2020 (4) TMI 106 - AT - Service Tax

Business Auxiliary Services - Broadcasting Service or intermediary service - Import of services - Place of provision of services - respondents are surrogate providers of broadcasting service in India - For Revenue, it was argued that retained amount constitute consideration for acting as an intermediary for securing the earnings that are generated from telecast of signals - HELD THAT - The retained amount is not an outflow and, in the absence of outflow of consideration from the respondents herein to the overseas entity, recourse to these Rules cannot be had. Most critically, the domestic broadcast agency and overseas broadcast agency , though taxed by the same provision, are treated differently in the range, as well as channel, through which the service is rendered. Therefore, the logic of uncalled for preference in the absence of countervailing is flawed. In a series of decisions commencing with that of the Hon ble High Court of Bombay in Commissioner of Service Tax, Mumbai II v. SGS India Ltd 2014 (5) TMI 105 - BOMBAY HIGH COURT the factum of final delivery of the resulting activity to India was held to be insufficient to withhold from service rendered the benefit accruing to exporters. Therefore, taxability is excluded if it is established that the transaction is an export. The deeming fiction carries with it the burden of tax on the entire consideration receivable by the overseas entity and in the hands of the Indian entity acting as agency of such overseas entity. Respondent is deemed provider of service and the range of activities included in the taxable service comprises the very aspects that were sought to be taxed in the proceedings initiated by the show cause notices. Perceptibly, the same activity cannot be taxed twice as the classification of services itself provides, by section 66F of Finance Act, 1994, for situation in which more than one competing entry cannot be allowed to sustain - Appeal dismissed - decided against Revenue.

Issues Involved:
1. Taxability of 'broadcasting' services provided by surrogate providers in India.
2. Applicability of service tax on commission retained by surrogate providers.
3. Classification of services under Finance Act, 1994.
4. Export of Service Rules, 2005 applicability.
5. Deeming fiction and its extent under Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Taxability of 'broadcasting' services provided by surrogate providers in India:
The respondents are surrogate providers of broadcasting services in India, taxable under section 65(105)(zk) of the Finance Act, 1994. The dispute revolves around whether the commission retained by these surrogates before remitting dues to overseas entities is also liable to tax as 'business auxiliary service' under section 65(105)(zzb) of the Finance Act, 1994. The Tribunal noted that the respondents, taxed by a deeming fiction, have already discharged tax on the entirety of the receipts and cannot be further taxed on a part of the consideration that was already taxed in full.

2. Applicability of service tax on commission retained by surrogate providers:
The Revenue argued that the retained amount constitutes consideration for acting as an intermediary and should be taxed similarly to a domestic provider. However, the Tribunal found this argument unconvincing as countervailing is not a justification for tax liability. The retained amount is not an outflow, and without an outflow of consideration to the overseas entity, recourse to the Taxation of Services (Provided from Outside India and Received in India) Rules, 2006, cannot be had.

3. Classification of services under Finance Act, 1994:
The Tribunal referred to previous decisions, including Zee Telefilms Ltd v. Commissioner of Central Excise, which clarified that activities such as selling time slots or obtaining sponsorships for broadcasting are included in the definition of 'broadcasting' and 'broadcasting agency or organisation' under the amended Finance Act, 1994. The Tribunal emphasized that the same activity cannot be taxed twice as per section 66F of the Finance Act, 1994.

4. Export of Service Rules, 2005 applicability:
The respondents argued that the service being rendered to an overseas entity is relieved of tax burden in furtherance of the Export of Service Rules, 2005. The Tribunal supported this view, stating that taxability is excluded if the transaction is established as an export, as held in previous cases like Commissioner of Service Tax, Mumbai –II v. SGS India Ltd and Commissioner of Service Tax, Mumbai-IV v. ATE Enterprises Pvt Ltd.

5. Deeming fiction and its extent under Finance Act, 1994:
The Tribunal discussed the extent of the deeming fiction under the Finance Act, 1994, referencing the Hon’ble Supreme Court's decision in Sant Lal Gupta v. Modern Cooperative Group Housing Society Ltd. The Tribunal concluded that the deeming fiction should be applied only to the extent for which it was enacted and cannot be extended beyond its intended purpose. The Tribunal also noted that the decision in Imagic Creative Pvt Ltd v. Commissioner of re Commercial Taxes supports the view that the same activity cannot be taxed under different provisions within the same statute.

Conclusion:
The Tribunal found no merit in the Revenue's appeals and dismissed them, concluding that the respondents, as deemed providers, cannot be taxed twice for the same activity. The cross-objection was disposed of accordingly.

Order Pronouncement:
(Order pronounced in the open court on 13/03/2020)

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