2020 (2) TMI 227 - AT - Service Tax

Business Auxiliary Services - appellant-cable T.V. operator, entered into an agreement with M/s Sify Limited, Chennai to provide internet services of M/s Sify Limited through their cable network to their clients - levy of service tax - HELD THAT - A perusal of various clauses of the agreement would show that the agreement is not in the nature of an agreement between a principal and principal. It is in a nature of an agreement between a principal and an agent. As a principal, M/s Sify Limited is entitled to engage as many several agents as they please in addition to the appellant (para 3.5 of the agreement). On the other hand, as an agent the appellant cannot provide services of other internet service providers through their network (para 3.7 of the agreement). The agreement is for an initial term of 3 years and renewable at Sify s option for further term of one year each. Either during the initial term or during any renewed term, Sify may, at any time, terminate the agreement without assigning any reason whatsoever after giving 90 days notice. Similar option of termination is not available to the appellant. The appellant collects the revenue on behalf of M/s Sify Limited from the customers and for the services rendered by the appellant, M/s Sify Limited will pay to the appellant 30% of the browsing revenue. There is nothing in the entire agreement that would suggest that a new joint venture has been formed or a joint venture between the two companies has been established as a business. Nothing in the agreement suggests that the appellant and Sify have an agreement on Principal to Principal basis - in the present case based on the nature of the agreement the appellant is providing services to M/s Sify Limited which fall under the category of business auxiliary service. Appeal dismissed - decided against appellant.

Summary

Issues Involved:
1. Nature of Agreement between Appellant and M/s Sify Limited.
2. Liability of Service Tax under "Business Auxiliary Service".
3. Interpretation of Agreement Clauses.
4. Applicability of Case Laws Cited by Appellant.
5. Validity of Impugned Orders.

Issue-wise Detailed Analysis:

1. Nature of Agreement between Appellant and M/s Sify Limited:
The core issue was to determine whether the appellant, a cable TV operator, was acting as a service provider to M/s Sify Limited or if they were partners in a joint venture. The agreement between the appellant and M/s Sify Limited was scrutinized. Key clauses indicated that the appellant used their cable network to provide Sify’s broadband services, was permitted to use Sify’s trademarks, and was responsible for service quality within its network. The agreement allowed Sify to engage multiple agents and restricted the appellant from providing services for other ISPs, highlighting a principal-agent relationship rather than a joint venture.

2. Liability of Service Tax under "Business Auxiliary Service":
The Department contended that the appellant was liable to pay service tax under the "business auxiliary service" category for the amounts received from M/s Sify Limited. The appellant argued that they were not providing services to Sify but were in a revenue-sharing joint venture. However, the tribunal found that the appellant provided services to Sify using their network and manpower, collected revenue on Sify’s behalf, and received a percentage of the browsing revenue, thus qualifying as a service provider under "business auxiliary service".

3. Interpretation of Agreement Clauses:
The tribunal examined the agreement’s clauses, noting that it was not a principal-to-principal agreement but rather a principal-agent relationship. Key points included Sify’s rights to engage multiple agents, the appellant’s restriction from serving other ISPs, and the revenue-sharing model where the appellant received a fixed percentage of the browsing revenue. The agreement’s termination terms further supported the principal-agent relationship, with Sify having unilateral termination rights.

4. Applicability of Case Laws Cited by Appellant:
The appellant cited case laws (Ushakiron Television and Old World Hospitality Limited) to support their claim of a joint venture. However, the tribunal distinguished these cases based on the specific details of the agreements in those instances, which did not establish a service provider-service recipient relationship. The tribunal concluded that the cited cases were not applicable to the present case due to the differing nature of the agreements.

5. Validity of Impugned Orders:
The tribunal upheld the impugned orders, finding that the appellant’s activities fell under "business auxiliary service". The agreement’s nature and the appellant’s role in providing services to Sify, including revenue collection and ensuring service quality, justified the service tax liability. The tribunal found no grounds for interference with the impugned orders and rejected the appeals.

Conclusion:
The tribunal concluded that the appellant was indeed a service provider to M/s Sify Limited under the "business auxiliary service" category, thus liable for service tax. The impugned orders were upheld, and the appeals were rejected.