Entire Beauty Salon Receipts Taxable As Service In Absence Of Break-Up Or VAT Proof Of Goods Sale: CESTAT Allahabad
Sangeetha Prathap
The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has upheld a service tax demand of ₹2.19 crore against a Lakmé franchise beauty salon, holding that in the absence of any documentary break-up between service receipts and retail sale of goods, the entire receipts shown by the assessee were liable to service tax. The Tribunal dismissed the assessee’s appeal and allowed the Revenue’s appeal, thereby affirming the demand raised by the Department.
The Bench comprising P. Dinesha, Judicial Member, and Sanjiv Srivastava, Technical Member, was dealing with cross-appeals arising from an order passed by the Commissioner (Appeals), which had partly decided the dispute relating to service tax liability of the assessee, a franchisee operating a Lakmé beauty salon.
The case arose from an investigation conducted by the Department, which alleged that the assessee was engaged in providing taxable services under the category of Beauty Parlour/Beauty Treatment Service while operating under the franchise of M/s Lakmé, but had failed to discharge service tax on the receipts earned from such activities. On scrutiny of the balance sheets and Form 3CD filed under the Income Tax Act for the financial years 2013–14 to 2016–17, it was noticed that the assessee had received substantial amounts under the head “Receipts from Beauty Salon.” In addition, the assessee had also earned rental income during the relevant period.
The Department took the view that these receipts qualified as taxable services in terms of Sections 65B(44), 65B(22), 66B and 66E of the Finance Act, 1994. Accordingly, a show cause notice was issued demanding service tax amounting to ₹2,19,00,119 along with interest and penalties.
Before the authorities, the assessee contended that it was not merely providing beauty parlour services but was also engaged in the retail sale of cosmetic and beauty products from its salon as a franchisee of M/s Lakmé Lever. It was argued that the amounts received towards sale of goods could not be included in the taxable value of services and that the service tax demand ought to have been reduced by excluding the value of goods sold in retail. The Chartered Accountant of the assessee submitted that the demand failed to account for this aspect.
The Tribunal, however, was not persuaded by the assessee’s submissions. It noted that throughout the proceedings, the assessee had failed to produce any documentary evidence to substantiate its claim of retail sale of goods. The Bench specifically observed that no notes on accounts, which would ordinarily form part of the audited balance sheet or profit and loss account, had been produced to show the proceeds from sale of goods separately. On the contrary, the profit and loss account reflected the entire income under a single head, namely “Receipts from Beauty Salon,” without any bifurcation between services and sale of goods.
The Tribunal held that in the absence of any documentary break-up, the authorities were justified in presuming that the entire receipts were attributable to provision of taxable services. It observed that “in absence of any assumption the authorities have rightly presumed that the entire receipts are in respect of provision of services.”
The Bench further noted that under the franchise arrangement, the assessee was required to maintain detailed records of each transaction, whether relating to sale of goods or provision of services, and to report the same periodically to the franchisor. If the assessee was indeed engaged in sale of goods, it would necessarily have been registered under the VAT laws and would have discharged VAT on such sales. However, no evidence whatsoever was produced to show registration with VAT authorities or payment of VAT on the alleged retail sales.
Rejecting the assessee’s argument that the demand should be adjusted against CENVAT credit that could have been availed on input services, the Tribunal held that such a contention was untenable in the absence of proper compliance and documentary support. The Bench also examined the franchise agreement and noted that the assessee was registered with the service tax department for providing beauty parlour services and was fully aware of its service tax liability.
The Tribunal further observed that the franchise agreement specifically provided that the franchisee was responsible for discharging service tax liability in respect of the services provided from the salon. This, according to the Bench, clearly demonstrated that the assessee was conscious of its obligations under the service tax law. In view of the above findings, the CESTAT held that the assessee had failed to establish that any portion of its receipts pertained to sale of goods so as to be excluded from the taxable value of services. Consequently, the Tribunal dismissed the assessee’s appeal and allowed the Revenue’s appeal, thereby upholding the service tax demand of ₹2.19 crore along with applicable interest and penalties.
Appearance
Counsel for Appellant/Assessee: Dharmendra Kumar, Chartered Accountant
Counsel for Respondent/Department: Chitra Srivastava
Cause Title: M/s Embellishment v. Commissioner of Central Excise & Service Tax, Lucknow
Case No: Service Tax Appeal No.70208 of 2021
Coram: P. Dinesha, Judicial Member, Sanjiv Srivastava, Technical Member
