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TMI Blog2023 (4) TMI 322X X X X Extracts X X X X X X X X Extracts X X X X ..... ice as declared in balance sheet and ST-3 returns, amounting to Rs. 10,26,416/- under section 73(2) of the Finance Act, along with consequential interest under section 75 of the Finance Act and 100% penalty under section 78 of the Finance Act; and c. Service tax collected in excess, but not deposited, amounting to Rs. 1,32,66,338/- under section 73A along with applicable interest under section 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 lice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessed and revised at the time of each renewal subject to a minimum of 10% increase over the prevailing licence fee of the unit. To arrive at a realistic figure zonal railways will ensure that a fresh assessment of sales turnover/revenue is conducted during the peak period and lean period i.e. with the periodicity of three months in order to assess the actual sales turnover so as to fix the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the bidder who has bid the highest "quoted license fee". The relevant extract of the selection process, as stated in the bid document, is as follows: "3.5 Selection Process 3.5.1 The responsive bids shall be evaluated in the following manner: a. Scrutiny of bids for Minimum Eligibility as per Chapter 3 of Section A. Such bids that meet with the eligibility criteria will be called "eligible 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". ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing their own equipment and spaces for carrying out, managing and supervising their business activities are, in the present case, being enabled to them by the Railway who make available the pantry car, including manifold room and washing facilities, for use of the caterer through granting right to use and right to provide additional services, including advertisement & promotion and provide the caterer with travel passes for providing the service on trains and that Railway 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 Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct text of the Agreement based on which the show cause notice made the allegation, the alleged activities and why the allegations were incorrect. The table is as follows: Sl. No. Alleged activities as in the show cause notice and subsequently confirmed in the impugned order Actual text from the Master License Agreement to which the show cause notice refers Why the allegation fails 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 lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that may cause any damage to the Railway property shall be permitted under this clause. As the text clearly says these are limited and conditional rights and not guaranteed to the licensee. Again, none of these are in lieu of the license fee. 17. The identification of these 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ded vs. normal period Pre 01.04.2016 vs. Post 01.01.2016 2013-14 17,80,54,328 2,20,07,515 Extended period 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 which license fee was paid. Learned counsel submitted that every demand for service tax has to be against a proper taxable service, but the show cause notice does not identify the "gra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 shall submit the bill for providing on-board catering services on 10 days basis and the 90% of the payment will be settled based on the provisional bills while the fina ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve, 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 show cause notice. 31. There is, therefore, merit in the contention advanced by the learned counsel for the appellant that the consideration paid by the appel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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