Case Law Details
Hitech Institute of Advance Technologies Pvt. Ltd. Vs Commissioner of CGST (CESTAT Delhi)
The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Delhi, dismissed the appeal filed by the appellant challenging the order of the Commissioner (Appeals), which had confirmed the service tax demand on royalty received from franchisees and set aside the earlier order of the Assistant Commissioner that had dropped the proceedings.
The appellant was registered with the service tax department for providing commercial coaching and training services, maintenance and repair services, and franchise services. During the relevant period, the appellant operated educational courses under the brand name “Hitech” both directly and through franchisee centres.
Following a search and investigation, the department issued a show cause notice alleging short payment of service tax amounting to ₹16,22,737 on royalty received from franchisees during the period from 1 October 2013 to the financial year 2015-16. Under the franchise arrangement, franchisees collected fees from students, and 10% to 20% of the fee amount was payable to the appellant as royalty for use of the “Hitech” brand name.
Initially, the Assistant Commissioner dropped the demand proposed in the show cause notice. However, the department preferred an appeal before the Commissioner (Appeals), who allowed the departmental appeal and confirmed the service tax demand. Aggrieved by this order, the appellant approached the Tribunal.
The appellant, through written submissions, contended that students sometimes discontinued their courses or failed to pay the entire course fees. According to the appellant, franchisees remitted royalty only to the extent of fees actually collected from students. It was argued that service tax had been discharged on the royalty amounts actually received by the appellant and, therefore, the demand could not be sustained.
The Revenue, however, maintained that the service tax demand had been raised only on amounts that had actually been received by the appellant. It was submitted that no demand had been made on amounts that had not been realized.
The Tribunal examined the findings recorded by the Commissioner (Appeals) and noted that the impugned order specifically stated that the service tax liability had been computed on the basis of the amounts reflected in Relied Upon Document-II (RUD-II), which contained details of fee collections provided by the appellant itself during the investigation.
The Tribunal further noted that the Director of the appellant company, in his statement dated 23 December 2015, had admitted that details relating to royalty receipts were not maintained in the company’s accounting records and that service tax had not been paid on such amounts. The Commissioner (Appeals) had also observed that when confronted with the relevant documents, the Director admitted that the amounts reflected therein represented gross receipts of franchisee centres from which royalty had been received by the appellant.
In light of these findings, the Tribunal held that the demand was restricted only to the amounts actually received by the appellant. It observed that the appellant’s contention regarding non-receipt of certain payments was unsupported by any details or evidence. Consequently, the Tribunal found no reason to interfere with the order of the Commissioner (Appeals).
Accordingly, the Tribunal upheld the impugned order confirming the service tax demand and dismissed the appeal.
FULL TEXT OF THE CESTAT DELHI ORDER
M/s. Hitech Institute of Advance Technologies Pvt. Ltd.1 filed this appeal to assail the order dated 24.03.20222 passed by the Commissioner (Appeals) in which he allowed the Revenue‟s appeal and set aside the order of Assistant Commissioner dated 24.6.2021 dropping the proposals in the show cause notice dated 11.4.20193.
2. None appeared for the appellant. However, Shri Manish Pushkarna, learned counsel for the appellant sent a written synopsis and prayed that the submissions may be taken on record and the matter may be decided.
3. We have heard learned authorised representative for the Revenue and perused the records.
4. The appellant was registered with the service tax department for providing (i) commercial coaching & training service, (ii) Maintenance and repair service; and (iii) Franchise service. The appellant’s premises were searched and investigations were conducted based on which the department issued the SCN alleging that the appellant had short paid service tax of Rs. 16,22,737/- on the royalty which it had received from the franchisees during the period 1.10.2013 to 2015-16. The demand was dropped by the Assistant Commissioner and on appeal by the Department, the Commissioner (Appeals) passed the impugned order confirming the demand.
5. Admittedly, the appellant ran courses during the relevant period in the brand name ‘Hitech’ both through its own services and also through the franchisees. Of the total amount charged from students as fee by the franchisees, 10-20% was to be paid to the appellant for using the name ‘Hitech’. The dispute is only with respect to the amount paid as service tax on the franchisee services.
6. Learned counsel for the appellant has in his written submissions, asserted that sometimes the students do not complete their course or pay the entire fee and in such cases, the franchisees only paid royalty to the extent the fee was paid by the students. It is his submission that the appellant paid the full service tax on the royalty received by it and hence the demand cannot be sustained.
7. Learned authorised representative, on the other hand, reiterated the findings of the Commissioner (Appeals) and asserted that the demand was made only on the amounts received by the appellant and not on amounts which have not been received by it.
8. Since this is a matter of fact, we have examined the finding of the Commissioner (Appeals) in the impugned order. He has categorically recorded that the demand was made only on the amounts received by the appellant as recorded in relied upon document II (RUD-II) to the SCN. The findings of the Commissioner in the impugned order is as follows:
“7.The respondent has contended that the show cause notice has not bifurcated the amount of royalty received by the respondent in actual and the amount of royalty amount yet to be received or nor at all received by the respondent from its Franchisees‟ Centers. Ongoing through the said show cause notice, it was observed that the service tax liability on the royalty amount received from franchisees has been calculated on the basis of the value shown in the list of amount received as fee collection (RUD-II) provided by the respondent in his statement. However, against this contention it is also observed from the SCN that Mr. Manoj Kumar, Mendiratta Director of the Company (Respondent) in his statement dated 23.12.2015, admitted that they did not maintain the details of royalty amount in their accounting system and had not paid any servie tax on the same. It is also observed from the record that when the said list was confronted to Mr. Manoj Kumar Mendiratta, he admitted that those amounts (approx. Rs. 6 crores), were gross receipt by the franchisee centers on which they have received royalty. Now from the same fact, it is clear that the respondent did not maintain the royalty amount in their accounting system and have received the same clandestinely. I would thus disagree with the contention of the respondent against the non-bifurcation of the impugned amount of royalty payments”.
9. When the relied upon document II to the SCN clearly indicated the amounts were received by the appellant and when the demand of service tax was only on such amounts, the submission of the appellant that it had not received some of the payments, that too, without giving any details cannot be accepted.
10. In view of the above, we find that the impugned order is correct and proper and calls for no interference. This appeal is accordingly, dismissed.
(Order pronounced in open court on 03/06/2026.)
Notes:
1 Appellant
2. impugned order
3. SCN
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