2013 (10) TMI 1161 - AT - Service Tax

Demand of service tax - Reverse charge mechanism - Broadcasting service - Sections 65(105)(zzzu) read with 65(86a) and 86(b) - Whether Appellants are liable to pay service tax as recipients of broadcasting Service under reverse charge mechanism - Held that - Appellants do not have any technology for receiving signals or downlinking facilities. Signals are directly received by the MSOs/cable operators from the satellite through Set Top Boxes and smart cards supplied by the Appellant. Technically they are not recipients of any broadcasting service. However, ongoing through the definition of Broadcasting we note that in the definition after the means part and first inclusive part the words and in case of broadcasting agency or organisation having its head office situated any place outside India includes the activities of selling time slot or obtaining sponsorship for channels or collecting broadcasting charges also exist. Definition is to be read as a whole and so read cannot be interpreted to conclude that the Appellant is a service recipient as per the means and first inclusive part of the definition and a service provider under the second inclusive part of the definition. From the second inclusive part of the definition that only permitting the right to receive signals in any form by transmission through electromagnetic waves through space or cable to MSO/cable operators is an aspect covered as taxable and Distribution rights given by ESSD to the Appellant and which are not covered under the definition are not taxable and therefore this finding of the Commissioner is not sustainable - ESSM is not a service provider and Appellants are not recipient as held by the Commissioner and the distribution rights given by ESSM to the appellants are not taxable. Appellant is covered under second inclusive part of the definition of Broadcasting. Similarly appellant is a broadcasting agency also by virtue of inclusive definition of Broadcasting agency. Taxable service under Section 65(105)(zk) means any service provided or to be provided by a Broadcasting Agency and providing broadcasting service by virtue of being based in India and having a head office outside India. The finding of the Commissioner that the appellant is service recipient on the basis of the second inclusive definition is not therefore sustainable. Moreover, the foreign broadcaster is engaged in uplinking the signal to a satellite outside India and downlinking of signal is done by MSOs/Cable operators in India and appellants technologically does not receive any broadcasting service. Appellant is covered under broadcasting agency and broadcasting and also under definition of taxable service in the capacity of branch office, subsidiary representative/agent in India and having head office outside India and is thus a service provider and not a service recipient, as held by the Commissioner. The demands on the both Appellants are not sustainable under the reverse charge mechanism and consequently interest and penalty are also not imposable. Service tax on Intellectual property - Business Auxiliary service - Held that - Where service tax has not been levied or short levied, tax can be demanded within one year from the relevant date. However if tax has not been levied or short levied by reason of, fraud, collusion, wilful, misstatement, suppression of fact etc tax can be demanded within 5 years from the relevant date. The Commissioner has discussed the invocation of extended period in para 46 of Order-in-Original and has held that appellant has suppressed the facts from the department as they did not get themselves registered for these services, pay the service tax and file ST-3 returns. The appellant did not pay any service tax under Intellectual Property Service, Business Auxiliary Service in respect of Product Licensing Agent/promotion licensing Agent and on Programme Producer Service and did not file any Return for these services. We do not find any fault in finding of the Commissioner in invoking extended period of limitation and consequently Appellant is liable to interest and penalty - Decided in partly in favour of assessees.

Summary

Issues Involved:
1. Liability of service tax on Appellant No. 1 (ESPN) under reverse charge mechanism for broadcasting services.
2. Liability of service tax on Appellant No. 2 (Turner International India Pvt. Ltd.) under reverse charge mechanism for broadcasting services.
3. Classification and taxability of intellectual property rights services.
4. Classification and taxability of business auxiliary services.
5. Classification and taxability of program producer services.
6. Applicability of extended period of limitation and imposition of penalties.

Detailed Analysis:

1. Liability of Service Tax on ESPN (Appellant No. 1) Under Reverse Charge Mechanism for Broadcasting Services:
The core issue was whether ESPN was liable to pay service tax on broadcasting services received from foreign broadcasters ESSD and ESSM under reverse charge mechanism. The Commissioner concluded that ESPN imported broadcasting services through agreements for TV channel distribution rights and advertisement time inventory, making ESPN liable for service tax under Section 66A of the Finance Act, 1994. However, the Tribunal found that ESPN did not have the technology for receiving or downlinking signals, which were directly received by MSOs/cable operators. ESPN's activities of selling time slots and collecting subscription charges were covered under the second inclusive part of the broadcasting definition, making ESPN a service provider rather than a recipient. Thus, the Tribunal held that the demands were not sustainable.

2. Liability of Service Tax on Turner International India Pvt. Ltd. (Appellant No. 2) Under Reverse Charge Mechanism for Broadcasting Services:
The issue was whether TIIPL was liable for service tax under reverse charge mechanism for broadcasting services received from foreign broadcasters. The Commissioner held TIIPL liable as an agent of foreign broadcasters. However, the Tribunal noted that TIIPL did not receive any broadcasting signals and was covered under the second inclusive part of the broadcasting definition as a service provider. Therefore, the Tribunal concluded that TIIPL was not a service recipient and the demands were not sustainable.

3. Classification and Taxability of Intellectual Property Rights Services:
The Commissioner had classified 98% of licensing or sub-licensing fees as intellectual property rights services, arguing that the predominant nature of the property was a trademark. The Tribunal found that the cartoon characters licensed by TIIPL were artistic works under the Copyright Act, 1957, and not trademarks. Consequently, these characters were excluded from the definition of intellectual property rights, making the demand unsustainable.

4. Classification and Taxability of Business Auxiliary Services:
The Commissioner confirmed the demand under business auxiliary services for product licensing and promotion licensing agreements between TIIPL and TENA. The Tribunal upheld this classification, rejecting TIIPL's argument that it had the right to reproduce the copyright material. The Tribunal found that sub-licensing of products amounted to promotion of TENA's properties, falling under business auxiliary services. The Tribunal also confirmed the demand for business auxiliary services on commission income earned while working as an advertising sales representative of TENA, but set aside the demand for marketing of Cartoon Network and POGO channels based on the Delhi High Court's judgment in Intercontinental Consultants and Technocrats Pvt. Ltd.

5. Classification and Taxability of Program Producer Services:
The Commissioner confirmed the demand under program producer services for activities undertaken by TIIPL for TENA. The Tribunal upheld this classification, noting that TIIPL's activities of creating, producing, and developing program content were covered under program producer services as defined under Section 65(105)(zzzu).

6. Applicability of Extended Period of Limitation and Imposition of Penalties:
The Tribunal upheld the Commissioner's invocation of the extended period of limitation and imposition of penalties, finding that both appellants had suppressed facts and did not pay service tax on various services. The Tribunal found no fault in the Commissioner's findings that the appellants had not registered for these services, paid service tax, or filed ST-3 returns.

Conclusion:
1. Appeals filed by ESPN (Appellant No. 1) were allowed.
2. In the appeal filed by TIIPL (Appellant No. 2), the Tribunal set aside the order-in-original for broadcasting services under reverse charge mechanism, business auxiliary services for advertising sales, marketing of Cartoon Network and POGO channels, and intellectual property services.
3. The Tribunal upheld the order-in-original for business auxiliary services for product licensing and promotional licensing, and program producer services.
4. The appeal filed by TIIPL was partly allowed, and the stay petition was disposed of.