Service Tax Payable on Franchise Royalty Actually Received: CESTAT

The Principal Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT), New Delhi has held that service tax payable on franchise royalty actually received. The bench of Binu Tamta (Judicial Member) and P.V. Subba Rao (Technical Member) has observed that the company’s director had admitted during the investigation that details of royalty receipts were not properly maintained in the accounting system and that service tax had not been paid on such royalty receipts. The Commissioner (Appeals) had further observed that the royalty figures were derived from gross fee collections of franchise centres on which the appellant had earned royalty. The bench dismissed the institute’s appeal and affirmed the order passed by the Commissioner (Appeals). The appellant/assessee, Hitech Institute of Advance Technologies Pvt. Ltd. was registered with the service tax department for providing commercial coaching and training services, maintenance and repair services, and franchise services. Following a departmental investigation and search operations, the tax authorities alleged that the company had short-paid service tax amounting to ₹16.22 lakh on royalty received from its franchise centres during the period from October 2013 to the financial year 2015-16. The original adjudicating authority had dropped the demand. However, the Revenue challenged that decision before the Commissioner (Appeals), who reversed the order and confirmed the service tax liability. The institute subsequently approached the CESTAT. The institute conducted educational and training courses under the “Hitech” brand through its own centres as well as through franchisees. Under the franchise arrangement, franchise centres collected course fees from students and paid a percentage of those collections—typically between 10% and 20%—to the appellant as royalty for the use of the “Hitech” name and business model. The dispute before the Tribunal centered on whether service tax had been correctly discharged on these royalty receipts. The appellant argued that many students failed to complete their courses or did not pay the entire fee amount. According to the institute, franchisees remitted royalty only to the extent that fees were actually realized from students. It further contended that service tax had already been paid on the royalty amounts that were actually received, and therefore no additional demand could survive. The Department maintained that the demand was computed only on royalty amounts that had actually been received by the appellant. Revenue relied upon documentary evidence gathered during the investigation and argued that the tax liability had been determined strictly on the basis of receipts reflected in the records and statements obtained during the inquiry. The bench noted that the Commissioner (Appeals) had specifically recorded that the service tax demand was based only on amounts shown as received by the appellant in the relied-upon documents attached to the show cause notice. The Tribunal held that no supporting details or evidence had been produced to substantiate the claim. Since the demand was confined only to amounts reflected as received by the appellant, the contention that some payments were not realized could not be accepted. Concluding that the Commissioner (Appeals) had correctly appreciated the facts and law, the CESTAT held that the impugned order required no interference. Accordingly, the appeal filed by Hitech Institute of Advance Technologies Pvt. Ltd. was dismissed and the service tax demand on royalty receipts from franchisees was sustained. Case Details Case Title: M/s. Hitech Institute of Advance Technologies Pvt. Ltd. Versus Commissioner of CGST Delhi North Citation: JURISHOUR-1528-CES-2026(DEL) Case No.: Service Tax Appeal No. 51751 of 2022 Date: 3.06.2026 Counsel For Appellant: None Counsel For Respondent: Rakesh Kumar, Authorised Representative Click Here To Read Order Read More: No Payment, No New Auditor? ICAI’s Draft Ethics Code

Service Tax Payable on Franchise Royalty Actually Received: CESTAT

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