TMI Blog2023 (4) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... 0/- - In the instant case, the show cause notice in paragraph 15 (ii), demanded service tax amounting to Rs. 11,15,69,363/- during the period 01.04.2013 to 31.03.2017, not paid by the appellant on the services described in paragraphs 5 and 6 and paragraph 6.2A concludes that the Indian Railways provided support services to the appellant and would be taxable on a reverse charge, as it is not covered in the negative list of service provided under section 66D of the Finance Act. Whether the activity identified in the show cause notice qualifies to be a taxable service for which the license fee is said to be the consideration? - HELD THAT:- The license fee is the consideration paid for the grant of license . It is pertinent to note that the words license fee is defined the Oxford Dictionary to mean a fee paid to an organization for permission to own, use or do something. The Supreme Court in STATE OF ORISSA ORS. VERSUS NARAIN PRASAD ORS., ETC. ETC. [ 1996 (9) TMI 599 - SUPREME COURT] explained the meaning of expression Privilege and held that Privilege really means the license or permit granted by the State - In the instant case, the license fee paid by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 73B and a penalty of Rs. 1,00,000/- under section 78A of the Finance Act. 2. The demand confirmed at (a) relates to taxability of what was alleged in the notice and confirmed in the order as support services provided by Indian Railways to the appellant, for which the appellant is said to have paid license fee during the period July 2013 to June 2017. Service tax has been demanded on this amount under a reverse charge. The support services that have been confirmed are infrastructural support, operational support and marketing support. The demands confirmed at (b) and (c) have not been contested by the appellant. 3. It necessary to understand what services are involved and why the license fee is paid, and for that it is necessary to understand the process of issuing licenses by Indian Railways to caterers on board their trains. The Catering Policy, 2010 defines license, lays down the procedure for fixation of license fee and the procedure for bidding and issuing of license. Tenders are called for quoted license fee from all interested bidders. Evaluation of all quoted license fees is undertaken to determine who has quoted the highest license fee. The bidder whose quot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... revised licence fee. 6. The appellant has described the process pertaining to the license of catering service on the Dhanbad - Alappuzha Express Train No. 13351/52. Three teams of railway officers carry out an assessment of sales turnover of pantry car on the train in both the directions. The quantity sold of each item is kept count of and the sales turnover for one ride i.e., both directions of the train is arrived at the old rates and at the revised rates. Similar exercise is carried out by two more teams and in total, three such assessments are carried out. The highest value of the three assessments is picked and is subsequently multiplied by the number of days on which the train runs to arrive at the annual assessed value at both the old rates and the revised rates. 7. At the old rate, the assessed value worked out to Rs. 1,42,415/-, while at the revised rate it worked out to Rs. 1,95,895/-. Thus, the annual assessment at the old rate would be Rs. 1,42,415 x 365 days = Rs. 5,19,81,475 and 12% of this annual assessment would be Rs. 62,37,777/-. At the revised rate, the annual assessment would be Rs. 1,95,895 x 365 days = Rs. 7,15,01,675/- and 10% of this annual asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble bids b. The eligible bidders will be evaluated technocommercially and awarded a Techno-Commercial Score to assess the capability of the eligible bidder(s) on the basis of scrutiny of information provided in Annexure - A/4 (Tech Form 1, 3 to 5) and the scoring scale at Annexure - A/5 c. The highest Techno-Commercial score (HTS) secured by any of the bids will be the base Techno-Commercial index. d. All bids whose techno-commercial score is more than or equal to 60% of HTS will be techno-commercially qualified for consideration of Railway Administration. e. Price Bids will be opened for techno-commercially qualified bids only. The date, time and venue of opening of price bid will be intimated only to the techno-commercially qualified bidders . f. Highest Priced bid will be selected for award of contract. g. In the event of highest price being the same for more than one bid, bid with higher techno-commercial score should be considered by award of contract. 14. In the instant case, the appellant was the highest bidder with a quoted license fee of Rs. 13,63,51,000/-. This highest quoted license fee becomes the license fee and the license is tentati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lway principally render assistance to the caterer that is infrastructural, logistical, operational, marketing or of other kind in lieu of the License Fees. ***** 6.2A It appears from the foregoing that the Indian Railways provided Support Services to the Licensee. It further appears that these are taxable by virtue of not being covered under Section 66D. It also appears that the tax is payable by the Licensee on reverse charge basis under Notification No. 30/2012-ST (Sl. No. 6) dated 20.06.2012. xxxxxxxxx 6.5 Further, it appears that from 01.04.2016, changes were made by Finance Act, 2015 (20 of 2015) whereby the words support services were substituted by any service in sub-clause (iv) of clause (a) of Section 66D of the Finance Act, 1994. Moreover, clause 49 of Section 65B of Finance Act was omitted from 01.04.2016 by virtue of Not. No. 15/2016-ST dated 01.03.2016 issued in terms of clause (h) of section 107 of the Finance Act, 2015. Further, the words by way of support services were omitted against Sl. No. 6 in column (2) of the Notification No. 30/2012-ST dated 20.06.2012 vide Notification No. 18/2016-ST dated 01.03.2016, w.e.f. 01.04.2016. In view of these ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ails when read with the actual text of the agreement? 1. Infrastructural Support: The Railway provides basic infrastructure to the Licensee as pantry car, manifold room for gas cylinders and washing facilities as mentioned in paragraphs 6.25 and 6.29 (iv) of MLA. ARTICLE 6. RIGHTS AND OBLIGATIONS OF THE LICENSEE 6.25 Provision of equipment. The licensee will arrange his own equipment and other than those provided in the Train pantry car for satisfactory provision of service. 6.29 Gas room instructions (iv) The manifold room is provided with double leaf, swing doors (with observation glasses) for removal and replacing of new cylinders. These doors should always be kept closed and locked. Before every trip the pantry car manager should ensure that these doors are locked and sealed even if the cylinders are empty. The actual text does not discuss about providing any infrastructure. Instead, it states the responsibilities of the licensee with regard to the existing infrastructure on the train. The mention of pantry car and manifold room are al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se activities as support services for which license fee was paid is, according to the learned counsel for the appellant, factually wrong and also since these activates do not qualify the definition of support services , the entire service tax demand on the license fee for an amount of Rs. 11,15,69,363/- has to be set aside in its entirety. 18. Learned counsel for the appellant has, however, not contested the demand made for the differential service tax due and this amount was, according to the learned counsel for the appellant, deposited on 06.10.2015 with interest. Learned counsel for the appellant also stated that the appellant is not contesting the demand towards deposit of the excess service tax collected by the appellant. 19. Shri Rajeev Kapoor, learned authorized representative appearing for the Department supported the impugned order and pointed out that service tax has been demanded on the license fee paid by the appellant to the Railways in lieu of the support service rendered by the Railway to the appellant. Elaborating this submission, learned authorised representative submitted that the Railways was providing infrastructural support by way of providing space, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iod is Rs. 3,67,13,086 Pre 01.04.2016 is Rs. 8,23,86,463 2014-15 11,86,77,110 1,47,05,571 2015-16 32,40,18,260 4,56,73,377 Normal period is Rs. 7,48,56,277 2016-17 14,01,78,000 2,09,14,900 Post 01.04.2016 is Rs. 2,91,82,900 2017-18 5,51,20,000 82,68,000 81,63,47,698 11,15,69,363 23. If the demand is set aside for the period prior to 01.04.2016, then in effect the entire demand for extended period will be set aside and a partial demand of Rs. 4,56,73,377/- for the normal period will also be set aside, leaving an amount of Rs. 2,91,82,900/-. 24. For this demand of Rs. 2,91,82,900/-, which is the license fee paid after 01.04.2016, the submission of the learned counsel for the appellant is that the activities alleged in the show cause notice and subsequently confirmed in the impugned order are not the activity for whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and newspapers or do promotional as mentioned in para 7.2 of Article 7 read with para 1.3K of Annexure-l of MLA. The aforementioned services provided by railway to the Noticee is covered under support services as defined under section 65B(49) referred to above. Thus, I find that railways had provided support services to the Noticee. The said services provided by the Railways does not fall under Section 66D (Negative list of services) of the Finance Act 1994. 28. It clearly transpires that the license fee is based solely on the assessed sales turnover. It cannot be said that the license fee is quid pro quo for any support offered by the Railways. It also needs to be noted that license fee is paid as consideration for the service provided by the Railways to the appellant by way of grant of the authorization to provide catering service on the train. This would be clear from the bid document and the relevant portion is reproduced: 1.3.12 In consideration of the award of the License to the Licensee, the Licensee shall be liable to pay License Fee to Railway which shall be more than minimum license fee determined by Railway apart from the Security Deposit. The licensee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... L.T. 489 (SC)] , the Supreme Court held that what is not invoked in the show cause notice cannot be examined in proceedings arising from the said notice. As noticed above, the demand on grant of license was not invoked in the show cause notice. 30. The license fee is the consideration paid for the grant of license . It is pertinent to note that the words license fee is defined the Oxford Dictionary to mean a fee paid to an organization for permission to own, use or do something. The Supreme Court in State of Orissa vs. Narain Prasad [(1996) 5 SCC 740] explained the meaning of expression Privilege and held that Privilege really means the license or permit granted by the State . In the instant case, the license fee paid by the appellant to Railways is the consideration for the privilege to be the sole catering agent on board the trains for which a license was issued. This grant of license/privilege is the service which was taxable and the value of this service is equal to the license fee which is the consideration paid for this service. The show cause notice has not identified this service. To tax this service would, therefore, result in going beyond the scope to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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