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2016 (1) TMI 162 - CESTAT NEW DELHI

2016 (1) TMI 162 - CESTAT NEW DELHI - 2016 (42) S.T.R. 474 (Tri. - Del.) - Franchisee Service - Amount received from affiliates being RCs and LCs - Scope of the MOU - appellant designed its distance education programme and created a 3-tier architecture for running the same (i.e. distance education programme) through LCs (3rd tier) which were to be supervised by Regional Centres (RCs) (2nd tier) - Held that:- From the foregoing there remains no doubt that LCs were authorised to take students by c .....

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s per the MOU, the format and style of any advertisement or hoarding to be placed by RCs/LCs had to be done with the prior written approval of the appellant lest these bring down or cast aspersions on or discredit the appellant. - Owing to the fact that LCs represented the appellant with regard to providing education, MOU laid down strict requirements of infrastructure, processes, qualifications of staff, etc. as elaborated in the MOU. Though the MOU states that it is not a franchise arrange .....

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of the appellant cannot be treated as assessable value of franchise service. - the total fee collected by the appellant through LCs, a part was given back to LCs. Obviously, the part of the collection which was given back by the appellant to LCs cannot form part of the assessable value for the purpose of taxability. As per Section 67 ibid, the value of taxable service is the gross amount charged by the service provider for such service and gross amount will be only the amount, which remained wi .....

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appellant for the service rendered has to be equal to the amount collected by the appellant from LCs minus the amount paid by it to LCs. - Thus, the amount paid to RCs by the appellant was an expense at the hands of the appellant in connection of provision of franchise service. For the sake of elucidation, for example, the appellant could as well have employed its own persons for doing what RCs did in which case the expenses incurred in doing so would not be deductible from the assessable v .....

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elief regarding non-taxability, no assessee would file returns or obtain registration. - the allegation of suppression of facts cannot be sustained in the given circumstances. Consequently, penalty under Section 78 ibid is not imposable. - The impugned demand has to be re-computed only for the normal period and taking the assessable value as equal to the aggregate amount collected by the appellant through LCs minus the amount paid to LCs. Needless to say that the amount of penalty under Sec .....

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ax demand of ₹ 1,44,14,31,243/- for the period October, 2006 to June, 2012 was confirmed along with interest and penalties under Franchise Service [Section 65 (47/48/105 (zze) of the Finance Act, 1994]. 2. Brief facts of the case are as under:- The appellant, Punjab Technical University (PTU), is a university established under the Punjab Technical University Act, 1996. It is a statutory body which runs its own colleges/affiliated colleges and distance education programme through more tha .....

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of the appellant, RCs and LCs. The ground for confirmation of demand is that the appellant rendered Franchisor Service to its RCs and LCs and the entire fee received by it (under various heads like admission fee, examination fee, miscellaneous fees/late fee, result/certificate fee, challenge checking fee, migration fee, M Tech Viva, Thesis Fee, Scholarship fee, inspection fee, recovery, etc.) from its students enrolled at LCs was the assessable value for charging service tax under the said serv .....

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bility of students, allotment of enrolment numbers to eligible students, preparation of syllabus, preparation of question papers, evaluation of answer sheets, awarding of degrees, diplomas under its seal which are duly recognised and approved by the AICTE. (iv) RCs/LCs are under strict control of the appellant and they simply carried out the activities of teaching as per its guidelines. It laid down all the requisite norms which are implemented by LCs to ensure that quality education was imparte .....

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nt is education service, which is exempted. (viii) The impugned services are on negative list after 01.06.2012. (ix) It cited the clarification contained in education guide issued by CBEC. (x) The adjudicating authority relied upon the judgement of CESTAT in the case of Speed and Safe Courier Vs. Commissioner[2008 (13) STT 257 (Tri.-Bang)] but that judgment was overturned by Kerala High Court [2010 (18) STR 550 (Ker)]. (xi) The MOUs entered into by the appellant with LCs can be called joint vent .....

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m-tax benefit, as shown in para 36 of grounds of appeal. (xiii) The extended period in this case is not invokable as there is no suppression of facts or wilful mis-statement and these activities of the appellant were made public even on its website. (xiv) The facts of this case are not similar to the case of DPS Vs. CST [2013 (32) STR 179 (Tri.-Del)] decided by CESTAT. (xv) It cited in its support judgments of CESTAT in the cases of Franch Express Network Vs. CST, Chennai [2008 (12) STR 370 (Tri .....

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Cs had representational rights. (ii) The MOU clearly specified obligations of the respective parties and LCs have been given representational rights of the appellant including brand name, service mark or logo. (iii) Merely because fee was collected in the name of the appellant and the appellant made some payments to RCs is not of any consequence in-as-much-as the manner of payment to LCs for the service rendered is merely a matter of detail. (iv) The appellant authorised LCs to conduct courses o .....

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cable to the present case. Revenue also cited the CESTAT judgement in Amway India Enterprises Pvt. Ltd. Vs. CST, Delhi [Final Order No.ST/A/51612/2015-CU[DB], dated 14.05.2015] in its support. (ix) The extended period is invokable because the appellant did not take registration nor paid service tax and also did not submit figures when asked for. 4. We have considered the contentions of both sides and perused the records. The following issues are involved in this case:- (i) Classification of serv .....

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roduce a typical MOU and definition of franchise given in Section 65 (47) of the Finance Act, 1994, which is done below:- MEMORANDUM OF UNDERSTANDING This MEMORANDUM OF UNDERSTANDING (MOU) is made on 27 day of August 2007 between: PUNJAB TECHNICAL UNIVERSITY, Ladowali Road, Jalandhar, Punjab, India-144001, through its Dean (DEP) hereinafter referred to as PTU , which expression shall include its successors and assigns (part of the first part); AND M/S SYMANTEC INFOWAYS, 3789/1 JAGAT JEET NAGAR, .....

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of the distance education system of Punjab Technical University. The clauses contained hereinbelow shall override the clauses of the earlier agreement. WHEREAS the PTU, a University established under the Punjab Technical University Act, 1996, being Act No.1 of 1997 of the Punjab State Legislature, is engaged, amongst other activities, in importing education under its Distance Education Programme (for short, DEP ) by running its distance education courses through the distant mode regulate by its .....

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arious Courses of Information Technology and Management for short, I.T.) and non-Information Technology (for short, Non-I.T.) and other related fields, and its said LCs being located at various local places in the respective zones in the country, and the PTU is accordingly engaging its REGIONAL CENTRES for its each zone in the country to be allotted to the RCs for providing logistic support to and effecting supervision of the said LCs on PTU s behalf within the zone allotted to the RC concerned. .....

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training leading to the award of Degrees / Diplomas of the PTU by the distance Education mode in the concerned courses; AND WHEREAS the RC herein has been set up as per its own instrument of creation, for the purpose of providing logistic support and student services to the Learning Centres (LCs) of the PTU within its herein allotted zone comprising the STATE OF RAJASTHAN for the IT, and for supervising the working of the LCs located in its said zone and coordinating with those LCs for ensuring .....

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t services keeping in mind the present structure of PTU. AND WHEREAS by this arrangement under the present MOU, no essential, basic and statutory function of the PTU shall be outsourced to the RC. NOWTHEREFORE in consideration of the aforesaid binding premises, and the mutual covenants and promises made hereinafter, the parties hereto, i.e., the PTU and the RC, agree as follows to create a legally binding mutual relationship: Section 1 : FEES: 1.1 Mode of collection of fees by the LCs: The fees .....

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d Drafts in respect of the fees collected from all the students enrolled and studying at the LC concerned have been accounted for and handed over to it. The RC will maintain a MIS as per form of EDP Cell of PTU. 1.3 Transmitting of fees to the PTU: The RC will then spend all those Demand Drafts towards fees collected as above from all the LCs located within its allotted zone to the PTU. 1.4 Fees Sharing: Out of the total fees collected from the students and transmitted to the PTU by the RC as ab .....

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Punjab Technical University, Jalandhar, payable at Jalandhar, as per rates as fixed and as per norms of the PTU in force from time to time. 1.6 Additional Authorization Fee: For starting any other course(s) not initially mentioned in the letter of authorization issued to the LC, separate prior permission of the PTU shall have to be taken by the LC concerned through the RC and, if so permitted by the PTU in its sole discretion, an additional non-refundable authorization fee shall be paid by the L .....

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h LC shall have to provide separate infrastructure for PTU authorized courses. Any LC desirous of running both IT & Mgt. and Non IT streams shall have to provide separate infrastructure for these streams. It shall be responsibility of the RC concerned to make these guidelines known to the LC and train them as per rules and ensure strict compliance of the instructions of the University. 2.2 Venue for conducting the courses: The courses mentioned in para No. 2.1 shall be conducted only at the .....

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r Infrastructure & Facilities: The norms for infrastructure and instructional facilities as decided from time to time shall be enforced at each LC by the RC concerned within their zone and deficiency, if any, shall be reported to the University. Section 3: EDUCATION AND DELIVERY PROCESS 3.1 List: It shall primarily include the following:- (1) Curriculum mapping. (2) Infrastructure planning. (3) Faculty planning. (4) Batch launch planning. (5) Assisting in curbing commercialization of educati .....

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1 OBLIGATIONS OF THE PTU (Party No.1 herein) (1) PTU will appoint RC and allot zone of operation under this MOU, and shall monitor the working of the RC, and may at its sole discretion, for the development of the system, restructure zone(s) allotted to the RC or advertise for a new RC where performance of RC is poor or not up to the satisfaction of the University. (2) PTU will establish and monitor all the LCs in the Zone through the RC. (3) The LCs will be under the direct & strict control .....

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uld be prepared and supplied by the PTU with secrecy. (10) The PTU will lay down infra-structural requirements to be adhered to by the LCs. (11) The PTU will lay down the eligibility criteria as to the qualifications, experience and age of the faculty / staff to be engaged by the LCs for conducting the authorized courses. (12) The PTU will lay down all the requisite norms which shall be implemented by the LCs to ensure the imparting of quality education by the LCs to the students of PTU enrolled .....

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it would the liability of the RC to assist the PTU to ensure that students do not suffer & their studies are conducted alternatively in PTU s another authorized LC within the zone allotted to RC. Before officially closing the center, all student record files and No Dues must be submitted by RC to the University. (5) RC would be responsible for conducting the marketing / advertisement campaigns & strategies in print and electronic media for admissions and brand promotion of the courses of .....

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ting legal cases within the zone allotted to the RC. (10) To ensure timely delivery of course material, identity cards, etc. to LCs. (11) Coordinate efforts for preparing digital contents, CDs Learning Materials, MIS, and LMS, etc., for quality teaching-learning process within the allotted zone and for the overall development of distance education. (12) To participate in national and international events pertaining to distance education within and outside the country, in consultation with the P .....

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llection from the LCs of the fees paid by the students at the LCs for the allotted courses. (17) The RC will keep regular and periodic checks on the LCs so as to ensure timely completion of the allotted courses by the LCs. (18) The RC will conduct all kinds of audits (i.e. Technical audit, Management Information System audit, Library audits, Financial audit, etc.) of the LCs in respect of the PTUs courses run at the LCs. (19) The RC will frame the marketing strategy and will ensure its implemen .....

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nt and hoarding to be placed; put up by the RC / LCs should not bring down or cast aspersions on or discredit the PTU, and the decision of the PTU ordering the withdrawal of the advertisement or removal of the hoarding shall be final and binding on the RC / LCs. (23) The RC may take part actively with the PTU in image building exercises and must organize at least one public function, seminar, counselling session in their region each semester. (24) The RC agrees to provide expertise for infrastru .....

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the LCs as and when called to so do by PTU. (27) The RC agrees to pay the necessary fee, i.e., as decided by the PTU for each Region / zone allotted to the RC. (28) The RC will ensure that all the various LCs under its zone comply strictly with their Obligations to the full satisfaction of the PTU. (29) The RC will follow, in letter and spirit, all rules and regulations, notifications, guidelines (whether issued to the RC or the LCs) and office orders of the PTU issued from time to time. 4.3 OBL .....

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irit, all rules and regulations, notifications, guidelines and office orders of the PTU issued from time to time. (6) To enhance student skills and facilitate their placements. (7) To effectively coordinate with the RC and to work in close cooperation with the RC. (8) To participate in meetings and training programs organized by the RC/PTU. (9) To adhere to the norms & standards of the PTU at all times, as modified from time to time. If the LC is not able to admit students for two consecutiv .....

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nd LCs concerned. Section 6: Authorization: 6.1 In supersession of the existing Agreement: The authorization under this MOU, as per provisions of the earlier Agreement (by way of extension of the existing tenure of the existing RC and by re-allotment of its zone of operation, under the present policy of PTU for renewing the existing terms of the existing RCs after due assessment of their performance) shall be in supersession of the existing MOU of the RC with the PTU. 6.2 Duration: The validity .....

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approved by BOG) is presently valid for a term of 2.5 year(s) from the date of signing this MOU, with a provision of extension based on performance after proper evaluation, for the re-allotted zone falling in Zone T. There shall be mid-term appraisal after 1.25 years and further extension or otherwise shall be decided. Section 8 : Withdrawal Clause: Any RC may withdraw from this MOU by giving a prior notice of withdrawal of three months to the PTU, which shall require acceptance by the PTU. Se .....

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mance, or for non-performance, or for abandonment of the project or for any other reason or issue to be felt or determined by the PTU, a show cause notice will be served to the RC concerned with details of deficiencies and a written reply shall be sought within 15 days. The reply to the show cause notice shall then be considered by the DEP Council, and if required, the RC concerned shall be asked to defend their case before the DEP Council. The matter with the recommendations of the DEP Council .....

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shall be final. Section 10: Stipulation. 10.1 For MOU: Two sets of this MOU shall be typed, each one on a separate non-judicial paper of the requisite value meant for agreements. This MOU is to be signed by both the parties and their respective witnesses, in the manner as shown hereunder. After execution of both the original sets (i.e., the each set containing the MOU & the Affidavit) prepared as stipulated in Section 10 above, one original thereof has been kept for record by each of the two .....

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involved; As evident from the MOU, appellant approved and monitored all LCs. It approved the syllabus, courses and examination process. Students are on the rolls of the appellant and the prospectus and the application form is approved by the appellant. The examination, evaluation, declaration of results and award of degrees are also the obligations of the appellant. The appellant lays down infrastructural requirements to be adhered to by LCs. It also lays down the eligibility criteria for the fa .....

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various approved distance education courses of IT and non-IT streams and other related fields, strictly as per the commands and norms of the appellant to enable the students of the appellant enrolled with them to get skill based training leading to the award of degrees/diplomas of the appellant by the distance education mode in the concerned courses. The appellant ensures that LCs provide proper and quality education to the students of the appellant in accordance with the norms and standards la .....

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education, that the MOU cast strict obligations on LCs to ensure that the quality of education remained as per the standards of the appellant. It also comes out from the MOU that RCs framed marketing strategies to be implemented by LCs in consultation with the appellant. As per the MOU, the format and style of any advertisement or hoarding to be placed by RCs/LCs had to be done with the prior written approval of the appellant lest these bring down or cast aspersions on or discredit the appellan .....

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hus, notwithstanding that the MOU states that it is not a franchise agreement, the aforesaid analysis leaves no doubt that it satisfies all ingredients of franchise as defined in Section 65 (47) of the Finance Act, 1944 in-as-much-as LCs were granted representational rights to provide service and to undertake various activities identified with the appellant. The contention of the appellant that franchise has to involve trade mark, service mark, trade name or logo or any other such symbol is unte .....

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see). The customers identify it with McDonald (the franchisor) . In the present case also, a student is hardly much concerned as to which LC he joins because each LC provides education as per the norms and requirements laid down by the appellant and he gets a degree of and from the appellant. Ld. advocate referred to the judgement of Kerala High Court in the cases of Speed and Safe Courier Service Vs. Commissioner (supra) and Franch Express Network (supra). In the case of Speed and Safe Couriers .....

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Speed Couriers (supra), cited by the appellant, CESTAT interpreted the definition of franchise as it existed prior to 16.06.2005 and therefore the said judgement is not germane to the issue in the present case. On the other hand, we find that the facts in the case of DPS Vs. CST, Delhi (supra), where CESTAT held that there was rendition of franchise service by DPS, are pretty similar to facts in the present case in-as-much-as as in that case also, the appellant provided concepts of business oper .....

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an exercise in over-kill. 5. Coming to the aspect of valuation of service, we find force in the contention of the appellant that the entire fee collected by LCs in the name of the appellant cannot be treated as assessable value of franchise service. We note that out of the total fee collected by the appellant through LCs, a part was given back to LCs. Obviously, the part of the collection which was given back by the appellant to LCs cannot form part of the assessable value for the purpose of ta .....

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ions of Section 67 ibid, which, to repeal, in effect, states that the value of the taxable service will be the gross amount charged for the service and the gross amount charged by the appellant for the service rendered has to be equal to the amount collected by the appellant from LCs minus the amount paid by it to LCs. It is pertinent to mention that the amount paid by the appellant to RCs would not be excludible from the assessable value, because the RCs were created by the appellant to ensure .....

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able value. Thus, the amount paid by the appellant to RCs is not excludible from the assessable value. 6. The appellant has contended that the extended period in this case is not invocable as there was no suppression or wilful mis-statement. It stated that the figures asked for were also given within a month s time. We find that in the Show Cause Notice, the invocation of the extended period is proposed in the following terms:- 13. The Noticee during the relevant periods neither got themselves r .....

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hemselves liable to penal action under Section 76, 77 & 78 of the Act. 14. The extended period of limitation of five years as provided under proviso to Section 73(1) is clearly invokable in this case as the Noticee had suppressed the fact of providing the taxable service from the Department with an intent to evade payment of service tax and had the department not gathered the information on their own about the services provided by the Noticee, this huge evasion of service tax would not have .....

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almost 1,000 LCs. In these circumstances, the allegation that it suppressed this activity or indulged in wilful mis-statement is simply preposterous. In the case of Continental Foundation Jt. Venture Vs. CCE, Chandigarh-I [2007 (216) ELT 177 (SC)], the Supreme Court observed that an incorrect statement cannot be equated with a wilful mis-statement - There cannot be suppression or mis-statement of fact, which is not wilful and yet constitute a permissible ground for purpose of proviso to Section .....

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