2023 (5) TMI 86 - AT - Service Tax

Levy of service tax - inclusion of copyright under IPR service - it is contended that amounts received as royalty and paid to the music directors / music companies was required to be included in the value - demand for the period from 01.05.2006 to 31.05.2007 under business support service - Demand from 01.06.2007 onwards under development and supply of content service - Section 67 of the Finance Act, 1994 read with Rule 5 of the Rules ibid. - suppression of facts or not - extended period of limitation. Suppression of facts - extended period of limitation - HELD THAT - The royalty was collected from their customers i.e., the operators, in addition to the service charges, with the Service Tax payable, and the Service Tax so collected on the service charges was remitted to Government account. That is to say, they did not collect or pay any Service Tax on the amount of royalties collected by them since the same was relating to the copyrights held by the respective owners and that the same was payable only when the same was used / enjoyed - It is also a fact borne on the record, at paragraph 9.1 of the Order-in-Original, that but for the audit, the issue could not have come to light. It is an undisputed fact that such audits took place in the years 2009 and 2010, during which time the fact of alleged non-offering of the Service Tax on the royalties was noticed by the audit party. Thus, the Revenue cannot stake a claim that the matter had remained suppressed. When each and every fact was very much available with the Revenue, what is that which was suppressed is not clear. We say so because, the non-payment of Service Tax on royalty having been noticed during audits conducted since 2009 appears to have been pointed to the appellant and the appellant appears to have replied thereto - the reason of fraud or collusion or suppression of facts, etc., with intent to evade payment of service tax is a necessary ingredient. However, the Revenue has only stated suppression of facts with an intention to evade payment of Service Tax when, clearly, the facts and figures were only collected from the books / ST-3 returns of the appellant - it is very difficult for us to accede to the Revenue s stand that the appellant had suppressed facts with an intent to evade payment of Service Tax. It would have been a different matter altogether had the appellant even collected the Service Tax on the royalties as well and pocketed it, but it is not so here in the case on hand. On merits - HELD THAT - The royalty was collected from their customers i.e., the operators, in addition to the service charges, with the Service Tax payable, and the Service Tax so collected on the service charges was remitted to Government account. That is to say, they did not collect or pay any Service Tax on the amount of royalties collected by them since the same was relating to the copyrights held by the respective owners and that the same was payable only when the same was used / enjoyed. The demands were proposed by the lower authority, by holding that the payment of royalty was an expenditure incurred by the appellant on behalf of the service recipient. The differential tax has been arrived at as per Section 67 of the Finance Act, 1994 read with Rule 5 of the Rules ibid. In view of the decision of the Hon ble Supreme Court inUNION OF INDIA AND ANR. VERSUS M/S. INTERCONTINENTAL CONSULTANTS AND TECHNOCRATS PVT. LTD. 2018 (3) TMI 357 - SUPREME COURT , the Revenue could not have proposed and confirmed the demand under Section 67 of the Act read with Rule 5 ibid., since it is by virtue of the mode of computation provided here that the differential tax was arrived at and demanded and this runs counter to the ratio decidendi of the Hon ble Apex Court in M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. . Hence, the demand cannot sustain on merits. Neither on limitation nor on merit could the demand impugned before us be sustained and hence, the impugned order is set aside - Appeal allowed.

Summary

Issues Involved:

1. Classification of services for the period from 01.05.2006 to 31.05.2007 and from 01.06.2007 onwards.
2. Inclusion of royalty charges in the taxable value.
3. Invocation of the extended period of limitation.

Summary:

Issue 1: Classification of Services

The appellant was initially registered under business auxiliary service since December 2003. The Revenue contended that the appellant should have classified its services under 'business support service' from 01.05.2006 to 31.05.2007 and under 'development and supply of content service' from 01.06.2007 onwards. The appellant argued that the re-classification was not proper, citing previous CESTAT rulings and Ministry of Finance clarifications.

Issue 2: Inclusion of Royalty Charges

The Revenue argued that the appellant should have included the royalty charges paid to music directors/music companies in the taxable value, as per Section 67 of the Finance Act, 1994 read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006. The appellant contended that the royalty charges were related to Intellectual Property Rights (IPR) services and were not subject to Service Tax prior to 2010. The Hon'ble Supreme Court's decision in Union of India v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. was cited, which invalidated Rule 5 as it went beyond the statutory provisions of Section 67.

Issue 3: Invocation of Extended Period of Limitation

The Revenue invoked the extended period of limitation under Section 73(1) of the Finance Act, 1994, alleging suppression of facts by the appellant. The appellant countered that all relevant facts were disclosed during audits conducted in 2009 and 2010, and no suppression of facts with intent to evade tax was evident. The Tribunal noted that the differential Service Tax was calculated based on the appellant's books of accounts and ST-3 returns, and the Revenue was aware of the facts from the audits.

Conclusion:

The Tribunal found that the demand could not be sustained on merits or on the grounds of limitation. The impugned order was set aside, and the appeal was allowed with consequential benefits as per law.