2015 (12) TMI 1320 - AT - Service Tax

Business auxiliary service - Valuation - Inclusion of Royalty - Appellant provided service to telecommunication operators to make use of the contents provided to it though the copyright agreement entered into with the music companies - Held that - There is a demarcated line in the licensing agreement itself demonstrating that the telecommunication companies were stranger to the copyright owners which were the music companies. There was a privy between the appellant and the music companies to distribute the copyright what was conferred by the music company on the appellant. Therefore, Revenue has nothing to do to make an exercise to bring music companies into the picture to determine incidence of tax. Revenue proceeded on the fact that what was realized by the appellant was undisputedly in respect of taxable service provided to the telecommunication operators. That receipt should be brought into the tax ambit. They have done so. The appellant has collected appropriate service tax in respect of the value of service provided to the telecommunication operators. That does not give any scope to bifurcate tax element. Prima facie, examination of the license agreement extracted by the learned adjudicating authority in the impugned order shows that the copyright holder was also aware that the appellant is going to exploit the copyright for mutual benefit of each other. Therefore, at this stage it looks like a case of advancement of business of music companies by the appellant. Therefore, prima facie, liability of appellant arises. - Partial stay granted.

Summary

Issues: Tax classification under different categories, tax liability on royalty, time-barred adjudication, waiver of predeposit during appeal.

Tax Classification under Different Categories:
The appellant, a licensee of music companies for distributing copyright to telecommunication companies, faced tax classification issues. Revenue initially considered taxing under business auxiliary service, then under support of business and commerce service, and finally under development of content service from 1.6.2007. The proposal for the period before 1.5.2006 was to classify under support of business or commerce. The appellant argued that it had paid tax on royalty from 1.4.2010, but Revenue sought to tax royalty from 1.5.2006, which the appellant contended was impermissible under the law. The appellant maintained that changing the classification after initially complying with tax laws was unjust, and the entire adjudication process was time-barred.

Tax Liability on Royalty:
The appellant paid royalty to music companies, which was collected from telecommunication companies. However, Revenue insisted on taxing the entire bill amount, including royalty. The appellant had already paid tax on the royalty component from 1.4.2010. Revenue's stance was that the consideration received for services provided to telecommunication operators constituted the gross receipt of the appellant, and there should be no deduction for royalty, especially when royalty was not considered before 1.4.2010.

Time-Barred Adjudication:
The appellant argued that when complying with tax laws under the business auxiliary service category, subsequent attempts to reclassify under different categories were unwarranted. The appellant contended that the entire adjudication process was time-barred, and changing the classification after recognizing compliance with tax laws was unjust.

Waiver of Predeposit during Appeal:
The appellant requested a waiver of predeposit during the appeal process. After hearing both sides and examining the records, the tribunal directed the appellant to deposit a specific amount within a specified period. Upon this deposit, the predeposit of the remaining dues was waived, and recovery was stayed during the appeal process. The tribunal's decision aimed to balance the interests of Revenue and the appellant while addressing the tax liability and time-barred adjudication concerns.