17 January 2013
XYZ an individual is a franchisee of Gati Ltd. He books the parcel/delivery the parcel on behalf of Gati ltd. The Point to be noted here is that, the billing while booking the parcel is done in the name of company i.e. Gati Ltd and Franchisee i.e. one who books the parcel deposits the amount received directly into the bank A/c of Gati Ltd. The bill amount includes the Service Tax amount.
Now kindly let me know whether the Franchisee is liable to Pay service Tax on the commission received by him. kindly give your valuable advice.
17 January 2013
yes. Franchise commission attract service tax. for attract service tax your franchise agreement need to fulfill all the below conditions
(i) the franchise is granted representational right to sell or manufacture goods or to provide service or undertake any process identified with franchiser, whether or not a trade mark, service mark, trade name or logo or any such symbol, as the case may be, is involved; (ii) the franchisor provides concepts of business operation to franchisee, including know-how, method of operation, managerial expertise, marketing techniques or training and standards of quality control except passing on the ownership of all know-hoe to franchisee; (iii) the franchisee is required to pay to the franchisor, directly or indirectly, a fee; and (iv) the franchisee is under an obligation not to engage in selling or providing similar goods or services of process, identified with any other person. [ C.B.E.&C. Circular No.59/8/2003-ST dated 20.06.2003 ]
18 January 2013
I do not agree with you. Becuase The commission which the franchisee receives is already included in the cost of service i.e.boking parcel etc. If he needs to pay again on the commission part it amounts to taxing once again. kindly comment.
19 January 2013
I mean to say while fixing Parcel/booking charges Gati Ltd considers even commission payable to franchisee as a cost and fixes the Price for the Parcel bookings. Therefore while billing service tax is already collectd and paid even in respect of commission paid to franchisee. Therefore there is no question of charging ST on commission received by franchisee once again.
19 January 2013
If the Gati Billing to the final customers clearly stating the " Franchisee commission" in the invoice and on that service tax calculated then, your view is correct.
22 January 2013
But sir it is understood that companyis not going to pay commission out of its profits. Commission is part and parcel of Total cost and commission is one of the important aspect of costing.
22 January 2013
Service tax people only talk based on the documents, either their invoice need to show the commission or your franchisee agreement need to mention that your commission part of the customer price
CAclubindia
