MAYO COLLEGE GENERAL COUNCIL V. COMMISSIONER CENTRAL EXCISE ANR

CW/6354/2012

AI Insights

The case revolves around the Mayo College General Council, an educational society, which was directed by the Commissioner, Central Excise (Appeals), Jaipur-II, to deposit a substantial amount as service tax, interest, and penalties for providing 'franchise services' to various institutions. The petitioner contested that their agreements with these institutions did not constitute franchise services and thus should not attract service tax. However, the court upheld the Commissioner's decision, emphasizing that the petitioner did provide franchise services by allowing other institutions to use the 'Mayoor School' name, logo, and moto, and received collaboration fees in return.

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 726270 (HC-RAJASTHAN)
• Appeal Type: Others
• Pronouncement Date: 01-05-2012
• Assessment Year: misc
• Other Referred Cases: United Bank of India Versus Satyawati Tondon and others
• Laws Referred To: Central Excise Act, 1944, Finance Act, 1994, Income Tax Act
• Result in Favour of: Revenue
• Court: HIGH COURT
• Department Lawyers: AJAY SHUKLA
• Assessee Lawyers: A K BHANDARI; VAIBHAV BHARGAVA
• Keywords: Educational Society; Franchise service; Service tax; Stay Application; Collaboration fee
• Section: 78; 76; 35F; 77(1)(a); 77(2); 65(105)(zze)

Judgement Text

"D.B. CWP No. 6354/2012 1 IN THE HIGH COURT OF JUDICATURE FOR RAJASTHAN AT JAIPUR BENCH, JAIPUR ORDER D.B.Civil Writ Petition No. 6354/2012 D.B. Civil Misc. Stay Application No. 5356/2012 Mayo College General Council V/s. Commissioner, Central Excise (Appeals), Jaipur-II & Anr. Date of order: 1st May, 2012 HON'BLE THE CHIEF JUSTICE MR. ARUN MISHRA HON'BLE MR. JUSTICE MAHESH BHAGWATI Mr. A.K. Bhandari Senior Counsel with Mr. Vaibhav Bhargava, counsel for the petitioner. Mr. Ajay Shukla, for the respondents. BY THE COURT (PER HON'BLE BHAGWATI, J.): Challenge in this writ petition is to the order dated 28th March, 2012, whereby the Commissioner, Central Excise (Appeals), Jaipur-II, disposed of the stay application of the petitioner directing him to deposit the entire amount of service tax Rs. 12,13,821/-, interest and 50% of penalties, within four weeks of receipt of the order and submit evidence thereof to the concerned Range Superintendent under intimation to his office, failing which the appeal shall be liable for rejection for non- compliance of provisions of Section 35F D.B. CWP No. 6354/2012 2 of the Central Excise Act, 1944 and on deposit of this amount only, the recovery of rest of the amount of penalties shall remain stayed till disposal of the appeal. 2. Adumbrated in brief, the facts of the case are that the petitioner is a Society established solely for educational purposes. It has been running international renowned schools namely Mayo College, Mayo College Girls School and Mayoor School in Ajmer. The object of the petitioner Society is to establish schools/colleges in India on the lines of the progressive independent schools/colleges established in England and other countries, open to all without distinction of race, creed, caste or social status with a view to develop an atmosphere of Indian tradition, culture and social environment, best features of progressive independent colleges, the building up of character, team work, physical development and spirit of chivalry fair play and straight dealing; to develop a spirit of Indian nationality by removing all social communal, religious or provincial prejudices among the students and fostering a spirit of comradeship among them and to develop a D.B. CWP No. 6354/2012 3 spirit of service to Society. Based on these objectives, the petitioner entered into an agreement with four institutions for the purpose of establishment of schools in different parts of India, namely Mayoor Foundation, Jalandhar; Taparia Foundation, Bhopal; V.R. Educational Trust, New Delhi; Mayoor School, Noida; and K.C. Gurukul, Jammu & Kashmir. It is stated that intelligence collected by the Anti Evasion Wing of Central Excise Division, Ajmer, revealed that the petitioner was engaged in providing 'franchise service' to various parties/schools, who were running their institutes using its school name “Mayoor School”. On scrutiny of record submitted by the petitioner, it came to notice that they had received franchise fee / collaboration fee in their books of account from various parties/schools. The service provided by the petitioner was classified under Section 65 (105)(zze) of the Finance Act, 1994. During the period from 14.12.2005 to 09.07.2010 the petitioner had received Rs. 1,09,23,500/- by providing franchise service. The petitioner was issued a show cause notice on 21.10.2010 proposing recovery of the service tax. The D.B. CWP No. 6354/2012 4 petitioner filed its written submission on 23.12.2011. The matter was adjudicated on 22.12.2011, wherein demand of service tax amounting to Rs. 12,13,821/- was confirmed along with interest. Penalties under Sections 76, 77(1)(a), 77(2) and 78 of the Finance Act, 1994 were also imposed. 3. Aggrieved with the order dated 22nd December, 2011, the petitioner-appellant filed an appeal before the respondent no.1 Commissioner, Central Excise (Appeals), Jaipur-II, together with a stay application imploring to dispense with the pre-deposit of service tax, interest and penalties. 4. The petitioner-appellant filed an appeal on the ground that the petitioner- appellant was a non-profit society and entailed in non-commercial activities. They were registered under Income Tax Act, as Society for educational purpose. It did not fall in the net of service tax. The petitioner entered into an agreement with aforesaid four institutions for establishment of schools. These institutions are either societies or trust. The petitioner collaborated with them for D.B. CWP No. 6354/2012 5 setting up of schools. The petitioner contended before the respondent no.1 that merely permitting other societies/trust to use the name “Mayoor School” does not make the agreement a 'franchise agreement'. A reading of the agreement in their entirety makes it abundantly clear that agreements do not constitute a franchise agreement. They did not give any representational right to four schools/institutions to provide services nor received any franchise fees. It received amounts towards its collaborative efforts in assisting them to set up and run the schools. The petitioner also submitted before the respondent no.1 that their case was fit for dispensing with pre-deposit of service tax, penalties and interest. Balance of convenience was also in their favour, yet the adjudicating authority, on the other hand, observed that the service provided by the petitioner-appellant fell under the category of 'franchise service'. 5. The petitioner was given a personal hearing by the respondent no.1 on 14th March, 2012 on stay application. Shri Ashok Sagar Advocate appeared and reiterated those very submissions before him, but the D.B. CWP No. 6354/2012 6 Commissioner, Central Excise (Appeals), Jaipur-II, found that the services provided by the petitioner to various institutions were prima facie covered under 'franchise service'. It also observed that the four institutions namely Mayoor Foundation, Jalandhar; Taparia Foundation, Bhopal; V.R. Educational Trust, New Delhi; Mayoor School, Noida; and K.C. Gurukul, Jammu & Kashmir, were permitted to use their name “Mayoor School”, its logo and moto. These institutions were also required to observe certain obligations as per terms and conditions of the agreement. The Appellate Authority also observed that the petitioner failed to point out any specific notification under which the services provided by them to these four institutions were exempted from levy of service tax. Since, the respondent no.1 Commissioner, Central Excise (Appeals), Jaipur-II, did not find any force in the contentions of Mr. Ashok Sagar Advocate nor found any prima facie case in favour of the petitioner and further found that the balance of convenience was in favour of Revenue, the Appellate Authority disposed of the stay D.B. CWP No. 6354/2012 7 application directing the petitioner to deposit the entire amount of service tax of Rs.12,13,821/- together with interest and penalties, as indicated above. 6. Heard the learned counsel for the parties and carefully perused the relevant material on record including the impugned order. 7. Learned counsel for the petitioner has reiterated all those grounds as enumerated in the writ petition and canvassed that the petitioner did not provide any franchise service to any of the aforesaid four institutions, rather they provided their expertise for the establishment and development of these schools. A bare perusal of the agreement does not reveal that any franchise service was provided by the petitioner to these schools. Learned counsel took us through the various articles of the agreement and canvassed that the main obligation of the petitioner was to maintain the high standard of the education in the said schools, as is in MCGC; to provide expertise and consultancy and know-how in educational D.B. CWP No. 6354/2012 8 material to set academic standards and other co-curricular activities in the school in such manner, as may be considered fit and proper and, as stipulated by the agreement. Neither the franchise fees was collected by the petitioner from these schools nor there is any whisper of the word franchise in the whole agreement and the petitioner does not fall in the net of service tax and thus, is not liable to pay service tax. Neither the adjudicating authority nor the respondent no.1 Commissioner, Central Excise, took into consideration all these aspects and the adjudicating authority in undue haste, passed the order on 22nd December, 2011 and confirmed the demand of service tax and imposed penalty under Section 76, 77 and 78 of the Finance Act and also directed to pay the interest. Similarly, the Commissioner, Central Excise (Appeals), Jaipur-II also, did not consider these grounds and arbitrarily adjudicated the stay application in a cursory manner directing the petitioner to deposit the said amount of service tax, penalty and interest, as indicated above. The impugned order passed by the Commissioner, Central Excise (Appeals) is D.B. CWP No. 6354/2012 9 arbitrary, contrary to material on record, unjust and improper which deserves to be set aside. 8. E converso, Mr. Ajay Shukla, learned counsel for the respondent defended the impugned order and stated the same to be just and proper and contended that it did not justify any intervention. 9. Having reflected over the submissions made at the bar and carefully scanned the relevant material on record including the agreement entered into between the petitioner and other four schools, it is revealed that the petitioner not only permitted, allowed and granted a revokable license to these schools to use the name 'Mayoor School', its logo and moto, but in consideration of the grant of said license, the petitioner MCGC realized an initial one time non-refundable payment of Rs. 25 lacs from the said four schools at the time of execution of this agreement for the services and obligations of MCGC. Not only this, the petitioner also realized annual fees of Rs. 10 lacs in advance for the stipulated service by the petitioner for first three D.B. CWP No. 6354/2012 10 years, which was liable to be reviewed after every three years. A bare perusal of the language of Article 1, Article 2, Article 6 (e)(h), Article 7(e), Article 11(a)(b) and Article 14(b)(c)(d) tangibly suggests that an amount of Rs. 1,09,23,500/- was received by the petitioner from the aforesaid four schools, as a collaboration fees. The respondent no.1 and the adjudicating authority found that this 'collaboration fees' was nothing but the 'franchise fees' and it clearly fell in the net of service tax. These four institutions were permitted to use their name 'Mayoor School', its logo as also its moto. These institutions were required to observe certain obligation as per the terms and conditions of the agreement and further observed unimpeachable confidentiality. Permitting other schools by the petitioner to use their name, logo as also moto clearly tantamounts to providing 'franchise service' to them and if the petitioner realize the 'franchise' or 'collaboration fees' from the franchise schools, the petitioner was duty bound to pay the service tax to the respondent department. The petitioner is found to have D.B. CWP No. 6354/2012 11 utterly failed to make out a prima facie case in its favour. The impugned order dated 28th March, 2011 rendered by the Commissioner, Central Excise (Appeals), Jaipur-II, is found to be just and well merited. It suffers from no infirmity and we are in unison with the finding arrived at by the Commissioner, Central Excise to this effect that the petitioner is a registered society and it provided the franchise service to aforesaid four schools, who were permitted to use their name 'Mayoor School', logo and moto. Learned counsel for the petitioner has failed to convince us to take a view contrary to that of the view taken by the adjudicating authority and the Commissioner, Central Excise (Appeals), Jaipur-II. We do not find any ground to interfere with the impugned order and thus, the writ petition being devoid of any substance deserves to be dismissed. 10. Further the balance of convenience is also not found to be in favour of the petitioner and in case the recovery of said service tax is stayed, a great irreparable loss shall be caused to the Revenue. The Hon'ble Apex Court has deprecated the D.B. CWP No. 6354/2012 12 practice of granting stay in the recovery of tax, cess, fees etc. 11. In the case of United Bank of India Versus Satyawati Tondon and others reported in 2010 (8) SCC 110, the Hon'ble Apex Court has held thus: “46.It must be remembered that stay of an action initiated by the State and/or its agencies/instrumentalities for recovery of taxes, cess, fees, etc. seriously impedes execution of projects of public importance and disables them from discharging their constitutional and legal obligations towards the citizens. In cases relating to recovery of the dues of banks, financial institutions and secured creditors, stay granted by the High Court would have serious adverse impact on the financial health of such bodies/institutions, which (sic will) ultimately prove detrimental to the economy of the nation. Therefore, the High Court should be extremely careful and circumspect in exercising its discretion to grant stay in such matters.” (Emphasis supplied) 12. In view of above, the writ petition fails and the same being bereft of any merit stands dismissed, accordingly. 13. However, the petitioner is granted three weeks from today to deposit the entire amount of service tax Rs. 12,13,821/-, 50% D.B. CWP No. 6354/2012 13 of penalties and interest, as directed by the Commissioner, Central Excise (Appeals), Jaipur-II. 14. Consequent upon the dismissal of the writ petition, the stay application does not survive and the same also stands dismissed. (MAHESH BHAGWATI),J. (ARUN MISHRA),C.J. Mak/- All Corrections made in the judgment/order have been incorporated in the judgment/order being emailed. Anil Makawana Jr. Personal Assistant "