2020 (7) TMI 265 - AT - Service Tax

Levy of Service Tax - Broadcasting service - service provided by Intelsat (situated outside India) to the Appellant - whether under the Agreement Intelsat has leased out 8MHz bandwidth of its transponder or Intelsat is engaged in transmitting signals? - HELD THAT - The Transponder Segment Service refers to two bandwidths and Attachments 1(a) and 1(b) each refer to allocated bandwidth 4.00 MHz bandwidth, thus making a total of 8MHz bandwidth. It is also clear from clause 1.0 of Attachment 2 to the Service Order that unless otherwise specified in the Service Order, that portion of the service transponder which comprises the Service to the Appellant shall be power and bandwidth limited, consisting of a Transponder Segment equivalent to the amount of bandwidth specified in the Service Order and associated power on the service transponder. Thus, the monthly fixed payment made by the Appellant to Intelsat relates to the lease of space segment capacity of the transponder and has nothing to do with the signals that are transmitted. The transmission of signals is as a result of the use of the space segment capacity of the transponder of the satellite. The relay station is able to uplink the programme signals which are then reflected to the earth by the Intelsat transponder on the footprint area of the earth. This is so evident from the pictorial representation drawn above. This is also clear from the procedure described by the two experts that frequency uplinked with a particular power is automatically reflected back by the satellite without any alteration/modification of the programme contents with the help of equipments on the satellite and no human intervention takes place. What is important to note is that the fixed charges are purely based on assignment of space segment capacity of a transponder and are not linked to speed and strength of transmission of data/signal. Even under the Revised Carrier Plan dated July 7, 2015, the monthly charges remain at US 40,000 per month. A carrier plan is an estimated calculation based on various technical aspects in order to obtain optimum quality of video. It specifies parameters for the desired carrier in a particular space segment on the satellite transponder. A Revised Carrier Plan is drawn when a broadcaster desires to add an additional channel within the located bandwidth. This has to be approved by the Wireless Planning Commission and the concerned Ministry and may result in change of the parameters drawn up in the earlier Carrier Plan. Thus, parameters are arrived at for the optimum utilization of the space segment and to ensure that the transmit power levels will not cause any interference to adjacent carriers and will also not pose any damage threat to the transponders on the satellite. Therefore, the parameters mentioned under the Carrier Plan have no linkage to the fixed monthly charges for the allocation of 8 MHz bandwidth. A bare perusal of section 65A(1) shows that classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of section 105. Sub-section (2) of section 65A stipulates that when for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, then the classification shall be effected either under (a) or (b) or (c). Thus, for section 65A(2)(b) to apply, there has to be a classification dispute between two or more taxable services. In the present case, the lease of space segment capacity of the transponder is not taxable as it is subjected to State VAT, being akin to transfer of right to use goods . Even if the transmission of signals, as per the impugned order and as per the submissions of the learned Authorized Representative of the Department, is covered under broadcasting service , then too the rule of classification contained in section 65A of the Finance Act cannot be applied since it involves only one taxable service and one non-taxable service. Thus, the essential character test cannot be applied in the present case. The inevitable conclusion, therefore, that follows is that the contention of the Department that the down linking of the signals from the satellite is transmission of signals covered by the definition of broadcasting and, therefore, leviable to service tax on the Appellant under a reverse charge mechanism cannot be accepted. The Commissioner, therefore, committed an error in holding that Intelsat has provided broadcasting service to the Appellant and so the Appellant has to pay service tax on a reverse charge mechanism. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the charges paid by the Appellant to Intelsat for securing bandwidth on the transponder of Intelsat's satellite constitute a service leviable to service tax under 'broadcasting service' under the reverse charge mechanism.
2. Whether Intelsat is a 'broadcasting agency or organization' under the Finance Act, 1994.
3. Whether the activity of using the transponder for uplinking and downlinking signals is covered under the definition of 'broadcasting service'.
4. Whether the transaction between the Appellant and Intelsat is for the provision of service or the lease of space segment capacity, which could be considered as a supply of goods.

Detailed Analysis:

1. Charges Paid for Bandwidth as Service:
The core issue is whether the charges paid by the Appellant to Intelsat for securing an 8MHz bandwidth on the transponder of Intelsat's satellite constitute a service under the 'broadcasting service' category. The Appellant argued that the agreement was for leasing bandwidth and not for receiving any broadcasting service. The Department, however, believed that the downlinking of signals from the satellite constituted 'broadcasting' and was therefore taxable.

The Tribunal examined the Agreement and Service Order, concluding that the fixed monthly payment of USD 40,000 related to leasing the space segment capacity of the transponder and not to the transmission of signals. The Tribunal noted that the charges were fixed and not variable, indicating that they were not based on the transmission of signals.

2. Intelsat as a 'Broadcasting Agency or Organization':
The Tribunal analyzed whether Intelsat could be considered a 'broadcasting agency or organization' under section 65(16) of the Finance Act, 1994. The definition includes any agency engaged in providing services related to broadcasting. The Tribunal found that Intelsat was not engaged in broadcasting but in leasing space segment capacity of its transponder. The Tribunal emphasized that the mere provision of space segment capacity does not amount to broadcasting.

3. Definition of 'Broadcasting Service':
The Tribunal examined the definition of 'broadcasting' under section 65(15) of the Finance Act, which includes the dissemination of communication through electromagnetic waves intended for public reception. The Tribunal concluded that Intelsat's role as a relay station, which merely amplifies and retransmits signals, does not fall under this definition. The Tribunal noted that the Appellant, not Intelsat, was the broadcaster, as it was responsible for the content and its dissemination.

4. Transaction Nature - Service or Lease:
The Tribunal considered whether the transaction was for the provision of service or the lease of space segment capacity. The Tribunal noted that the Agreement and Service Order indicated a lease of space segment capacity, as evidenced by the fixed charges and the terms of the Agreement. The Tribunal rejected the Department's argument that the Agreement involved the transmission of signals, emphasizing that the charges were not linked to the transmission but to the lease of space segment capacity.

Conclusion:
The Tribunal set aside the Commissioner's order, concluding that the charges paid by the Appellant to Intelsat were for the lease of space segment capacity and not for broadcasting services. Therefore, the Appellant was not liable to pay service tax under the reverse charge mechanism for the period in question. The appeal was allowed in favor of the Appellant.