The Customs, Excise & Service Tax Appellate Tribunal, Ahmedabad, ruled that the service charges recovered towards providing of service shall be taxable.
The bench found that the issue to be decided is for the purpose of gross value of franchise service, the cost of advertisement charges which is collected by the appellant as reimbursement expense is includible in the gross value of the franchise fees.
It was further added that the show cause notice is based on the provision of Rule 5 (1) of Service Tax (Determination of Value) Rules, 2006.
The tribunal noted that the adjudicating authority considering the Rule 5 of valuation Rules held that the advertisement expenses has to be borne by the franchisees on their own but as per the arrangement , the appellant are making payment of advertisement charges to the advertisement agencies and taking reimbursement from the service recipient, therefore, advertisement charges is not a part and parcel of the value of franchise service.
The bench found that right from show cause notice upto the Commissioner (Appeals) order, the entire case of the Revenue is based on Rule 5 (1) & 5(2) of Service Tax (Determination of Value) Rules, 2006, it is found that this Rule 5 (1) has been held unconstitutional as the same ultra vires the provision of section 66 and 67of the Finance Act, 1994, therefore, on this change of legal position as per the Apex Court judgment, the entire action of the revenue is vitiated. Consequently, the order of the Commissioner (Appeals) is also not sustainable on this ground alone.
“Without prejudice to the above, even if we ignore Rule 5, the valuation is governed by Section 67 which provides that only service charges recovered towards providing of service shall be taxable”, the bench said.
The tribunal added that the advertising expenses are ultimately borne by the franchisee because the same is part of their business expenses, the same cannot be included in the gross value of franchise service. Therefore, the bench was in complete agreement with the finding given by the adjudicating authority and the same was upheld.
Facts
The appellant is engaged in the business of indigenously developed specialized training courses in computer education and is conducting specialized computer training programs.
On the advertisement expenses incurred by the appellant and part of it collected from their franchisee were not being included in the value of service namely franchise service, therefore, a show cause notice dated 22.12.2016 was issued to the appellant proposing to demand service tax on the advertisement charges collected by the appellant from their franchisee on the ground that these advertisement charges should also be a part of gross value of franchisee service.
Case Information
Case Name: Iant Educom Pvt Ltd v/s Commissioner of C.E. & S.T.-Vadodara-i
Judicial Level & Location : CESTAT Chennai
Case Number : Service Tax Appeal No. 10622 of 2018 – DB
Date of Decision : 30/07/2024
Decision in favor of: Appellant
Members: Mr. Ramesh Nair, Member (Judicial) And Mr. C L Mahar, Member (Technical)
Counsel for Petitioner : Shri Dhruvank Parikh, Chartered Accountant
Counsel for Respondent : Shri Rajesh K Agarwal, Superintendent (AR)
