ST - If service is classifiable under BSS from a given date and said service is not carved out of any of existing services, it cannot be construed that service was taxable prior to that date: CESTAT
By TIOL News Service
MUMBAI, AUG 11, 2014 : THE appellantwas awarded a contract by Maharashtra State Road Transport Corporation (MSRTC) for the sole right of transporting parcel, courier and allied services on/in ordinary buses having luggage carrier of the licensor for the entire State of Maharashtra and Inter-State services of Maharashtra for the purpose of above business. The right granted under the contract was for right to book, deliver, transshipment, handling, loading & unloading and transportation of parcels, specified allied services and to carry out the business of courier by the ordinary buses of the licensor for all types of clients including Government, Semi-government, banks and public undertakings for a period of three years from October 2005 to September 2008.
In consideration for the right/licence granted, the appellant was required to pay to MSRTC a sum of Rs.3.25 crore, Rs.3.35 crore & Rs.3.40 crore respectively for the years 2005-06, 2006-07 & 2007-08. The right so granted to the appellantwas sub-licensed to M/s ShriSai Transport and Courier Pvt. Ltd. during the period October 2006 to March 2010. For the sub-licence granted, they charged an amount of Rs.16,47,44,850/- from M/s ShriSai Transport and Courier Pvt. Ltd.
M/s ShriSai Transport and Courier Pvt. Ltd. had discharged service tax liability on the amount collected from various customers under courier service. The demand from the appellant is under the category of “franchise service” on the ground that appellant was the franchisor and M/s ShriSai Transport and Courier Pvt. Ltd. was the franchise and they were representing the MSRTC in respect of the courier services undertaken. The only reason to treat the entire service as a “franchise service” was that in the invoices issued by the appellant for providing the courier service, they had the name/logo of MSRTC, the appellant and M/s ShriSai Transport and Courier Pvt. Ltd. The period involved is October 2006 to March 2010 & SCN is issued on 20/04/2012.
The CCE, Aurangabad confirmed the Service Tax demand of Rs.1,91,91,761/- along with interest and penalties and, therefore, the appellant is before the CESTAT.
The appellant inter alia submitted that the applicability of service tax on the transaction had been taken up by MSRTC with the Commissioner of Service Tax, Mumbai and vide letter dated 29/06/2009 it was clarified that the services provided in respect of contract with appellant would come under the definition of taxable services of “support services of business or commerce” as defined under section 65 (104c) of the Finance Act, 1994 with effect from 01.05.2006. And, therefore, the demand of service tax under the category of “franchise service” is not sustainable in law. It is also submitted that a similar issue had arisen in the State of Gujarat also in respect of Gujarat State Road Transport Corporation , who had also sub-contracted the work to M/s ShriSai Marketing & Trading Company, Jalgaon and the Board vide letter no. 137/123/2010-CX.4 dated 09/05/2011 clarified that the activities are not covered under business support services prior to 01/05/2011 and the activity would be leviable to service tax under “business support services” under the category of “operational or administrative assistance of any kind” with effect from 01/05/2011.
Inasmuch as the impugned demands are for the period prior to 01.05.2011 and as per the clarification issued by the Board, prior to 01.05.2011, the liability to pay service tax would not arise, the appellant contended.
The Revenue representative refused to budge and reiterated the findings of the adjudicating authority.
The Bench adverted to the definition of “franchise” contained in s.65(47) of the FA, 1994 and observed –
+ From a reading of the contract, it is seen that Baba Trading Company was given the right to book, deliver, transshipment, handling, loading, unloading etc. and to carry out the business of courier by the ordinary buses of MSRTC.
+ The said agreement by no stretch of imagination can be considered as a “franchise services” because MSRTC is not a courier service provider but merely transporter of goods. Further, the sub-licensee M/s ShriSai Transport and Courier Pvt. Ltd. cannot be considered as franchisee of Baba Trading Company as he is not representing M/s Baba Trading Company but MSRTC who is actually undertaking the transportation of the parcels/goods.
+ On the said services, for the consideration received, the sub-licensee has discharged service tax liability under the category of “courier services”.
+ Further as per the clarification issued by the Commissioner of Service Tax, Mumbai, the service comes within the category of “support service for business or commerce” and as per the clarification issued by the CBE & C, classification under ‘business support service' will be effective from 01/05/2011 and not prior to that. Thus, as per the department itself, prior to 01/05/2011, there is no liability to pay service tax on the said activity.
+ If a service is classifiable under business support service from a given date and the said service is not carved out of any of the existing services, it cannot be construed that service was taxable prior to that date.
+ Therefore, the question of levying any service tax on the activity under the category of “franchise service” would not arise at all, inasmuch as the “business support service” has not been carved out of “franchise service”.
Holding that the appellant has made out a strong case, the Bench granted unconditional waiver from pre-deposit of adjudged dues and stayed the recovery.
(See 2014-TIOL-1470-CESTAT-MUM)
