2020 (3) TMI 457 - AT - Service Tax

Classification of services - Business Support Services or not - service of providing transponders on hire basis by IGSML to UEPL - transfer of right to use even without transfer of ownership of property - suppression of facts - extended period of limitation - Revenue neutrality - Penalty - HELD THAT - As for amendment of Article 366 of Constitution of India in the year 1983 Transfer of right to use goods has been included in the definition of sale. Thus transfer of right to use even without transfer of ownership of property is deemed as a sale. Accordingly hire/lease of goods is a deemed sale and is liable to sales tax. Thus hiring of transponder of satellite can never be a case of providing taxable service. Once the transaction is within the scope of sale and admittedly the transponder is hired by the appellant from M/s IGSML for supporting his business of broadcasting we are of the opinion that department has rightly categorised the said transaction as an activity being provided by M/s IGSML to M/s UEPL in view of supporting the business of the later classifying it as a business support service. Extended period of limitation - Penalty - HELD THAT - The period of dispute is with effect from 2006-07 to 2009-10. The show-cause notice was received by the appellant only on 7th of April 2011 though it appears to have been issued on 24.03.2010 but we observe that department could not have produced any document of it to have been dispatched within the reasonable time or about the service thereof on the date other than as mentioned by the appellant. From the letter given by the appellant to the department in April 2011 itself which has duly been acknowledged by the department without objecting the date of receipt as mentioned therein, there are no reason to hold that the show-cause is beyond the prescribed period of limitation - The subsequent show-cause notice cannot propose the demand for a period beyond one year of the period in dispute nor can raise the allegation as that of suppression of facts or misstatement on the part of appellant that too with an intention to evade the tax. In these circumstances, the Proviso to Section 73 of the Finance Act extending the said period of limitation from one year to five years could not have been invoked by the department. In view of these findings, the impugned show cause notice is barred by limitation. Revenue Neutrality - Penalty - HELD THAT - Once the value of hire charges paid by the appellant to the service provider is available to the credit thereof in case such a value is categorised as service tax, there remains no question of any loss to the exchequer and the situation can very well be categorized as revenue neutral situation. As the facts are indicating absence of intention to evade tax in the circumstances, question of imposition of penalty does not at all. It is not convincing that the argument of the appellant that the impugned transaction is the transaction as that of deemed sale, rather we are confirming the observation of the department for it to amount an activity as that of business support services being received by the appellant but would have been liable to discharge the liability of service tax under reverse charge mechanism but for the show-cause notice being barred by time, we are of the opinion that the demand has still been confirmed. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of the hire charges for transponders as Business Support Services.
2. Applicability of service tax on the hire charges.
3. Invocation of extended period of limitation for the show-cause notice.
4. Revenue neutrality and availability of CENVAT credit.
5. Imposition of penalty and interest.

Issue-wise Detailed Analysis:

1. Classification of the hire charges for transponders as Business Support Services:
The primary issue was whether the hire charges paid by the appellant to M/s Intelsat Global Sales and Marketing Ltd. (IGSML) for leasing transponders attached to a satellite should be classified under Business Support Services, thereby attracting service tax. The appellant argued that transponders are goods, and hiring them constitutes a transfer of the right to use goods, deemed as a sale under Article 366 of the Constitution of India. They cited the Karnataka High Court's decision in Antrix Corporation Ltd, which held transponders as goods and their hiring as a deemed sale. However, the department contended that the transaction was a service provided by IGSML to support the appellant's broadcasting business, thus falling under Business Support Services.

2. Applicability of service tax on the hire charges:
The Tribunal examined the nature of the transaction, determining that transponders are segments of a satellite that receive and transmit signals, thus qualifying as goods. However, since IGSML is based outside India, the transaction could not be classified as a sale within the territory of India. Consequently, the hire charges paid for transponders used to support the appellant's broadcasting business were rightly categorized as Business Support Services, making them liable for service tax.

3. Invocation of extended period of limitation for the show-cause notice:
The appellant challenged the show-cause notice on the grounds of being barred by limitation, arguing that there was no suppression of facts or intent to evade tax. They highlighted a department letter from December 2009 acknowledging the hire charges, indicating that the department was aware of the transactions. The Tribunal agreed, noting that the show-cause notice was issued beyond the permissible one-year period without evidence of suppression or fraud. Therefore, the extended period of limitation under Section 73 of the Finance Act could not be invoked.

4. Revenue neutrality and availability of CENVAT credit:
The appellant argued that even if the hire charges were subject to service tax, they could avail CENVAT credit, resulting in a revenue-neutral situation with no loss to the government. The Tribunal acknowledged this argument, noting that the value of hire charges paid could be credited, thus supporting the claim of revenue neutrality.

5. Imposition of penalty and interest:
Given the absence of intent to evade tax and the revenue-neutral nature of the transaction, the Tribunal found the imposition of penalty and interest to be harsh. They referenced the Tribunal Bangalore's decision in Athungal Sales Corporation, which held that penalties should not be imposed in such circumstances. Consequently, the Tribunal set aside the demand for penalty and interest.

Conclusion:
The Tribunal concluded that while the transaction was correctly classified as Business Support Services, the show-cause notice was barred by limitation. Therefore, the demand for service tax, penalty, and interest was set aside, and the appeal was allowed.