/WZB/AHD/2010 dated 08.10.2010 / 20.12.2010 in the case of M/s Dhaval Corporation Vs CST, Ahmedabad.

24.4 I further observe that recently hon’ble High Court of Punjab & Haryana, in the case of CCE Vs Haryana Industrial Security Services reported at 2011 (21) STR 210 (P&H), has also upheld the penalty equal to service tax imposed under Section 78 of the Finance Act, 1994. Hon’ble Karnataka High Court has also taken similar view in the case of CCE, Mangalore Vs K Vijaya C Rai reported at 2011 (21) STR 224 (Kar.)

25 Both Penalty under Section 76 & 78 – Justified:

25.1 I also find that penalty under Section 76 ibid is provided for failure to pay service tax whereas penalty under Section 78 ibid is for suppressing value of taxable service. In the instant case, service tax liable to be paid in terms of Section 68 read with Rule 6 of the Service tax Rules, 1994, have not been found paid as well as service tax has not been paid / short paid by suppressing value of taxable service by reason of wilful mis-statement and suppression of facts. Of course these two offences may arise in the course of same transaction, or from the same action of the person concerned. But the incidents of imposition of penalty are distinct and separate and even if the offences are committed in the course of same transaction or arises out of the same act the penalty is imposable for ingredients of both offences, this aspect was also considered by the Hon’ble High Court of Kerala in the case of Assistant Commissioner, C.Ex. Vs Krishna Poduval – 2006 (1) STR 185 (Ker). I also find that the Hon’ble Mumbai Tribunal in the case of Golden Horn Container Services Pvt. Ltd. v/s Commr. of C. Ex., Raipur reported at 2009 (16) S.T.R. 422 (Tri.-Mumbai), has held that Section 76 provides for a penalty who commits default simpliciter in payment of the tax whereas section 78 is a more stringent penal provision, which provides harsher penalty who commits default with mens rea. Since in this case also, M/s Sales India Ltd has committed default with mens rea, the decision of the tribunal is squarely applicable.

25.2 Therefore, I am of the view that in the facts and circumstances of the case, it is justifiable, if the penalty is imposed under the provisions of Section 76 and 78 of the Finance Act, 1994, separately, following the decisions of


Hon’ble Kerala High Court and Mumbai tribunal (supra). My views are also further supported by various decisions of tribunals in the cases of ;

a) Shiv Network v/s Commissioner of Central Excise & Customs, Daman reported at 2009 (14) S.T.R. 680 (Tri.-Ahmd.)

b) Commissioner of Central Excise, Vapi v/s Ajay Sales Agencies reported at 2009 (13) S.T.R. 40 (Tri.-Ahmd.), and

c) Mett Macdonald Ltd. v/s Commissioner of Central Excise, Jaipur reported at 2001 (134) E.L.T. 799 (Tri.-Del.).

d) M S Shah & Co., Vs CST, Ahmedabad – Order No. A/1328/ WZB/ Ahd/ 2010 dated 30.06.2010 / 26.08.2010.

e) Bajarang Security Services Vs CST, Ahmedabad – Order No. A/745/ WZB/Ahd/2010 dated 09.06.2010 / 23.06.2010.

f) CESTAT, Principal Bench, New Delhi in the case of Bajaj Travels Ltd., Vs CCE, Chandigarh – 2009 (16) STR 183 (Tri.Del.)

26. In view of the above discussions and findings, I pass the following order:

-: O R D E R :-

(i) I consider the amount of Rs.1,05,73,703/- received by M/s Sales India towards services rendered by them as taxable service under the category of Business Auxiliary Service as defined under Section 65(19) of the Finance Act 1994, as amended and Confirm the Service Tax of Rs. 11,79,811/- (Rupees Eleven lacs seventy nine thousand eight hundred eleven Only) for the period 2004-05 to 2008-09 under Section 73(2) of the Finance Act, 1994, and order to recover the same from M/s Sales India. I also order to appropriate the Service Tax of Rs. 6,33,841/- as already paid [ during the course of investigation ] by them on 05.06.2008 vide two Challans against their outstanding service tax liability.

(ii) I drop the demand of Rs. 2,28,660/- (Rupees two lacs twenty eight thousand six hundred and sixty only)proposed to be recovered under the category of “Sale of Time or Space” as defined under Section 65 of the Finance Act 1994, as amended;

(iii) I consider the amount of Rs.22,50,000/- received by them towards services rendered by them as taxable service under the category of Franchisee Service as defined under Section 65(47) of the Finance Act


1994, as amended and confirm the Service Tax of Rs. 2,47,196/- (Rupees Two lacs forty seven thousand one hundred ninety six Only) for the period 2004-05 to 2007-08 under Section 73(2) of the Finance Act, 1994.

(iv) I drop the demand of service tax under the category of “Banking and other Financial Service” [ under the head of Money Changer Service] of Rs. 15131/- (Rupees Fifteen thousand one hundred thirty one) for the period prior to 29.02.2008 for the reasons as discussed in this order, and confirm the Service Tax of Rs. 4012/- (Rupees Four thousand twelve Only) for the period from 01.03.2008 to 31.03.2009 under Section 73(2) of the Finance Act, 1994.

(v) I also order that M/s Sales India Ltd , to pay the interest as applicable on the amount of their service tax liability for the delay in making the payment under Section 75 of the Finance Act, 1994 .

(vi) I impose a penalty of Rs.200/- (Rupees Two Hundreds Only) upon them per day or at the rate of 2% of the service tax amount per month, whichever is higher, under the provisions of Section 76 of the Finance Act, 1994, as amended, for failure to pay Service Tax and Education Cess within the stipulated period as required under the provisions of Section 68(1) of the Finance Act, 1994 read with Rule 6 of the Service Tax Rules, 1944, as amended. As the actual amount of penalty could be depending on actual date of payment of service tax, however, as per Section 76 of the Finance Act, 1994, penalty will be restricted to the above confirmed amount of service tax liability.

(vii) I impose penalty of Rs. 2,000/- (Rupees two thousand only) under Section 77 of the Finance Act, 1994 for failure to take registration & to file prescribed Service Tax Returns within the stipulated time; and

(viii) I also impose a penalty of Rs. 7,97,178/- [Rupees seven lac ninety seven thousand one hundred seventy eight only] upon them under Section 78 of the Finance Act, 1994 for suppressing the value of taxable services provided by them before the Department with intent to evade payment of service tax under the category Business Auxiliary Service, Franchise Service and Banking and other Finance Service. If the service tax amount is paid alongwith appropriate interest as applicable, within 30 days from the date of receipt of this order, then the amount of penalty under Section 78 shall be reduced to 25% of the service tax amount, provided if such penalty is also paid within such period of 30 days.


The show cause notice bearing No. STC-73/O&A/SCN/JC/SIR-XIII/D-III/09 dated 13.10.2009 is disposed of accordingly.

-Sd-

(Dr. Manoj Kumar Rajak)

Additional CommissionerService Tax, Ahmedabad.

F.No.STC-73/O&A/SCN/JC/SI/R-13/D-III/09 Ahmedabad, Dt. 30/11/2011

To, M/s Sales India Ltd.,2nd Floor, B-Jadav Chambers, Ashram Road, Ahmedabad,

Copy to :-

1. The Commissioner of Service Tax, Ahmedabad (Attn. Review Cell).

2. The Deputy Commissioner (Prev.), Service Tax, Ahmedabad. (Attention Supdt. (Prev Gr.-I), Ahmedabad.

3. The Asstt. Commissioner, Service Tax, Division-III, Ahmedabad. 4. The Superintendent Range-XIII, Division-III, Service Tax, Ahmedabad

with extra copy of OIO to be served to the assessee and submit the acknowledgement to this office.

5. Guard file.

Documents

sevakarahmedabad.nic.insevakarahmedabad.nic.in/doc/ADDL/OIO41-11.doc · Web viewThe word “franchisor” has been defined under Section 65(48) of the Act as “any person who enters