Sales India Pvt Limited VERSUS C.S.T.-Service Tax – Ahmedabad

SERVICE TAX Appeal No. 519 of 2012-DB

[Arising out of Order-in-Original/Appeal No 179-181-2012-STC-AK-COMMR-A–AHD dated

17.08.2012 passed by Commissioner of Service Tax-SERVICE TAX – AHMEDABAD]

 

Sales India Pvt Limited

VERSUS

C.S.T.-Service Tax – Ahmedabad

 

APPEARANCE:

Shri Hardik Modh, Advocate for the Appellant

Shri. G. Kirupanandan, Superintendent (Authorized Representative) for the

Respondent

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR

HON’BLE MEMBER (TECHNICAL), MR. RAJU

FINAL ORDER NO.A / 10222 /2023

DATE OF HEARING:17.01.2023

DATE OF DECISION: 07.02.2023

RAMESH NAIR

In the present appeal following two issues are involved in the fact that

though the franchise service was provided post its enactment i.e on

01.07.2003, and prior to that date, but the contract for the franchise service

and payment therefore, was made prior to 01.07.2003, Whether the appellant

is liable to pay service tax for the period post 01.07.2003. The second issue

whether the appellant’s demand under commission service is time barred

when the service of commission provided by giving table space to the finance

company for sale of their finance product.

Shri Hardik Modh, Learned Counsel appearing on behalf of the appellant

submits that in the case of franchise service since the contract as well as the

payment was made prior to levy of service tax on 01.07.2003. The service tax

is not chargeable even if the part of service was involved for the period post

01.07.2003. As regard the demand on Business Auxiliary Service under the

sub head of commission, the service of providing the table space to the

financial institution against which the appellant received the commission on

the corresponding to the amount of loan given by the financial institution to

the customers of their consumer goods sold by them to the customers. He

submits that this issue was under dispute and some judgments were passed

in favour of the assessee. However, subsequently the matter was finally

resolved by the Larger Bench in the case of Pagariya Auto Center Vs.

Commissioner Of C. Ex., Aurangabad -2014 (33) STR 506 (T-L-B). Therefore,

the issue involved was of interpretation of law, in such position suppression of

fact cannot be alleged against the appellant. Therefore, the demand is hit by

limitation. He placed reliance on the following judgments:

 Autobahn Enterprises Pvt. Ltd. Vs. Commr. Of Service Tax, Mumbai-

2022 (56) GSTL 312 (T)

 Ved Automotives Vs. Commr. Of Central Ex., Kanpur- 2016 (44) STR

140 (T)

2.1 Without prejudice, he further submits that the appellants are eligible for

cum tax value for calculating the service tax which was not extended by the

Adjudicating Authority. He placed reliance on the following judgments:

 Balaji Manpower Services Vs. Union of India- 2019 (31) GSTL 418 (P & H)

 Bansal Cylinders & Tues Ltd. Vs. Commr. Of C. Ex., Haldia- 2019 (27) GSTL

243 (T)

 Cairn Energy India Pvt. Ltd. Vs. Commr. Of C.Ex. & Cus., Visakhapatnam- II-

2019 (27) GSTL 363 (T)

3. Shri G. Kirupanandan, Learned Superintendent (Authorized

Representative) appearing on behalf of the revenue reiterates the findings of

the impugned order.

We have carefully considered the submissions made by both the sides

and perused the records. We find that on the first issue whether the appellant

is liable to pay the service tax on franchise service for the period post its

implementation i.e 01.07.2003. The fact which is not under dispute is that the

appellant have entered into a contract of franchise agreement before

01.07.2003. and the payment of such contract was also made at the time of

entering into the contract. In this fact the Hon’ble Rajasthan High Court has

decided the matter holding that when the contract was entered and payment

thereof was made at a subsequent stage if the service was brought under the

levy of service tax, the appellant is not liable to pay the service tax, for the

reason that the the provision of services shall be treated as provided on the

date of contract on payment of service value. The decision of the Rajasthan

High Court is reproduced below:

“28. We have heard counsel for the parties.

29. Before proceeding with the matter it will not be out of place

to reproduce Article 265 which reads as under :-

“265. Taxes not to be imposed save by authority of law. –

No tax shall be levied or collected except by authority of law.”

30. The assessee herein has entered into a concluded Contract

much prior to coming into force of Service Tax law and in view of

the clarification which has been issued in 2005 which clearly made

out the case for the appellant inasmuch as the legislation has now

used the language after 2005 which clearly states as under;

“Taxable service means any service or to be provided to any person

by a Commercial training or coaching classes in relation of the

Coaching”.

31. In that view of the mater, it is very clear that prior thereto,

there is authority interpretation of the provision as services which

are referred to be provided in future was not covered. Even

otherwise in view of the law Concluded Contract cannot be revived

in view of subsequent development which will lead to a very odd

situation with the assessee and he has to suffer in his business and

has to face the breach of contract.

32. In that view of the matter when we have to interpret the

taxing statute, we have to interpret Article 265 and the possibility

of interpretation should not be avoided to be very impracticable for

either of the side.

33. In that view of the matter, we make it clear that any payment

of contract which are entered after 1-7-2003 will invite Service Tax

and any contract which is concluded prior to 1-7-2003 will not invite

imposition of Service Tax.

34. In that view of the matter, the issue is required to be

answered in favour of the assessee.

35. Regarding the second issue, any contract of payment

received prior to 1-7-2003 is not the condition for taxing. The tax

will be imposed on the payment received thereafter. It is stated

that the payment is already received prior to 1-7-2003.

36. In that view of the matter, the interpretation put forward by

the department is required to be reversed.

37. In third appeal, regarding the second issue, in view of the fact

that first issue is answered in favour of the assessee, the second

issue will not arise. Therefore omission of any issue in the first

notice will not come in the way of the department.

38. In that view of the matter, all the issues are required to be

answered in favour of the assessee against the department.

39. The appeals stand allowed.”

The similar view was expressed by this tribunal at Chennai Bench in the case

of Shree City pvt ltd wherein the tribunal observed as under:

“7. The issue is whether the appellant is liable to pay service tax

on the amount received by them prior to 1-7-2010 for leasing the

vacant land. The department has relied on Notification No.

36/2010-S.T. to allege that the amount received by them are mere

advances and that the said consideration has to be apportioned to

future period after 1-7-2010 when the activity of leasing vacant

land has become taxable. This view taken by the department is

entirely erroneous. When the activity of leasing of vacant land has

become taxable only with effect from 1-7-2010, the amount

received by the appellant for such activity prior to 1-7-2010 cannot

be subject to levy of service tax even though the lease may extend

after the period 1-7-2010. If the appellant received any amount for

such lease after 1-7-2010 it may be taxable. However, in the

present case, there is no allegation that the appellant has received

any rent/consideration after 1-7-2010. This being so, the demand

cannot sustain.

8. The issue stands covered by the decision of the Hon’ble High

Court of Allahabad in the case of Greater Noida Industrial

Development Authority (supra). The Hon’ble High Court upheld the

order passed by the Tribunal and referred the same in the order,

which is reproduced as under :-

“18. The Tribunal has recorded a specific finding that prior to the

introduction of new clause on 1st July, 2010 the renting of vacant

land within the enumerated taxable service was not embarrassed

upon.

19. With reference to its earlier order in the case of assessee itself

dated 11-12-2013 it has been recorded as follows :-

“12. Introduction of sub-clause (v) in Explanation I has

significantly altered and extended the scope of the taxable service,

with effect from 1-7-2010 and consequently vacant land given on

lease or licence, for construction of a building or a temporary

structure, to be used at a later stage for furtherance of business or

commerce, would be ‘immovable property’ and renting of this

immovable property would be the taxable service, since 1-7-2010.

13. In view of clear exclusion of vacant land from the ambit of

immovable property prior to 1-7-2010 it cannot gainfully be

contended by Revenue, that clause (v) to Explanation I (introduced

in 2010), was a mere clarificatory endeavour, explicating the

implicit and inherent meaning of Section 65(105)(zzzz). Clause (v)

is clearly an amendment which expands the scope of the taxable

service; and prospectively.

14. Clause 75 of the Bill (which later came to be enacted as

Finance Act, 2010) has proposed insertion of sub-clause (v) in

Explanation I in Section 65(105)(zzzz) of the Act. The

memorandum explaining the provisions in Finance Bill, 2010 also

indicates that the amendments are being made in the definition of

‘renting of immovable property’ service inter alia levy of service tax

on renting of vacant land where there is an agreement between

lessor and lessee for undertaking construction of building or

structure on such land for furtherance of business or commerce

during the tenure of the lease. The C.B.E. & C. Board Circular No.

334/2010-TRU, dated 26-2-2010 (in paragraph 3) explains the

purpose of the amendments to Section 65(105)(zzzz). Accordingly,

the Circular explains that amendments are being made in the

definition of this taxable service to provide that renting of vacant

land where there is an agreement or contract between the lessor

and lessee for undertaking construction of buildings or structures

on such land for furtherance of business or commerce during the

tenure of the lease, shall be subjected to service tax. The

statement of objects and reasons accompanying the Finance Bill,

2010 also clarify that clause 75 of the Bill seeks to amend Chapter

V of the Finance Act, 1994; to modify the scope of certain taxable

services including the taxable service defined and enumerated in

Section 65(105)(zzzz), of the Act. These several contemporaneous

exposition and administrative constructions and the scope of sub

clause (v) of Explanation I in Section 65(105)(zzzz) fortify the

conclusion the scope of sub-clause (v). To modify and expand the

scope of the taxable service to cover and include vacant land on

lease or licence for construction of a building or a temporary

construction at a later stage to be used for furtherance of business

or commerce, within the ambit of ‘immovable property’ is thus the

taxable service. Since the introduction of this sub-clause in

Explanation I expands the scope of the taxable service and renders

the taxable (a) hitherto non-taxable transaction, and absent of

explicit retrospective reach provided to the amendment and

insertion of this sub-clause, these transactions covered by this sub

clause of the Explanation have only the prospective operation.

15. On the above analysis, renting of vacant land by way of lease

or licence (irrespective of the duration or tenure), for construction

of a building or a temporary structure for use at a later stage in

furtherance of business or commerce is a taxable service only from

1-7-2010, and not so, earlier to this date.”

20. In our opinion the findings recorded by the Tribunal on the

aforesaid aspect of the matter are legally justified and we see no

good reason to take any different view in the matter.

21. For the aforesaid reasons, the question of law as raised by

means of the present Excise appeal is answered against the

department.

22. The Excise appeal is dismissed. Interim order, if any, stands

discharged.”

9. Similar view was taken by the Tribunal in the case of Tuticorin

Port Trust v. CGST & Central Excise, Tirunelveli reported in 2018

(10) TMI 477 CESTAT, Chennai. Following the above decisions, we

are of the considered opinion that the demand cannot sustain. The

impugned order is set aside. The appeal is allowed with

consequential relief, if any.”

In view of the above judgments, it is settled that in respect of Franchise

Service the service tax will arise as per the date of contract and date of

payment for the service and if the same is at a time when there is no levy, no

service tax can be charged. Accordingly, in the present case also the service

tax on frenchise service is not chargeable. As regard the demand on Business

Auxiliary Service under the head of commission, we find that the issue was

not free from doubt and this Tribunal in the case of Silicon Honda Vs. C.C.Ex.-

2007 (7) STR 475 (T), & Tribhuvan Motors Ltd. Vs. C.S.T.- 2010 (17) STR 281

(T) held in favour of the assessee that mere providing the table space to the

financial institutions, it is not taxable. However, the issue was subsequently

referred to the larger bench and in the case of Pagariya Auto Center, It was

held that the commissioner received from the financial institution shall be

liable to service tax. In this position of law we are of the view that the

suppression of fact cannot be alleged against the appellant. Therefore, the

demand being covered under the extended period will not sustain as the same

is hit by limitation.

In view of our above discussion and finding, the impugned order is not

sustainable. Hence, the same is set aside, appeal is allowed.

(Pronounced in the open Court on 07.02.2023)

RAMESH NAIR

MEMBER (JUDICIAL)

(RAJU)

MEMBER (TECHNICAL)