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)
- 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.
- 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.”
- 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”.
- 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.
- 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.
- 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.
- In that view of the matter, the issue is required to be
answered in favour of the assessee.
- 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.
- In that view of the matter, the interpretation put forward by
the department is required to be reversed.
- 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.
- In that view of the matter, all the issues are required to be
answered in favour of the assessee against the department.
- 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.
- 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.
- 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.
- 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.
- 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.
- 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.”
- 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.
- For the aforesaid reasons, the question of law as raised by
means of the present Excise appeal is answered against the
department.
- The Excise appeal is dismissed. Interim order, if any, stands
discharged.”
- 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)
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