Y.K. Information Systems Pvt. Ltd vs C.C. E., New Delhi

Arising out of the order in appeal No.300/S.Tax/D-II/2011 dated 25.8.2011 passed by the Commissioner , Central Excise (Appeals), New Delhi.

For approval and signature:

Honble Mr. Justice G. Raghuram, President

1 Whether Press Reporter may be allowed to see the Order for publication as per Rule 26 of the CESTAT (Procedure) Rules, 1982?

2 Whether it should be released under Rule 26 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3 Whether their Lordships wish to see the fair copy of the Order?

4 Whether Order is to be circulated to the Departmental authorities?

Y.K. Information Systems Pvt. Ltd.  Appellant

Vs.

C.C. E., New Delhi . Respondent

Appearance:

Present Shri A.K. Batra, C.A. with Shri Varun Gaba, Advocate for the appellant

Present Shri Govind Dixit, A.R. for Respondent/Revenue

Coram: Honble Mr. Justice G. Raghuram, President

Final Order No.51744/2015

Per Justice G. Raghuram:

The assessee is the appellant. The appeal is preferred against the order dated 25.8.2011 passed by the ld. Commissioner (Appeals), Central Excise, Delhi II partly allowing the assessees appeal.

2. The Assistant Commissioner of Central Excise, Delhi II confirmed service tax demand of Rs.76,125/- towards short remittance of tax and ordered recovery thereof along with interest. He also confirmed a demand of Rs.3,408/- on the ground of wrong availment of cenvat credit and directed its recovery along with interest. The primary authority confirmed the levy of interest of Rs.2,088/- for delayed remittance of service tax and appropriated an amount of Rs.2,087/- which the appellant/assessee had already remitted towards this interest component. Apart from this, the primary authority imposed penalties of Rs.3,408/-, Rs.76,125/- and 32,800/- under Section 76 of the Act. Against this order, the assessee has preferred this appeal.

3. The relevant facts may be noticed. On 14.1.2005, the appellant entered into an agreement with Aptech Limited, a company registered under the provisions of Companies Act, 1956, being a franchise agreement. Under the agreement, the appellant was appointed as the franchisee of Aptech to impart training in information technology, imparting content and programmes for providing training in computer based information technology comprising software modules developed by Aptech under the brand name Arena Multimedia. To the extent relevant and material for resolution of this lis, the franchise agreement provides that Aptech shall be entitled to royalty equivalent to 20% of the course fee which means fee for training provided by the appellant on behalf of APTECH under the terms of the agreement. Section 4.2 of the franchise agreement stipulates that the escrow account opened under an earlier agreement in the name of Aptech Ltd. shall be the account into which the course fee collected by the appellant shall be deposited immediately, and in any event, not later than the succeeding working day after receipt of this fee. Section 4.2 contains other provisions with regard to operation of the designated escrow account. Section 4.3 provides that the authorized representative of the franchisor/Aptech shall disburse the monies received in the designated account in the manner provided in the said Section. Accordingly, 20% of the amount flowing into the designated account (from the course fee collected by the appellant from students who were provided instruction under the franchise agreement) shall be remitted to Aptech Ltd. and 80% shall be paid by the authorized representative of Aptech to the appellant.

4. The appellant remitted service tax on the consideration received by it from escrow account aforementioned at appropriate rates and in accordance with law. This fact is not under dispute. The appellant also contended in proceedings before the lower authorities that Aptech had remitted service tax on the 20% of the amount received by it from the escrow account.

5. Proceedings were initiated by a show cause notice dated 19.4.2006 alleging that the appellant was required to remit service tax on the whole of the course fee received for providing the taxable commercial coaching and training service i.e. on the whole of the course fee received from students. According to Revenue the consideration received by the appellant for providing the taxable services is not 80% of the amount received by it from the escrow account but 100% collected by the appellant and deposited into the escrow account. This is the only dispute presented before me.

6. The authorities below concurrently ruled that since the appellant had provided the taxable service i.e. commercial coaching and training, the entirety fees remitted by students should be considered as the gross consideration received for rendition of the service and that consideration is liable to tax under provisions of Sections 66 and 67 of the Finance Act, 1994.

7. On true and a fair consideration of the terms of the agreement between the appellant and M/s Aptech Ltd., both of which are independent corporate entities under provisions of Companies Act, 1956 and particularly in view of the fact that it is not the case of Revenue that the contract was a dubious arrangement or an artifice specially calibrated to defeat the appellants liability to tax, it is clear from Sections 4.2 and 4.3 of the franchise agreement dated 14.1.2005, that commercial coaching and training, the taxable service, is provided by a unit of M/s Aptech Ltd., an independent, corporate entity but under the administration of the appellant which physically provides the service in terms of the franchise agreement. Under the terms of the agreement, the course fee is collected in the name of Arena Multimedia and is credited into the escrow account of Aptech Ltd. The authorized representative of Aptech Ltd. is required under the terms of the franchise agreement to disburse the course fee credited into the escrow account between Aptech Ltd. and the appellant, in the proportion agreed to between the parties under the said agreement. Accordingly, the appellant received 80% of the course fee and 20% by Aptech Ltd., as its royalty under the franchise agreement.

8. In the factual scenario as is clear from the transactional instrument namely, the franchise agreement dated 14.1.2005 it is clear that the consideration received by the appellant for rendition of commercial training and coaching service is only 80% , on which the appellant remitted the service tax due after filing returns in time and without delay.

9. In identical factual circumstances of another entity, similarly situate as the appellant herein and providing commercial training and coaching service under a franchise agreement also with Aptech Ltd., the Tribunal in Kunal IT Services Pvt. Ltd. vs. C.C.E., Pune III , a decision reported as 2015  TIOL  723  CESTAT  Mum held that the appellant therein had correctly remitted service tax on the amount received for rendition of commercial coaching or training services i.e. 80% of the amount paid by students.

10. In the circumstances above, the confirmation of demand of Rs.76,125/- by the primary and lower appellate authority towards service tax liability cannot be sustained and is accordingly quashed.

11. The other issue is with regard to disallowance of cenvat credit availed to the extent of Rs.2000/-. This amount is on the basis of a bill of M. Mehra & Co. which was cleared by the appellant in 2003 for a service rendered by M. Mehra & Co. which was utilized for rendition by the appellant of its output service. Both the authorities rejected this claim for refund of Rs.2000/- on the ground that the input service was received prior to registration of the appellant as a service provider. This issue also stands concluded in favour of the assessee and against Revenue by the decision of the Karnataka High Court in mPortal India Wireless Solutions P. Ltd. vs. C.S.T., Bangalore reported as 2012 (27) STR 134 (Kar.). The issue considered by the Karnataka High Court was whether the Revenue was justified in disallowing cenvat credit for which the assessee was legally entitled, on the singular ground that it was not registered at the relevant time. The High Court negated Revenues contention and ruled that registration is not mandatory for the availment of credit. On the basis of this binding authority, the concurrent denial by the authorities below of credit of Rs.2000/- is also unsustainable and requires to be set aside.

12. On the above analyses the appeal is allowed in toto. The appellant shall be entitled to consequential benefits. No costs.

(Justice G. Raghuram)

President

scd/

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