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2015 (8) TMI 642 - CESTAT MUMBAI

2015 (8) TMI 642 - CESTAT MUMBAI - 2016 (41) S.T.R. 208 (Tri. - Mumbai) - Franchise service - Nature of Receipt of course fees - Invocation of extended period of limitation - Held that:- Authorisation Agreement, under Para 10 Schedule of Fees provides for Authorisation fee and course fees separately and distinctly. Only because all the fees are provided in one Agreement does not necessarily lead to a conclusion that the different components of fees are only for the purpose of grant of franchise. .....

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ot met because the fees is not paid by the training centre to the appellant. Rather the fees collected from the students comes into the account of the appellant who then pay 75% of theshare to the training centre. In this view of the matter, the activity clearly falls outside the scope of the franchise service.

No justification for invoking the extended time period as the appellant are an advanced research and development centre under the Ministry of Science and technology and will no .....

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Per: P S Pruthi: Under the impugned order passed by the Commissioner (Appeals), service tax demand of ₹ 32,14,844 is upheld for the period 01.07.2003 to 30.09.2004 under the category of franchise service. Service tax credit amounting to ₹ 2,79,463/- demanded under Rule 14 of CENVAT Credit Rules, 2004 is also confirmed; equivalent penalty under Section 78 of the Finance Act, 1994 has also been confirmed apart from interest leviable under Section 75. Appellant (referred as C-DAC) are .....

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to build up high quality research and development manpower in advance computing. It introduced a scheme to provide quality training through diploma and post graduate diplomas in advance and short term course. For this purpose they entered into training agreements called Authorisation Agreements with authorised computer education training centres (referred to ACETC). Under the agreements, ACETC is to provide infrastructure, recruit faculty, select trainees, collect and pay fees to the account of .....

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service tax under the category of franchise service. 2.1. Under the same agreement, the appellant receives course fees from the students who are enrolled for the course. The fees is collected at the authorisation training centres i.e. ACETC. After deducting 25% of its share and other recoverable, C-DAC forward 75% of the fees to the authorised training centres. The case of Revenue is that the appellant have not included their share of the course fees in the taxable value while discharging servi .....

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and therefore no service tax is payable. The appellant relied on Board circular no. 109/03/2009 dated 23.02.2009 in which it is clarified that revenue sharing activities are not taxable. The counsel shows the definition of franchise under Section 65(47) of the Finance Act, 1994 as it existed prior to 16.06.2005 which defines franchise' as under:- "Franchise Service" means service provided to a franchisee, by the franchisor in relation to franchise; "Franchise" means an a .....

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ing 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. He contends that none of the four clauses in the definition of franchise are satisfied and therefore, their activity is definitely not covered in the ambit of franchise service. The ld. counsel also ar .....

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es which is received by the appellant is not in relation to the franchise service but is received from the students for imparting training. Appellant relies on the CESTAT judgement in the case of Doon Institute of Information Technology Pvt. Ltd. vs. CCE 2008 (12) STR 459. The ld. counsel also states that if their appeal is not accepted on merits, the benefit of deduction of value of course material from the total value should be given in terms of Notification 12/03-ST. He also challenged the co .....

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credit register for the period 01.07.2003 to 30.09.2004 evidencing that Cenvat credit was available. 4. Ld. AR appearing for the Revenue reiterates the findings of the Commissioner. He draws our attention to the Authorisation Agreement. Emphasising that the payments under the Agreement indicated that they are in relation to the franchise service because the entire training program is conducted with the approval of the appellant. The Agreement provides that the authorisation training centre canno .....

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purpose of grant of franchise. Their very names suggest differently. Under Para 10B, the Authorisation fees is for grant of authorisation for conduct of training at the sites of authorisation training centres as approved under the Agreement. The authorisation fee is paid at the time of signing of the Authorisation Agreement. On these fees the appellant have paid service tax under the category of franchise service. We do not understand how the course fees can be said to be a part of the franchis .....

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training, course material, examination is maintained at a high standard. The Agreement is clearly akin to the revenue sharing model held to be non-taxable under Board circular (supra). The details of the Agreement show that the appellant and the training centre jointly participate in the activity of providing high level skills and knowledge in computers. It is a Principal to Principal arrangement. We see no reflection of franchise service by the appellant to the training centre in this activity .....

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suring that the standard of training is maintained. The words "business operation" have a totally different connotation. Business operation would mean passing of ideas and knowledge in running the business from a commercial point of view. In the present case, the whole activity is only to impart high standard training. Even clause (iii) of the definition of franchise is not met because the fees is not paid by the training centre to the appellant. Rather the fees collected from the stud .....

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fees is part of the franchise activity, it should be included in the value of the service for purpose of service tax. In our view the words "in relation to" have to be read in the context in which they are used. Thus words are in the context of franchise service. But the issue before us is the course fees or training fees. The service tax law nowhere states that if two distinct activities are undertaken or provided in a single agreement, they should be taxed under the same service cat .....

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eir account on 30.09.2004. It also states that the noticee failed to produce the relevant invoices as proof of their having balance. The findings of the Commissioner (Appeals) did not provide any details to hold the issue. In the hearing before us, the appellant produced the invoices before us. They also showed us Form ST-3 for the period 01.07.2003 to 30.09.2004 which indicates that during this period the appellants had taken Cenvat credit and also utilised the same. The return under Rule 5 for .....

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