TMI Blog2020 (7) TMI 356X X X X Extracts X X X X X X X X Extracts X X X X ..... changed only when the investigations had begun. Until these investigations had begun, every user of that bridge was given the impression that the appellant was rendering service and he was paying a fee for it - as far as both the Government of Andhra Pradesh and the users are concerned, the service which GTBPL was rendering was being rendered by the appellant and the fee which they were collecting was being collected by the appellant. This is akin to McDonald s restaurant being run in a town by a franchisee. The consumer sees it as McDonald s restaurant although it is actually being operated by the franchisee - the appellant has provided franchisee service to GTBPL and had collected an amount towards it. What is important is that the amount must be paid and that amount must be a consideration for the service rendered. In this case both the franchisee taking over the liability of debt of the franchisor and paying an amount by way of shares has been quantified in terms of money and that is how the SCN has computed the demand. There is no doubt that the entire amount has been paid only for consideration of this service. There is no other arrangement in this case. Therefore, the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ring the concessionaire period of 15 years. The salient features of this agreement were as follows: a. M/s NEC is permitted to levy fee (toll) for a concession period of 15 years during which period they are also liable for maintaining the facility. b. The fee to be collected by M/s NEC is to be retained by them as a nominee of GOAP during the concession period. c. M/s NEC should not attempt to assign the project to others. d. M/s NEC is permitted to develop way-side facilities like advertisements, hoardings etc., to generate revenue during the BOT period. e. The land along with the properties and fee booths etc., so developed by M/s NEC to be handed over to GOAP after the expiry of BOT period. f. The ownership of the bridge continues to vest with the GOAP. g. M/s NEC shall maintain the project/ facility during the period of operation. 4. Para 3.1.1 of the agreement specifically prohibited the appellant from assigning their rights under the agreement to any party other than the financial institutions financing this project. 5. Despite such explicit prohibition of assignment, the appellant formed a 100% subsidiary company by name of M/s Godavari Toll Bridg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e demanded from them under section 75 of the Finance Act, 1994; and v. Penalty should not be imposed on them under section 76, 77 78 of the Finance Act, 1994. 6. The appellant contested the demand on merits as well as on limitation. After following due process, the learned Commissioner by the impugned order held that service provided by the appellant to GTBPL is a franchise service in terms of section 65(105)(zze) of the Finance Act, 1994. Accordingly, she confirmed the demand of service tax amounting to ₹ 12,50,00,000/- under the proviso to section 73(1) of the Finance Act, 1994. She also confirmed the demand of Education Cess of ₹ 25 lakhs along with interest under section 75 of the Finance Act, 1994. Further she imposed a penalty of ₹ 12,75,00,000/- upon the appellant under section 78 of the Finance Act, 1994. 7. Aggrieved, the present appeal is filed by the appellant on the following grounds: a) The OIO has been passed by the learned Commissioner without appreciating the factual position and legal provisions in proper perspective and therefore, needs to be set aside. b) The arrangements between the appellant and the GTBPL are not covered under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce should be taken as cum-tax value. j) The demand is time barred and there is no evidence of fraud, collusion, wilful misstatement or suppression of facts or contravention of the Act or Rules with intent to evade payment of service tax. k) There was a bonafide belief that no service tax is payable under franchise service. It involves interpretation of the law and therefore, extended period of limitation cannot be invoked. l) No interest is payable as demand itself is not sustainable. m) No penalties are imposable as it is question of bonafide belief in interpretation of law. 8. Learned counsel for the appellant reiterated the above submissions and vehemently argued that they have transferred their right to collection of toll to their own subsidiary. It is true that the subsidiary was collecting toll and issuing receipts in their own name until the investigations began. Thereafter, they started issuing toll receipts in their own name. He would assert that by no stretch of imagination can this be called a franchisee agreement as in the first place, no service was provided or service charge is collected. GTBPL has only collected toll fee from the users of the bridge. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n transferred to GTBPL was not disclosed to the department at any stage. In fact, these were internal Board resolutions of the two companies i.e., the appellant and the GTBPL. The appellant are registrants of Service Tax and have been filing returns. At no point of time, have they disclosed these facts to the department, hence, they cannot plead bonafide belief. 13. As per clause (3) of agreement between the appellant and the Government of Andhra Pradesh, the appellant was permitted to assign its rights only to banks or financial institutions for financing the project and not to any other person or entity. Hence, any assignment of representational rights would require fresh agreement and no such agreement was produced. It is evident that appellant had done this assignment without taking the approval of the Government of Andhra Pradesh. As confirmed by Shri K.R. Kishore, as on June 2008 their activity was not ratified by the Government of Andhra Pradesh. They did not produce any letter from the Government of Andhra Pradesh in this respect. 14. The appellant has stated that in their offer dated May, 1999, they had intimated to the Government of Andhra Pradesh about the confirma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clarifications from the department which could have lead them to believe that they are exempted from service tax. The argument that they sold their rights to GTBPL is not correct because it could not have done so under the contract with the Government of Andhra Pradesh. The purported change in the toll fee receipts after investigations have commenced is also indicative of their effort to suppress the fact of their intent to evade payment of tax. In view of the above, the appellant s appeal has no merits and the demand needs to be confirmed along with interest and penalties imposed also need to be upheld. 22. We have considered the arguments on both sides and perused the records. Construction of roads and bridges is done by the Government either directly or sometimes it is done on Build-Operate-Transfer basis. In the latter case, the Government, instead of investing either the whole or part of the money itself, gives the responsibility to build the bridge to a private party and gives them the right to collect a user fee or toll fee, by whatever name called, from the users of the bridge. The user fee is allowed to be collected over a specified number of years after which the bridg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There is nothing on record to show that the Government of Andhra Pradesh has modified any of the terms of the agreement so as to permit such assignment to third party. Evidently, this has been done behind the back of the Government of Andhra Pradesh. The DGM of the appellant firm had, in a statement, indicated that they have informed the Government of Andhra Pradesh but there is nothing on record to show that this assignment has been approved by the Government of Andhra Pradesh or the agreement has been modified. Thus, the arrangement between the appellant and GTBPL was not disclosed to the Government of Andhra Pradesh. It was also not disclosed to the Revenue in this case to enable them to examine the arrangement from the service tax point of view. In fact, it was done through a Board resolution by the appellant company and accepted by another Board resolution by GTBPL. We, therefore, find that it was never an open arrangement and it had not come to light until intelligence was gathered and investigations were initiated by the Revenue. 26. In this case, the appellant was to provide services to the consumers in the form of maintaining the bridge and allowing its use for which th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ansaction or they could have an arrangement of lump sum payment or any combination of two or any other suitable arrangement. In this case, the entire amount has been paid upfront in one go by the franchisee, GTBPL, to the appellant. Therefore, the entire toll fee is being retained by the franchisee, GTBPL. 29. It has also been argued by the learned counsel for the appellant that the amount was not paid in money. We do not find much force in this argument as the amount was indeed paid in terms of money. It is not necessary for the amount to be paid in cash whether prior to 2006 or thereafter. The money could be paid in the form of cash, cheques, drafts or any other acceptable form. What is important is that the amount must be paid and that amount must be a consideration for the service rendered. In this case both the franchisee taking over the liability of debt of the franchisor and paying an amount by way of shares has been quantified in terms of money and that is how the SCN has computed the demand. There is no doubt that the entire amount has been paid only for consideration of this service. There is no other arrangement in this case. Therefore, we find that the case is agains ..... X X X X Extracts X X X X X X X X Extracts X X X X
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