2007 (12) TMI 152 - AT - Service Tax

Cable operator suppression of value of taxable services - clarification by Board 149/5/06, is applicable to broadcasting services not to cable operator assessee plea that in respect of amount collected towards payments to pay channels, they are not liable to discharge tax liability, is not acceptable - not legally permissible to split up the amount collected from subscriber in the form of a taxable amount towards taxable service & non-taxable service bonafide belief so penalty set aside

Summary

Issues:
1. Whether the appellants suppressed the actual value of taxable services and short-paid service tax.
2. Whether the appellants are liable to pay service tax on the amount collected towards pay channels.
3. Whether the penalties imposed on the appellants are warranted.

Analysis:
1. The appellants, providing taxable services as cable operators, were accused of suppressing the actual value of taxable services and short-paying service tax. The Adjudicating Authority confirmed a demand for service tax, education cess, interest, and penalties under various sections of the Finance Act. The Commissioner (Appeals) upheld the liability to service tax but remanded the matter for recalculation, acknowledging the appellants' argument regarding the treatment of receipts on a cum-tax basis. The Commissioner's decision was based on the understanding that the appellants cannot separate their receipts into taxable and non-taxable categories. The Appellate Tribunal found the liability of the appellants to be established, rejecting the appellants' argument to pay service tax only on a portion of the amount collected. However, the Tribunal set aside the penalties due to the appellants' bona fide belief and ordered the recalculation of the tax liability, with interest to be paid as per the law.

2. The appellants contested the demand for service tax on the amount collected towards pay channels, citing a clarification issued by the Board. The clarification stated that broadcasting services were taxable even before 2005, with the scope extended post-2005 to include amounts collected from clients for receiving broadcast signals. The Tribunal clarified that the appellants, as cable operators, were liable to pay service tax on the gross receipts collected for their services since 2002. The Tribunal emphasized that the appellants' services were taxable without the possibility of splitting the amount collected into taxable and non-taxable portions. The Tribunal found the appellants' reliance on the circular irrelevant, as their service as cable operators was subject to service tax regardless of the nature of the receipts.

3. Regarding the penalties imposed on the appellants, the Tribunal determined that the penalties were not warranted due to the appellants' genuine belief regarding the service tax liability on the amount collected towards pay channels. The Tribunal ordered the recalculated tax liability as per the Commissioner (Appeals) order and set aside all penalties. However, the Tribunal held that the appellants were liable to pay interest as per the law. The Tribunal's decision focused on the appellants' genuine belief and the legal requirement to pay service tax on the gross receipts without the option to bifurcate the amount collected.

This detailed analysis of the judgment addresses the issues involved in the case comprehensively, outlining the Tribunal's findings and reasoning regarding the appellants' service tax liability and the penalties imposed.