2022 (10) TMI 694 - AT - Service Tax

Levy of Service Tax - gross amount collected from the subscribers/ultimate customer or only on the gross amount received by them from the Local Cable Operators (LCOs) who are providing the content - providing maintenance services to the subscriber/ultimate customer and collecting payments from them and remitting amount to respondent as per their invoice and retaining the balance amount collected by them - eligibility for CENVAT Credit - HELD THAT - As per the definition of cable operator in Cable Television Networks Act, any person who provides cable service is cable operator, therefore it implies that both MSO and LCOs are cable operators as MSO is providing cable service to LCOs who in turn providing the same to the ultimate customer/ individual. We are in complete agreement with learned Commissioner that the actual functionality of MSOs and LCOs differ from analogue period to DAS period to the extent that during DAS period, the signals received/purchased by MSO were encrypted whereas in analogue period they were not and for viewing of encrypted signals installation of set top boxes at subscriber s end is a must in DAS period and subscribers records in the SMS server were also maintained with MSO. While interpreting the word for such service in Section 67, the Hon ble Supreme Court in the matter of UNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT has laid down that value of taxable services shall be the gross amount charged by the service provider for such service and the valuation of tax cannot be anything more or less than the consideration paid as quid pro quo for rendering such a service. There is no iota of doubt that LCOs received signals from MSOs (who received the signals from broadcasters) and the ultimate customers/subscribers received signals from the LCOs. The findings of the learned Commissioner is agreed upon that in the post DAS era both MSO and LCOs would fall within the ambit of persons providing taxable services of cable service however the service recipient for both would be different as for the MSOs the recipient is LCOs whereas for LCOs it s the subscribers. It is not disputed that the respondents did not have set top boxes, CAS, SMS etc and were using the infrastructure provided by their group company FTPL and also did not have the equipments required for transmitting the signals by LCOs to subscribers and therefore it is clear that the LCOs were utilising their own infrastructure for transmitting signals to the ultimate subscribers - it is concluded that the respondent is liable to pay service tax only on the gross amount received by them from LCOs. Demand of short payment of amount - denial of Cenvat credit - non-production of respective invoices by the respondent - levy of service tax on audit fee - extended period of limitation - HELD THAT - It is found that without any discussions and/or proper reasoning the learned commissioner has confirmed the short payment of demand and denied the Cenvat credit to the respondent, which do not find favour the present case, therefore, there are no other option but to set aside the part of the impugned order confirming the short- payment of demand and denial of Cenvat credit alongwith penalty for which cross-objection has been filed by the respondent and remanding the same to the Adjudicating Authority to decide the issue afresh including the issue of extended period of limitation, after giving proper opportunity to the respondent. The appeal filed by revenue is rejected and the cross-objections of respondent are accordingly disposed off.

Summary

Issues Involved:
1. Whether the respondent, a Multi System Operator (MSO), was required to pay service tax on the gross amount collected from subscribers or only on the amount received from Local Cable Operators (LCOs).
2. Whether the denial of Cenvat credit to the respondent-assessee was justified.

Issue-Wise Detailed Analysis:

1. Service Tax Liability on Gross Amount Collected:
The primary issue was whether the respondent, an MSO, should pay service tax on the total amount collected from subscribers or only on the amount received from LCOs. The Revenue argued that the MSO should pay service tax on the gross amount charged from subscribers, as per Section 67 of the Finance Act, 1994. They contended that the MSO provided both analog and digital services and that the subscription income was inclusive of service tax.

Conversely, the respondent argued that they provided services to LCOs, who in turn transmitted signals to subscribers. They contended that they should pay service tax only on the amount recovered from LCOs, as per Section 67 of the Finance Act, 1994, which stipulates that the value of taxable services shall be the gross amount charged by the service provider for such service. The respondent relied on the Supreme Court decision in Union of India vs. Intercontinental Consultants and Technocrats P. Ltd., which emphasized that the valuation of taxable service should be the gross amount charged by the service provider for such service.

The Tribunal agreed with the respondent, noting that the MSO provided services to LCOs, who then provided services to subscribers. The Tribunal emphasized that the MSO was only responsible for paying service tax on the amount received from LCOs. This conclusion was supported by the Telecom Regulatory Authority of India (TRAI) regulations and various Board Circulars, which clarified that in revenue-sharing arrangements, each party should pay service tax on their respective share. The Tribunal also referenced a similar case, M/s. Blue Star Communication vs. Commr. of Central Excise & Service Tax-Ludhiana, where it was held that cable operators are liable to pay service tax only on the subscriptions received from subscribers.

2. Denial of Cenvat Credit:
The second issue was the denial of Cenvat credit amounting to Rs.1,69,859/- due to non-production of respective invoices and Rs.75,130/- for paying audit fees to an employee. The respondent argued that the denial was without proper basis and that the extended period of limitation could not be invoked as there was no fraud, collusion, or wilful misstatement.

The Tribunal found that the Commissioner had confirmed the short payment of demand and denied the Cenvat credit without proper reasoning or discussion. Consequently, the Tribunal set aside this part of the impugned order and remanded the matter back to the Adjudicating Authority for reconsideration. The Tribunal directed the respondent to produce all necessary documents to support their claim.

Conclusion:
The Tribunal rejected the appeal filed by the Revenue and disposed of the cross-objections filed by the respondent. The Tribunal held that the respondent, as an MSO, was liable to pay service tax only on the amount received from LCOs, not the gross amount collected from subscribers. The denial of Cenvat credit was remanded for fresh consideration by the Adjudicating Authority.