2025 (4) TMI 1289 - AT - Service Tax

Short payment of service tax - liability of a cable operator for service tax under the Finance Act 1994 - invocation of extended period of limitation - recovery of service tax with interest and penalty - HELD THAT - The Chandigarh Bench has in the order relied upon in the case of Alpha Cable Network held that extended period could not have been invoked. As facts of the present case are exactly identical to the case of Alpha Cable Network or that decided by the Chandigarh Bench there are no merits in the impugned order to the effect it upheld the demand for extended period of limitation. The demand should be restricted to normal period of limitation. Thus the matter needs to be remanded to the Original Authority for determination of the quantum of taxes for normal period. There are no merit in the submissions to the effect that Cenvat credit in respect of these documents should be allowed for computation of the demand. However in the remand proceedings while working out the demand for normal period Adjudicating Authority should take into consideration if any document against which the credit has been claimed was within the period as prescribed by proviso to Rule 4(7) of the Cenvat Credit Rules 2004 as amended from time to time. Conclusion - The local cable operators are independently liable for service tax cannot avoid liability by pointing to MSO s tax payment are entitled to threshold exemption if conditions are met must comply with registration and return filing requirements to claim CENVAT credit and that limitation periods and penalties must be applied consistent with statutory provisions and judicial precedents. Matter remanded to the Original Authority for computation of the demand for the normal period of limitation - appeal allowed in part by way of remand.

Summary

The core legal questions considered in this appeal pertain to the liability of a cable operator for service tax under the Finance Act, 1994, including the applicability of extended limitation period, eligibility for threshold exemption, entitlement to CENVAT credit on input services, and the imposition of penalties for non-compliance with statutory obligations such as registration, return filing, and maintenance of records.

First, the Tribunal examined whether the appellant, a local cable operator (LCO), providing cable services to subscribers on signals received from a Multi System Operator (MSO), is liable to pay service tax independently despite the MSO having paid service tax on the same transmission. This issue necessitated interpretation of the definitions of "cable operator," "cable service," and "subscriber" under the Cable Television Networks (Regulation) Act, 1995 (CTN Act), as incorporated by reference in the Finance Act, 1994.

The legal framework includes Section 65(21) and 65(22) of the Finance Act, 1994, which define "cable operator" and "cable service" respectively, referencing the CTN Act. The CTN Act defines a cable operator as a person providing cable service through a cable television network or managing such a network, and cable service as transmission by cables of programmes including re-transmission of broadcast television signals. The subscriber is defined as the end recipient of such signals without further transmission.

The Tribunal relied on authoritative precedents including the Delhi High Court judgment in a case involving a cable network, the Tribunal's own decisions, and the CESTAT Chandigarh's ruling, all affirming that local cable operators who retransmit signals to subscribers are distinct taxable entities liable for service tax, notwithstanding the MSO's prior payment. The Tribunal rejected the appellant's contention of double taxation, referencing a Punjab & Haryana High Court decision clarifying that service tax is payable by both MSOs and cable operators, with no double burden due to the availability of CENVAT credit mechanisms.

Second, the Tribunal considered whether the appellant was providing branded services, which would affect eligibility for exemption under Notification No. 33/2012-ST dated 20.06.2012. The Tribunal found that the appellant merely retransmitted signals received from the MSO and did not offer any branded service to subscribers, thereby qualifying for the exemption subject to fulfillment of conditions including turnover thresholds.

Regarding the threshold exemption, the Tribunal analyzed the appellant's aggregate taxable value across financial years. It concluded that the appellant was not entitled to the exemption for financial years where the preceding year's taxable value exceeded Rs. 10 lakh, but was eligible for the exemption in the year where the preceding year's taxable value was below that limit.

Third, the Tribunal addressed the admissibility of CENVAT credit for service tax paid by the MSO on input services. It applied the ratio from a CESTAT Chandigarh decision which held that service tax paid by the MSO on signals supplied to cable operators constitutes input service, and credit thereof is admissible under the CENVAT Credit Rules, 2004, subject to compliance with statutory conditions.

However, the appellant's failure to register for service tax, file statutory returns (ST-3), and maintain proper records precluded legitimate claim and utilization of CENVAT credit within the prescribed timelines. The Tribunal emphasized that CENVAT credit crystallizes only upon filing returns and maintaining records, and cannot be presumed or allowed indefinitely. The appellant's contravention of Rule 4(7), Rule 9(6), and Rule 9(9) of the CENVAT Credit Rules, 2004, which prescribe time limits and documentation requirements, rendered the appellant ineligible for credit.

Fourth, the Tribunal scrutinized the computation of service tax demand considering the exclusion of entertainment tax from the taxable value and the application of correct service tax rates for different periods, acknowledging the appellant's submissions on the same. It recalculated the tax liability accordingly.

Fifth, the Tribunal considered the invocation of the extended period of limitation under the proviso to Section 73(1) of the Finance Act, 1994, which permits demand beyond the normal limitation period in cases of suppression of facts with intent to evade tax. The Tribunal found that the appellant's failure to register, non-filing of returns, and non-payment of service tax constituted suppression and evasion, justifying the extended limitation period and imposition of penalty under Section 78 of the Act.

However, the Tribunal noted a conflicting decision from the CESTAT Chandigarh in a similar case (Alpha Cable Network), where extended limitation was held not invokable due to the appellants' bona fide belief and prevailing industry confusion. Given the identical facts, the Tribunal remanded the matter to the Original Authority for recomputation of demand within the normal limitation period, effectively overruling the extended period invocation in this case.

Sixth, the Tribunal upheld the penalties imposed under Sections 77(1)(a), 77(1)(b), 77(1)(c), and 77(2) of the Finance Act, 1994, for failure to obtain registration, maintain proper accounts, furnish information, and file returns, respectively. The appellant's non-compliance was deemed deliberate and unjustified.

Seventh, the Tribunal analyzed the limitation on availing CENVAT credit as per the proviso to Rule 4(7) of the CENVAT Credit Rules, 2004, which restricts credit to be taken within one year of the invoice date. The Tribunal referred to binding precedents including a Larger Bench decision and Supreme Court rulings, which held that the limitation is procedural and does not extinguish vested rights but restricts the time to enforce such rights. The appellant's claim for credit on documents older than the prescribed period was rejected, with a direction to the Original Authority to consider only those credits admissible within the statutory time frame during remand proceedings.

In conclusion, the Tribunal modified the confirmed service tax demand to Rs. 6,34,313/- after excluding entertainment tax and allowing threshold exemption and cum-tax benefit where applicable. It reduced the penalty under Section 78 of the Finance Act to the same amount but upheld other penalties. The Tribunal remanded the matter for recomputation of demand within the normal limitation period, directing the Original Authority to consider the observations on CENVAT credit admissibility and apply correct tax rates per period. The appeal was partly allowed accordingly, with a direction for expeditious disposal.

Significant holdings include:

"The services provided by both cable operator and MSO continued to be taxable within the scope of definition of 'service' and 'taxable service' given under Section 65B(44) of the Act which emphasized that 'service' means any activity carried out by a person for another for consideration, and includes a declared service after introduction of negative tax regime w.e.f 01.07.2012."

"The contention of the appellant that since MSO has already paid service tax, therefore, they are not liable to pay service tax is devoid of merit."

"The appellant has misconstrued the said judgment of the Hon'ble High Court of Punjab & Haryana... contention that service tax is required to be paid twice on the same service is also without any merit."

"The appellant is not providing any branded service to the subscribers, therefore, the appellant is entitled to avail the benefit of exemption Notification No. 33/2012-ST dated 20.06.2012 subject to fulfilment of conditions mentioned in the said exemption notification."

"The service tax paid by the MSO is available as Cenvat credit to the appellants... the appellant is not eligible for CENVAT credit due to non-fulfillment of condition mentioned in Rule 4(7), 9(6) & 9(9) of the CENVAT Credit Rules, 2004."

"The non-payment of Service Tax could be detected only during the course of enquiry conducted by the Department. Thus, it is a clear case of suppression of facts and contravention of the statutory provisions, with intent to evade payment of Service Tax. Thus, I find that extended period of limitation has been rightly invoked in this case for confirming the demand of Service Tax and imposing penalty under Section 78 of the Act."

"Extended period of limitation is not invokable and no penalty is imposable upon the appellants where appellants were under bona fide belief that they were not liable to pay Service Tax and there was confusion in the industry."

"The limitation prescribed under proviso to Rule 4(7) of the CENVAT Credit Rules is procedural and does not take away vested rights but restricts the time within which the manufacturer or service provider has to enforce the right to credit."

"The demand should be restricted to normal period of limitation. Thus the matter needs to be remanded to the Original Authority for determination of the quantum of taxes for normal period."

These principles establish that local cable operators are independently liable for service tax, cannot avoid liability by pointing to MSO's tax payment, are entitled to threshold exemption if conditions are met, must comply with registration and return filing requirements to claim CENVAT credit, and that limitation periods and penalties must be applied consistent with statutory provisions and judicial precedents. The Tribunal's remand for recomputation within the normal limitation period reflects a balanced approach respecting both the revenue's interest and the appellant's rights.