2019 (1) TMI 1308 - AT - Service Tax

Valuation - Broadcasting Service - inclusion of amount received by the appellant and subsequently disbursed to the dealers in assessable value - Rule 5 of Service Tax (Determination of Value) Rules, 2006 - Held that - Hon ble Supreme Court in the case of Union of India Vs Intercontinental Consultants Technocrats Pvt. Ltd. 2018 (3) TMI 357 - SUPREME COURT OF INDIA has held that in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider for such service and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service - the demand of ₹ 24,57,55,162/- along with interest and equal penalty is set aside. Security Deposit collected from distributors - Held that - As per the terms and conditions entered into between the subscriber and the appellant through subscriber s application form, the appellant is bound to refund security deposit of ₹ 400/- per viewing card if it is claimed within 15 days from the end of the service and if it is returned in functional condition. We also find that said amount is treated as security deposit in the books of account of the appellant. The learned Commissioner has held that there was no evidence of return of any security deposit and hence service tax was payable - Revenue should have investigated as to whether any subscriber had returned the viewing card within 15 days of end of the service and whether the appellant have refused to return the deposit. We do not find any such investigation carried out by revenue. Therefore, the presumption of revenue that there was no evidence of return of any security deposit was not sufficient ground to conclude that the said amount of deposit was liable to be subjected to service tax - thus, without investigation as to whether appellant has refused to refund security deposit to any person who has terminated services, it cannot be presumed that the said amount collected as security deposit, should be treated as consideration - demand set aside. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:

1. Demand of service tax on alleged commission paid to dealers.
2. Demand of service tax on security deposits collected for viewing cards.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on Alleged Commission Paid to Dealers:

The primary issue pertains to the demand of ?24,57,55,162/- in service tax for the period 2007 to 2012, based on the allegation that the dealers were paid commission, and service tax is payable on the same. The revenue's case hinges on the interpretation that the amounts retained by the dealers from the subscribers should be considered as commission paid by the appellant, thus subject to service tax.

The appellant argued that they are the owners of the Customer Premises Equipment (CPE), which includes set-top boxes, antennas, viewing cards, and other equipment. These are sold on a rental basis to distributors, who then sell them to dealers, who in turn sell them to subscribers. The appellant contended that service tax has been paid on the entire value of the set-top boxes sold to the distributors and that the dealers' markup does not constitute a commission paid by the appellant.

The appellant further explained that the dealers collect subscription charges from the subscribers, which are routed to the appellant via the distributor, and service tax is paid on the entire subscription amount. The markup allowed to the dealers is retained by them and does not enter the appellant's accounts. The appellant emphasized that the department has no records of the actual amounts collected by the dealers as markup, and the markup is not quantified by the appellant.

The tribunal noted that the Original Adjudicating Authority had treated the amount retained by the dealers as an expenditure incurred by the appellant and relied on Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which has been struck down by the High Court of Delhi and affirmed by the Supreme Court in Union of India Vs. Intercontinental Consultants & Technocrats Pvt. Ltd. The tribunal found that the amount retained by the dealers was not charged by the appellant and thus could not be included in the assessable value for service tax.

The tribunal set aside the demand of ?24,57,55,162/- along with interest and equal penalty.

2. Demand of Service Tax on Security Deposits Collected for Viewing Cards:

The second issue involves the demand of ?4,63,27,911/- in service tax on security deposits collected for viewing cards for the period 2007-2008. The appellant collected a refundable security deposit of ?400 per viewing card from the distributors, which was passed on to the dealers and then to the subscribers. The revenue argued that there was no evidence of the return of any security deposit, and thus service tax was payable on the same.

The appellant contended that the security deposit is not a consideration for the service but a refundable amount subject to the subscriber returning the viewing card in a functional condition within the specified timeframe. The appellant's books of accounts treated the security deposit as a contingent liability and showed it as a credit in the subscriber's account.

The tribunal found that the revenue had not conducted any investigation to determine whether any subscriber had returned the viewing card within the specified period and whether the appellant had refused to refund the deposit. The presumption that there was no evidence of return of any security deposit was not sufficient to conclude that the deposit was liable to service tax. The tribunal set aside the demand of ?4,63,27,911/- along with interest and equal penalty.

Conclusion:

The tribunal set aside the impugned order and allowed the appeal, pronouncing the judgment in court on 08/01/2019.