Gst order MR.JUSTICE C.SARAVANAN W.P.No.28124 of 2021 and W.M.P.Nos.29716 of 2021 & 16398 of 2022 M/s.Medall Healthcare Private Limited,

2025:MHC:1300
Reserved On 09.01.2025
Pronounced On 09.05.2025
IN THE HIGH COURT OF JUDICATURE AT MADRAS
Coram:
THE HONOURABLE MR.JUSTICE C.SARAVANAN
W.P.No.28124 of 2021
and W.M.P.Nos.29716 of 2021 & 16398 of 2022
M/s.Medall Healthcare Private Limited,
Represented by its Legal
Executive/Authorized Signatory,
Mr.S.Ashwin,
TNPL Building, 2nd Floor, No.67, Mount Road, Guindy, Chennai – 600 032.
…Petitioner
Versus
1.The Commissioner of GST and Central Excise,
Office of Commissioner of GST and Central Excise,
Chennai South Commissionerate,
692, MHU Complex, 5th Floor, Anna Salai, Nandanam, Chennai – 600 035.
2.The Commissioner of Service Tax (Audit),
Office of Commissioner of GST and Central Excise,
Audit II Commissionerate,
692, MHU Complex, 5th Floor, Anna Salai, Nandanam, Chennai – 600 035.
3.The Superintendent (Preventive Unit),
Office of Commissioner of GST and Central Excise,
Chennai South Commissionerate,
692, MHU Complex, Anna Salai, Nandanam, Chennai – 600 035.
…Respondents Writ Petition filed under Article 226 of the Constitution of India praying for issuance of a writ of certiorari to call for the records of the impugned Order-In-Original No.48/2021 (C) dated 30.11.2021 from the files of the first respondent herein, quash the same.
For Petitioner : Ms.Aparna Nandakumar
For Respondents : Mr.T.Ramesh Kutty,
Senior Standing Counsel &
Mr.B.Sivaraman,
Junior Standing Counsel
ORDER
In this Writ Petition, the Petitioner has challenged the Order in Original. No. 48 of 2021 (C) dated 24.11.2021 passed by the 1st Respondent (hereinafter referred to as ‘Impugned Order’).
2. By the Impugned Order, the demand proposed in Show Cause Notice No.4/2020 (C) dated 26.06.2020 issued to the Petitioner has been confirmed by the 1st Respondent. Operative portion of the Impugned Order dated 24.11.2021 reads as under:
“22. In view of the foregoing, I pass the following order:
ORDER
(i) I confirm the demand of Service tax of Rs.11,61,86,746/- (Rupees Eleven Crores Sixty One Lakhs Eighty Six Thousand Seven Hundred and Forty Six only) from M/s.Medall Healthcare Private Limited under Section 73(2) of the Finance Act, 1994.
(ii) I demand interest at appropriate rates under Section 75 of the Finance Act 1994, on the amount demanded (i) above.
(iii) I drop the demand of late fee of Rs.24,300/- for belated filing of returns for the reasons mentioned supra.
(iv) I impose a penalty of Rs.11,61,86,746/- (Rupees Eleven Crores Sixty One Lakhs Eighty Six Thousand Seven Hundred and Forty Six only) on M/s.Medall Healthcare Private Limited under Section 78 of the Finance Act 1994.
23. The penalty imposed in clause (iv) above shall be reduced to 25%, if the service tax in clause (i) above along with interest demanded at clause (ii) above are paid within thirty days from the date of receipt of this order. The benefit of reduced penalty under this proviso shall be available only if the amount of such reduced penalty is also paid within thirty days from the date of receipt of this order.”
2A. Relevant portion of the Show Cause Notice dated 26.06.2020 issued to the Petitioner demanding service tax is extracted hereunder:-
“13. Therefore, M/s.Medall Healthcare Private Limited, is required to show cause to the Commissioner of Goods & Services Tax and Central Excise, Chennai South Commissionrate, GST Nilayam, No.692, MHU Complex, Anna Salai, Chennai – 600 035 within 30 days from the date of receipt of this notice as to why;
a) An amount of Rs.11,61,86,746/- (Rupees Eleven Crores Sixty One Lakhs Eighty Six Thousand Seven Hundred Forty Six only), being the Service Tax (including cesses) payable for the period from January 2016 to June 2017, should not be demanded from them under proviso to Section
73(1) of the Finance Act, 1994;
b) Appropriate interest under Section 75 of the Finance Act, 1994
should not be demanded from them on the demand at (a) above;
c) Late fee of Rs.24,300/- (Rupees Twenty Four Thousand Three Hundred only) for delayed filing of returns should not be demanded from them under Rule 7C of Service Tax Rules, 1994 read with Section 70 of the Finance Act, 1994;
d) Penalties under Section 76, 77 and 78 of the Finance Act 1994,
should not be imposed on them for the contraventions mentioned supra.
14. MHPL, are further directed to produce at the time of showing cause, all the evidences upon which they intend to rely in support of their defence. They should also indicate in their written reply whether they wish to be heard in person, or through their legal representative, before the case is adjudicated. If no mention of the same is made in their written reply, it shall be presumed that no personal hearing is desired by them and the case may be decided on the basis of the evidence available on record, without affording them any further opportunity in the matter.
15. If no cause is shown against the action proposed to be taken against them within the stipulated period as shown above, or if they fail to appear before the adjudicating authority when the case is posted for hearing, the case will be decided ex-parte on the basis of evidence available on the record.
16. …………………………………………………………………….
17. …………………………………………………………………….
18. The Show Cause Notice is issued under saving clause of SubSection 2 of Section 174 of Central Goods and Service Tax Act, 2017 read with the provisions of Chapter V of the Taxation and Other Laws (Relaxation of Certain Provisions) Ordinance, 2020 and without any prejudice to any other action or further action or proceedings, which may be initiated against them under the provisions of Finance Act, 1994 or the Rules made there under or under any other Law for the time being in force in India.”
3. Although the Petitioner has an appellate remedy before the Appellate Tribunal, yet, the petitioner had opted to file this Writ Petition primarily on the ground that the Petitioner was not liable to pay tax under the provisions of Finance Act, 1994 as it stood amended w.e.f. 01.07.2012.
4. The case of the Petitioner is that the service provided by the
Petitioner was exempted in terms of Clause 2(i) of Service Tax Mega Notification No.25/2012-ST dated 20.06.2012. Therefore, it is submitted that the conclusion arrived in the impugned order was incorrect. Clause 2(i) of Service Tax Mega Notification No.25/2012-ST dated 20.06.2012 is extracted hereunder:
“2. (i) Health care services by a clinical establishment, an authorised medical practitioner or para-medics.”
5. The Petitioner had signed a Franchise Agreement dated
17.12.2015 with M/s.Pranav Labs, a partnership firm from the state of Andhra Pradesh. The Definition Clauses in the said Franchise Agreement are extracted in the ensuing paragraphs of this Order.
6. The facts on record reveal that the Franchise Agreement dated 17.12.2015 with the said Franchisee/M/s.Pranav Labs was on a principle to principle basis. The Franchisee/M/s.Pranav Labs was to adhere to the Franchise Agreement and therefore, equipments and infrastructures were given to the said Franchisee/M/s.Pranav Labs to ensure that there was no dilution of the brand value of Petitioner while rendering service to the
Petitioner by the Franchisee/M/s.Pranav Labs under the Franchise Agreement dated 17.12.2015.
7. Under the aforesaid Franchise Agreement, the
Franchisee/M/s.Pranav Labs was required to provide Health Care Service viz., Diagnostic Services to the patients referred by Andhra Pradesh Government to the Petitioner. As per Schedule 8A of the aforesaid Franchise Agreement, Rs.235/- was charged per Sample for a Government patient. A sum of Rs.141/- was to be paid to the Franchisee/M/s.Pranav Labs while the balance amount of Rs.94/- was to be retained by the
Petitioner.
8. With regard to service to a private patient, payment terms was different from that of the Government referred patients. As far as “standard tests” for a private patient were concerned, as defined in Schedule 8A of the Franchise Agreement, the revenue was to be shared between the Petitioner and Franchisee/M/s.Pranav Labs in the ratio of
31.20:68.80.
9. As far as other tests for a private patient were concerned, therevenue was to be equally shared between the Petitioner and
Franchisee/M/s.Pranav Labs in the ratio 50:50.
10. The learned counsel for the Petitioner submitted that since the entire operation was under the Franchise Agreement dated 17.12.2015, the Petitioner had given its equipments and certain infrastructures to Franchisee/M/s.Pranav Labs. There was an adjustment of the amounts on the receivable as certain portion of the amounts were received directly by the Petitioner from the Government of Andhra Pradesh. As far as other two components viz., standard test and other tests for a private patient were concerned, the payments were first received by Franchisee/M/s.Pranav Labs and the amounts were thereafter adjusted against the amount received and payable under the Franchise Agreement. Therefore, a portion of the amounts was retained by the Petitioner after adjustment. Hence, it is submitted that it cannot be said that the Petitioner had provided service to the Franchisee/M/s.Pranav Labs.
10.1. It is submitted by the learned counsel for the Petitioner thatthere are three steps involved in the testing. Firstly, samples are directly collected by the laboratory manned by Franchisee/M/s.Pranav Labs. Secondly, analysis is also carried out by Franchisee/M/s.Pranav Labs using the testing equipments supplied by the Petitioner. Finally, analysis results were to be forwarded to the Petitioner by the Franchisee/M/s.Pranav Labs.
Thereafter, the test report was generated by the Petitioner and transmitted to Franchisee/M/s.Pranav Labs for being directly given to both private patients as well as to the patients referred by the Government Hospital viz., Primary
Health Centers (PHCs), Community Health Centers (CHCs), Area Hospitals (AHs) and District Hospitals (Dhs). Threfore, it is submitted that there is absolutely no scope for infering suppression of facts to warrant invocation of extended the period of limitation under Section 73 of the Finance Act, 1994.
10.2. The learned counsel for the Petitioner also submitted that the entire service provided by the Petitioner to the Franchisee/M/s.Pranav Labs was exempted in terms of Serial No.2 of Service Tax Mega Notification No.25/2012 Service Tax dated 20.06.2012 and therefore, the Petitioner has been wrongly mulcted with service tax liability and hence, prayed for quashing the Impugned Order passed by the 1st Respondent.
10.3. It is submitted by the learned counsel for the Petitioner that Section 73 of the Finance Act, 1994 (hereinafter referred to as “Act 1994”) stipulates the time limit, within which the Show Cause Notice for commencement of proceedings have to be issued. Sub-Section (1) of Section 73 of the Act 1994 lays down that where there is a short payment or erroneous refund of service tax for reasons other than fraud, collusion, willful misstatement or suppression of facts, the adjudicating authority has to issue the Show Cause Notice (SCN) within 30 months from the ‘relevant
date’.
10.4. It is further submitted by the learned counsel for the Petitioner that as per Rule 7(1) and (2) of the Service Tax Rules, 1994, every service tax assessee has to file a half yearly return and the last date of submission of the half yearly return is the 25th of the month following the particular half year. Thus, the Show Cause Notice for adjudication for the period January 2016 to March 2016 ought to have been issued on or before 25.10.2018.
Likewise, for the period April 2016 to September 2016 and October 2016 to March 2017, the Show Cause Notices should have been issued within 30 months from the date of filing the ST 3 Returns and within 30 months reckoned from 15.08.2017, for the period April 2017 to June 2017.
10.5. It is submitted by the learned counsel for the Petitioner that the extended period of limitation can be invoked only in circumstances where there is fraud, collusion, willful mis-statement or suppression on the part of the Assessee with an intention to evade tax and not otherwise.
10.6. It is submitted by the learned counsel for the Petitioner that the
Respondents have relied on the decisions of Hon’ble Supreme Court in
CCE, Vishakapatnam Vs. Mehta & Co. (2011) 4 SCC 435 and CCE Vs.
Kalvert Foods India Pvt. Ltd. & Ors. (2011) 1 SCC 243 in the Impugned Order to emphasis the point that the extended period of limitation has to be reckoned from the date of knowledge by the Department. However, it is submitted that the Respondents failed to see that the date of knowledge becomes wholly relevant for reckoning the extended period of limitation, only when suppression has been proven and has been established by the Department and not otherwise.
10.7. It is submitted by the learned counsel for the Petitioner that the decisions relied upon by the Respondent is not applicable to the facts of the present case, wherein, the Department has not established or proven suppression. The case in Tata Consultancy Services Limited Vs. C.S.T.Delhi 2018 (18) G.S.T.L. 478 and CMC Ltd. Vs. CCE, Hyderabad 2011 (23) S.T.R.586 (Tri.Bang.) relied upon by the Respondents herein in their Counter Affidavit is based on the different set of facts and is not at all applicable to the case on hand.
10.8. It is submitted by the learned counsel for the Petitioner that the reckoning of date of knowledge which has been propounded by the Hon’ble Supreme Court is only in the context of ‘proven suppression’. In other words, the Department has to positively and categorically establish that there has been suppression of facts or fraud or collusion on the part of the assessee and a mere omission or a mere statement that there has been suppression is not enough to invoke the extended period to limitation.
10.9. Therefore, it is submitted by the learned counsel for thePetitioner that the Hon’ble Supreme Court and various High Courts have consistently held that mere mechanical reproduction of Section and a mere statement that there is a suppression of facts would not confer jurisdiction on the Respondent Department to issue a Show Cause Notice under Section 73 of the 1994 Act beyond the period of 30 months by trying to take advantage of the proviso to the Section.
10.10. In support of her submissions, the learned counsel for the
Petitioner has placed reliance on the following decisions of the Hon’ble Supreme Court:
(i) Nizam Sugar Factory Vs. CCE AP 2006 (197) ELT 465 (SC)
(ii) Continental Foundation Joint Venture Vs. Commissioner of
Central Excise, Chandigarh 2007 (216) ELT 177 (SC)
(iii) Padmini Products Vs. Commissioner of Central Excise 1989
(43) ELT 195 (SC)
(iv) Jai Prakash Industries Ltd. Vs. CCE, Chandigarh 2002 (146) ELT 481 (SC)
(v) Commissioner of Customs Vs. Cochin Minerals and Rutiles Ltd.
MANU/KE/0603/2010
(vi) K.T.Murukan Vs. Commissioner (Appeals) MANU/KE/2084/2016
11. On the other hand, defending the Impugned Order, the learned
Senior Standing Counsel for the Respondents drew the attention of this Court to Clause 3.4. of aforesaid Franchise Agreement dated 17.12.2015 which reads as under:
“3.4. Franchisee shall obtain the Standard Equipment for the Franchisee Premises only from the Franchisor. Franchisee shall pay Franchisor the prescribed charges for supply of the Standard Equipment.
Franchisee shall not install any diagnostic equipment other than the Standard Equipment in the Franchise Premises, save with prior written permission of the authorized representative of the Franchisor.”
11.1. It is submitted by the learned Senior Standing Counsel for the
Respondents that the Franchisee/M/s.Pranav Labs was required to pay the Petitioner the prescribed charges for supplying standard equipments as defined in the Franchise Agreement which means the equipments were provided by the Petitioner to said Franchisee/M/s.Pranav Labs.
11.2. The learned Senior Standing Counsel for the Respondents also submitted that as per Clause 5.5 of the aforesaid Franchise Agreement, the Petitioner company was having a right to set-off all sums payable by its company to Franchisee/M/s.Pranav Labs and also, the Petitioner company was entitled to adjust the same against all sums payable by Franchisee/M/s.Pranav Labs to its company, including sums payable under or in pursuance of the Franchisee’s indemnity obligations contained in the Franchise Agreement. Therefore, it is submitted that the Impugned Order does not merit any interference.
11.3. The learned Senior Standing Counsel further submitted that there is absolutely no scope for concluding that there is suppression of facts. Even if the activity carried out by the Petitioner was exempted from payment of tax, the Petitioner should have made adequate declarations in its Form ST-3 returns. That apart, in this case, there has been no attempt made by the Petitioner to declare the value which was considered in the Impugned Order as exempted from payment of tax.
11.4. Moreover, it is submitted by the learned Senior Standing Counsel for the Respondents there are several disputed questions of facts which need not to be escalated to the jurisdiction of this Court under Article 226 of the Constitution of India. Hence, the learned Senior Standing Counsel for the Respondents prays for the dismissal of this Writ Petition.
12. In reply, the learned counsel for the Petitioner drew the attention of this Court to the expression “Franchisee’s Fee for Services” in Definition Clause of aforesaid Franchise Agreement dated 17.12.2015, wherein, it is stated as under:
“This is the pro rata fee payable to the Franchisee for the services rendered, calculated as per Schedule 8A.”
12.1. The learned counsel for the Petitioner also submitted that the service is provided by Franchisee/M/s.Pranav Labs to the Petitioner and if at all service tax liability, it is borne by the Franchisee/M/s.Pranav Labs and not on the Petitioner. Moreover, the Petitioner has paid service tax of Rs.37,50,000/- and therefore, there is absolutely no scope for suppression of facts on the part of the Petitioner.
12.2. Further, the learned counsel for the Petitioner drew the attention of this Court to the following table to substantiate that there was no case made out for intereference of extending the period of limitation:
S.No. Period Due Date for Filing ST-3 Returns ST-3 Returns filed by the petitioner herein on 30 months period of
limitation expired on
1 Oct, 2015 to Mar, 2016 25.04.2016 20.09.2016 20.03.2019
2 April, 2016 to September, 2016 25.10.2016 29.12.2016 29.06.2019
3 October, 2016 to March, 2017 25.04.2017 13.06.2017 13.12.2019
4 April, 2017 to June, 2017 15.08.2017
(as per Notification
No.18/2017-ST dated
22.06.2017) 10.08.2017 10.02.2020
13. I have considered the arguments advanced by the learned counsel on either side and I have also perused the materials available on record.
14. The service that was provided by the Petitioner to
Franchisee/M/s.Pranav Labs are two folds which are as follows:
(i) Services rendered as a Franchiser.
(ii) Services rendered by way of supplying Standard Equipments.
15. The Franchise Agreement dated 17.12.2015 contemplates the payment of One Time Franchisee’s Fee of Rs.37,50,000/- to be paid by the
Franchisee/M/s.Pranav Labs to the Petitioner. Under the Franchise Agreement, the Franchisee/M/s.Pranav Labs was expected to generate
reports for the patients after testing and diagnosis.
16. The Petitioner has been awarded the contract of providing clinical laboratory services at Government Hospitals viz., Public Health Centres (PHC), Community Health Centres (CHC), District Hospitals (DH) and Area Hospitals (AH) in the State of Andhra Pradesh. This service has been outsourced from the Franchisee/M/s.Pranav Labs.
17. In Clause 1 of the Franchise Agreement dated 17.12.2015 contains the definition for the expressions viz., “Branding Guidelines”, “Center Specifications”, “Government Hospitals”, “Collection Centres”, “Franchise Fee”, “Franchise Guidelines”, “Franchisee’s Fee for Services” and “Standard Equipment”. These definitions from the
Franchise Agreement dated 17.12.2015 are extracted below:-
1. “Branding Guidelines” shall mean the guidelines governing signage and branding. These are set forth in Schedule 4 below.
2. “Centre Specifications” shall mean the specifications to be met by a place to qualify as a Franchise Premises. These are set forth in Schedule 7 below.
3. “Government Hospitals” means all the Government
Hospitals namely, PHC, CHC, DH and AH located within the Territory.
4. “Collection Centres” shall mean the collection centres referred to in Schedule 3.
5. “Franchise Fee” means the fees as set out in Schedule 8.
6. “Franchise Guidelines” shall mean those guidelines governing the operations of the franchise. These are prescribed in Schedule 5.
7. “Franchisee’s Fee for Services” is the pro-rata fee payable to the Franchisee for the services rendered, calculated as per Schedule 8A.
8. “Standard Equipment” shall mean the equipments provided by the Franchisor to the Franchisee.
18. The Franchisee/M/s.Pranav Labs has to operate within four corners of the said Franchise Agreement in accordance with the Branding
Guidelines. Franchisee’s Fee for Services provided by the Franchisee/M/s.Pranav Labs to the Petitioner is governed in terms of definition of the expression, “Franchisee’s Fee for Services” in Clause 1 of the Franchise Agreement dated 17.12.2015.
19. The aforesaid Franchise Agreement dated 17.12.2015 is a detailed agreement. Insofar as the modalities as to how the Franchise Agreement was to be operated between the Petitioner and the
Franchisee/M/s.Pranav Labs, 10 Schedules have been attached to the Franchise Agreement dated 17.12.2015 which are as follows:-
● Schedule 1: List of Standard Tests
● Schedule 2: Cluster Details
● Schedule 3: List of Government Hospitals Processing Centers and Collection Centers
● Schedule 4: Branding Guidelines
● Schedule 5: Franchising Guidelines Code of Conduct & Medall Franchise Guidelines
● Schedule 6: List of Government Tests
● Schedule 7: Center Specifications For Processing Centre
● Schedule 8: Franchise Fee
● Schedule 8A: Franchisee’s Fee For Services
● Schedule 9: Business Plan
● Schedule 10: Primary Service Level Targets
20. As mentioned in the above paragraphs, the
Franchisee/M/s.Pranav Labs is operated on revenue sharing basis. Insofar as referrals made by the Government Hospitals of the state of Andhra Pradesh are concerned, the Petitioner was to receive Rs.235/- per referral from the Government, out of which, Rs.94/- was to be retained by the Petitioner while Rs.141/- was to be paid to the Franchisee/M/s.Pranav Labs.
21. As far as walk-in patients are concerned, the fee would be directly collected by the Franchisee/M/s.Pranav Labs and the amount was to be paid back to the Petitioner by the Franchisee (M/s.Pranav Labs) for the standard tests and the other tests in the ratio 31.20 : 68.80 as mentioned in Schedule 8A of the Franchise Agreement dated 17.12.2015. Schedule 8A of the Franchise Agreement dated 17.12.2015 reads as under:
SCHEDULE 8A
FRANCHISEE’S FEE FOR SERVICES
1 Rs.141/- (60%) of the Rs.235/-) per sample will be paid to the Franchisee for each of the sample collected and processed irrespective of the no. of tests in a sample, for each of the approved sample collected from any Government Hospitals in PHC’s or CHC’s or AH’s or DH’s.
2 68.80% of the Standard Tests revenue will be paid to be Franchisee.
3 50% of the Other tests revenue will be paid to the Franchisee.

22. The Franchiser rights and obligations have been clearly stated in Sub-clause 5.5 to Clause 5 of the Franchise Agreement dated 17.12.2015 which is also extracted below:-
“5. FRANCHISOR RIGHTS AND OBLIGATIONS:
5.5. Franchisor shall have a right of set-off over all sums payable by Franchisor to Franchisee under this Agreement and shall be entitled to adjust the same against all sums payable by Franchisee to Franchisor, including sums payable under or in pursuance of the Franchisee’s indemnity obligations herein contained.”
23. The sub-clause 3.4 to Clause 3 of the Franchise Agreement dated
17.12.2015 itself contemplates that the Franchisee/M/s.Pranav Labs has to obtain the Standard Equipment for the Franchise Premises only from the Franchiser/Petitioner and that the Franchisee/M/s.Pranav Labs shall pay the prescribed charges for supply of the Standard Equipment to the Franchiser/Petitioner and that the Franchisee/M/s.Pranav Labs shall not install any diagnostic equipment other than the Standard Equipment in the Franchise Premises without prior written permission of the authorized representative of the Franchiser/Petitioner.
24. Sub-clause 3.4 to Clause 3 of the Franchise Agreement dated
17.12.2015 is extracted hereunder:
“3. FRANCHISE PREMISES:
3.4. Franchisee shall obtain the Standard Equipment for the Franchise Premises only from the Franchisor. Franchisee shall pay Franchisor the prescribed charges for supply of the Standard Equipment. Franchisee shall not install any diagnostic equipment other than the Standard Equipment in the Franchise Premises, save with prior written permission of the authorized representative of the Franchisor.”
25. As defined in Clause 1 of the Franchise Agreement dated
17.12.2015, “Standard Equipments” are equipments provided by the Franchiser/Petitioner to the Franchisee/M/s.Pranav Labs and the remuneration for the supply of such standard equipments have been in-built in the fees that have been shared between the Petitioner and the Franchisee/M/s.Pranav Labs from and out of the Government referrals and the Walk-ins to whom services have been provided by the Petitioner and the Franchisee/M/s.Pranav Labs.
26. The Ten Schedules attached to the Franchise Agreement dated 17.12.2015 have not prescribed the amount that the Petitioner would be charging the Franchisee/M/s.Pranav Labs for the equipment. The said Franchiser Fee payable to the Petitioner thus remains hidden in the percentage of amount collected and adjusted inter se from the Government referrals and Walk-in tests conducted by the Franchisee/M/s.Pranav Labs under the Franchise Agreement.
27. Lending of equipment is a separate service which was provided by way of supply of standard equipments, for which, the Petitioner was entitled to charge fee. Prior to 01.07.2012, the aforesaid activity would have invited levy under Section 66 r/w. Section 65(105)(zzzzj) of the
Finance Act, 1994 viz., supply of tangible goods service.
28. There have been adjustments in the revenue shared between theFranchiser/Petitioner and the Franchisee/M/s.Pranav Labs for the services provided by either of them separately but no service tax has been paid by the Petitioner as if the entire service was exempted in terms of Clause 2(i)
of the Service Tax Mega Notification No.25/2012-ST dated 20.06.2012 which came into effect from 01.07.2012 as amended from time to time which has been extracted in Part I of this Order.
29. Section 65(105)(zzzzj) to Chapter V of the Finance Act, 1994 is reproduced hereunder:
“65(105)(zzzzj). to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances.”
30. However, after 01.07.2012 till 13.06.2017 which includes the period in dispute between January, 2016 – June, 2017, such supply of tangible goods is taxable under Section 66B r/w. 66D(a) of the Finance Act,
1994 as inserted by the Finance Act, 2012 w.e.f. 01.07.2012 and in view of
Section 66BA of the Finance Act, 1994 as inserted by the Finance Act,
2013.
31. However, there are no indications that the amounts for theaforesaid services were separately charged under the Franchise Agreement, even though Clause 3.4 & Clause 5.5 of the Franchise Agreement dated 17.12.2015 contemplate the charging of amounts and adjustment of amounts for the services provided by the Franchisee/M/s.Pranav Labs.
32. Thus, there is no dispute that two distinctive services have been provided by the Franchiser/Petitioner to the Franchisee/M/s.Pranav Labs.
Out of the said two services, namely, the Franchise Service provided by the
Petitioner for which, the Franchisee fee was charged under the Franchise Agreement has suffered tax.
32A. However, no amount has been itemized or charged for the supply
of standard equipment in the Franchisee premises by the
Franchiser/Petitioner. Therefore, the value is required to have been determined in terms of Rule 3 of the Service Tax (Determination of Value) Rules, 2006. A reading of the Impugned Order does not disclose that the above exercise has been carried out by the Respondent while passing the
Impugned Order.
33. On the other hand, the Impugned Order has merely referred to theEducation Guide that was circulated on the eve of the change brought to provisions of Chapter V of the Finance Act, 1944 w.e.f. 01.07.2012. That apart, the Impugned Order has merely referred to certain decisions than actually referring to the core issue relating to valuation that was to be adopted.
34. The huge amount of Rs.11,66,786/- has been confirmed by invoking extended period of limitation under Section 73(2) of the Finance
Act, 1994 with a consequential interest under Section 75 of the Finance Act, 1994 and penalty for a equal amount under Section 78 of the Finance Act, 1994.
35. Considering the above facts and circumstances of the case, I am
inclined to quash the Impugned Order and remit the case back to the 1st Respondent for passing fresh orders.
36. Accordingly, the Impugned Order dated 24.11.2021 is quashed and the case is remitted back to the 1st Respondent for passing fresh orders on merits for determining the value of the service provided by way of supply of standard equipments in the Franchisee premises by the
Franchiser/Petitioner to the Franchisee/M/s.Pranav Labs with reference to
Section 67 of the Finance Act, 1994 and Rule 3 of the Service Tax (Determination of Value) Rules, 2006, within a period of 30 days from the date of receipt of a copy of this order.
37. Since the Show Cause Notice dated 26.06.2020 has also not clearly disclosed the method which ought to have been adopted for determining the taxable value for levy of service tax from the Petitioner, the
1st Respondent is directed to issue a corrigendum to the Show Cause Notice No.4/2020 (C) dated 26.06.2020.
38. In the result, this Writ Petition stands disposed of with the above directions. No costs. Consequently, connected Miscellaneous Petitions are closed.
09.05.2025
mrr
Index : Yes
Neutral Citation : Yes
Speaking Order
To
1.The Commissioner of GST and Central Excise,
Office of Commissioner of GST and Central Excise,
Chennai South Commissionerate,
692, MHU Complex, 5th Floor, Anna Salai, Nandanam, Chennai – 600 035.
2.The Commissioner of Service Tax (Audit),
Office of Commissioner of GST and Central Excise,
Audit II Commissionerate,
692, MHU Complex, 5th Floor, Anna Salai, Nandanam, Chennai – 600 035.
3.The Superintendent (Preventive Unit),
Office of Commissioner of GST and Central Excise,
Chennai South Commissionerate,
692, MHU Complex,
Anna Salai, Nandanam, Chennai – 600 035.
C.SARAVANAN, J. mrr W.P.No.28124 of 2021
09.05.2025