No Break-Up, No VAT Proof: CESTAT Allahabad Upholds ₹2.19 Crore Service Tax Demand Against Lakmé Franchise Beauty Salon

P. Dinesha (Judicial Member) and Sanjiv Srivastava (Technical Member) stated that no Notes on Accounts, which would have been part of the audited balance sheet/ profit and loss account, showing the proceeds from the sale of goods have been produced during the entire proceedings. In profit and loss account the receipts are shown under the head “Receipts from Beauty Salon”, No break up is available. In absence of any assumption the authorities have rightly presumed that the entire receipts are in respect of provision of services.

In the case at hand, it was alleged that the assessee was engaged in providing taxable services, i.e. Beauty Parlour /Beauty Treatment Service under the franchise of M/s Lakme, but was not paying Service Tax.

On scrutiny of the documents, i.e. Balance Sheet and Form 3CD of Income Tax for the Financial Year 2013-14 to 2016-17, it was observed that the assessee had received a huge amount against Beauty Parlour service during this period.

They had also received Rental Income. These receipts against the activity undertaken qualify as taxable service as per Section 65 B (44), 65B(22), 66 (B) & 66(E) of the Finance Act, 1994.

A show-cause notice was issued to the assessee demanding service tax amounting to Rs. 2,19,00,119/-.

The Chartered Accountant of the assessee submitted that the taxable value of the services provided by the assessee should be reduced by the amount received by the assessee towards the sale of goods in retail from their beauty parlour. The assessee, being a franchisee of M/s Lakme Lever, was also selling the goods in retail to the customers from their beauty parlour. The amount received by them towards the sale of goods cannot be made part of the taxable value of services provided by them from their premises.

The Tribunal found that the assessee was required to maintain the details of each transaction, whether in respect of the sale of the goods or provision of the services and report the same periodically to the franchisor also.

The bench noted that if the assessee was selling the goods from their beauty salon, then definitely they would have been registered with VAT authorities and would be paying VAT in respect of the goods sold. No document in respect of discharging the VAT in respect of the sales affected has been produced.

The bench disagreed with the assessee that the demand should be adjusted against the CENVAT Credit, which could have been claimed by them against the input services received by them.

The bench, after looking into farnchisee agreement and noting that the assessee was registered with the service tax department for providing beauty parlour services, opined that the assessee was fully aware of its liability to pay the service tax in respect of the services provided.

The agreement specifically provided that the franchisee, i.e. assessee, was responsible for discharging the service tax liability in respect of the services provided, added the bench.

In view of the above, the Tribunal dismissed the assessee's appeal and allowed the revenue's appeal.

Case Title: M/s Embellishment v. Commissioner of Central Excise & Service Tax, Lucknow

Case Number: Service Tax Appeal No.70208 of 2021

Counsel for Appellant/Assessee: Dharmendra Kumar, Chartered Accountant

Counsel for Respondent/Department: Chitra Srivastava

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