2023 (7) TMI 1238 - AT - Service Tax

Interpretation of statute - broadcasting services - STGU services - essence of services under the category of broadcasting and STGU, both under the un-amended definition of taxable service (effective up to 30.06.2012) and service under Negative List regime (w.e.f. 01.07.2012). HELD THAT - For the period pre-2012, Supply of Tangible Goods for Use (STGU) are covered as a taxable service, under Section 65 (105) (zzzzj) of the Finance Act, 1994. Such taxable service has been defined to mean, the service provided to any person, by any other person in relation to supply of tangible goods including machinery, equipment and appliances for use, without transferring right of possession and effective control of such machinery, equipment and appliances. Similarly, the phrase broadcasting has also been defined in sub-section (15) read with clause 105 (zk) of Section 65 of the Act of 1994 - in providing DTH television channels for viewing by the subscribers, the appellants are providing transmission of signals, sounds, images, pictures etc. of various channels such as, pay channels, free to air channels or other bouquet of channels direct to the subscribers. This is definitely covered under the category (i) and/or (iii) of the broadcasting services explained above. However, it is found that the provision of STBs is outside the scope and ambit of any of the above said three groups, in order to fall within the ambit of broadcasting service . It is not the case of Revenue that the appellants had retained the effective control over the STBs supplied to their buyers. Since, the effective control of the STB was with the buyer/subscriber to operate and to view the channels to his own choice, the transaction between the appellants and the buyer/subscriber cannot fall within the ambit of STGU for levy of service tax and would be considered as a deemed sale, attracting payment of VAT - CBEC in the circular dated 29.02.2008, has also accepted the legal provision and clarified that if VAT has been paid on a transaction, there is no question of levy of service tax under the STGU services. What is nature of activity undertaken by the appellants in supply/provision of Set top Boxes (STBs) to their customers/ subscribers? - HELD THAT - It is found from the plain reading of the above statutory provisions that every DTH operator is required to provide STBs to their subscribers in order to provide DTH service, inasmuch as STB is a necessary equipment to receive the DTH signals sent in encrypted form, to be received through the dish antenna, and which can be decoded and displayed on the television of the subscriber. From the above, we thus come to the conclusion that STB is a part of Customer Premises Equipment which is necessary for providing DTH service to a subscriber. It may be seen that STB is used as an equipment, being part of CPE, and that whenever the television channels are viewed by a subscriber, the said STB along with antenna are used for receiving and decoding the signals as a part of conditional access system. The broadcasting of signals by the appellants for viewing television channels are distinct by themselves from the STBs and other equipment. Thus, it is concluded that the nature of activity undertaken by the DTH operator in providing STB to a subscriber, is provision of an equipment, which is one-time activity, and it is not a part of DTH service in providing television channels for viewing by the subscriber. Whether provision of STBs by the appellants to the subscribers would amount to rendition of service? - HELD THAT - On reading of Regulation 10 of the DTH Regulations, it would transpire that a subscriber may or may not pay for his subscription charges. However, as a provider of DTH service, the appellants herein are entitled, even when no broadcasting signals go to the subscriber, to collect lease rental amounts for such period when the STBs remain with the subscriber. Hence, it can be concluded that the subscriber had control over the STBs during the time when he pays for the lease rental for the same and he can exercise the right of control by viewing free to air channels like Doordarshan etc., even if does not able to view the other channels for non-payment of requisite charges - there are no hesitation, but to conclude that supply of STBs by the appellants is not a service, rather it is a deemed sale, leviable to VAT under the State legislature, inasmuch as the right to use of STB has not been retained by the appellants and the same was transferred to the subscriber for viewing the channels etc. according to his own choice and will. Whether the charges collected by the appellants for STBs are amenable for levy of service tax under any other taxable category? - HELD THAT - From the records of the case, it is seen that the charges collected by the appellants in respect of providing STBs are on rental basis. The learned Advocate for the appellants argues that they are rightly paid the VAT on supply of STBs considering it as deemed sale - supply of STB on rental basis is a deemed sale in terms of Article 366(29A) of the Constitution, and thus, such transactions per se are not amenable to charge of service tax, for the reason that the right to use the STBs has not been retained by the appellants and same has been provided or transferred to the subscribers for viewing the broadcast channels according to their choice. The supply of STBs cannot be categorized as a taxable service under the definition of broadcasting . Even considering the same as a taxable service under the category of STGU, the same cannot meet the requirement of levy of service tax in the case of the appellants inasmuch as the right to use the STBs were transferred by the appellants to the subscribers. In other words, if the right to use and control of the STBs retained by the appellants, the same would fall under the purview of STGU for levy and payment of service tax under that category of service. These aspects have been adequately dealt with in the Circulars and Educational Guide issued by CBEC. Such guidelines were issued by the Board by considering the Budget Speech delivered by the Finance Minister in the floor of the Parliament, which is to the effect that right to use the goods, would be subjected to levy of service tax, in cases where VAT is not payable on such goods. The appellants have assailed the impugned order on the ground that the present demand is a duplication one, as the amount has already been considered in the other adjudication order dated 27.12.2016. Further, the appellants have also contended in the appeal that the amount received by them as lease rentals is on account of deemed sale and not service and accordingly, not chargeable to service tax. Since, the issue in both the impugned orders is identical, this order passed by the Bench will have equal force in respect of both the appeals filed by the appellants. There are no merits in the impugned orders, in so far as the adjudged demands were confirmed on the appellants - appeal allowed.

Summary

Issues Involved:
1. Consideration of Additional Grounds
2. Judicial Decorum and Participation by Revenue Officers
3. Nature of Activity and Taxability of Set Top Boxes (STBs)

Summary:

1. Consideration of Additional Grounds:
The appellants and the Revenue filed miscellaneous applications under Rule 10 of the CESTAT (Procedure) Rules for consideration of additional grounds. The Tribunal heard the applications and found the averments justified for consideration, thus dismissing the objections raised by the Revenue. The appeals were taken up for hearing and decision on merits.

2. Judicial Decorum and Participation by Revenue Officers:
The Tribunal noted inappropriate conduct by the Commissioner of CGST and Central Excise, Aurangabad, who sought unnecessary adjournments and claimed ignorance of the appellants' additional grounds despite evidence of service. The Tribunal emphasized the need for proper judicial decorum and recommended that the supervising authorities take appropriate action against such conduct.

3. Nature of Activity and Taxability of Set Top Boxes (STBs):
The appellants provided broadcasting services through DTH and supplied STBs to customers on a rental basis, treating the transaction as a deemed sale and paying VAT. The Revenue argued that the rental charges for STBs should be included in the taxable value for service tax under broadcasting services. The Tribunal examined the definitions and statutory provisions for 'broadcasting' and 'Supply of Tangible Goods for Use' (STGU) and concluded that the provision of STBs is outside the scope of broadcasting services.

The Tribunal referred to judicial precedents, including the Hon'ble Supreme Court's judgment in Quick Heal Technologies Limited and the Hon'ble Tripura High Court's judgment in Bharti Telemedia Ltd., to establish that the effective control over the STBs was with the customers, making the transaction a deemed sale subject to VAT and not service tax. The Tribunal also dismissed the Revenue's reliance on the UCN Cable Network Pvt. Ltd. case, as it did not consider the relevant High Court judgment.

Conclusion:
The Tribunal set aside the impugned orders, holding that the appellants' provision of STBs on a rental basis is a deemed sale, not subject to service tax. The appeals were allowed in favor of the appellants.