2017 (5) TMI 883 - AT - Service Tax

Business Auxiliary Services - the appellants were engaged in developing and supplying contents like news, cricket scores, jokes, etc. to various telecom companies on revenue sharing basis - non-payment of service tax - Revenue entertained a view that these types of value added services with reference to news, cricket score, astrology, jokes, etc. are to be considered under the taxable category of Business Auxiliary Service - Held that - the appellant is promoting the service provided by the mobile operator is without any factual basis. Admittedly, the arrangement is on principal to principal basis, wherein the appellants develops and provides certain contents to be transmitted by the mobile telecom operators to their various subscribers, as a value added service. The consideration for providing such contents were fixed as percentage of income obtained by the telecom service providers - the appellants are not engaged in procuring any input service for the telecom operators. In fact, they are developing the contents and supplying the same to the telecom operators on a revenue sharing model - the impugned order did not legally justify the tax liability of the appellant under the category of Business Auxiliary Service . Management, Maintenance or Repair Services - the appellant shall develop, operate and maintain online sites of BCCL - Revenue entertained a view that the appellants were engaged in management, maintenance and repair of software and accordingly, are liable to pay service tax - Held that - A plain reading of the agreement and the scope of the activities by the appellant, will indicate that they are not involved in any software, repair or maintenance. They are involved in a comprehensive service of designing and managing the online publication for BCCL - the website per se is not a computer software - On careful consideration of the scope of activities undertaken by the appellant, we are of the considered view that the same will not fall under the scope of management/maintenance/repair of software. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Classification of services provided to telecom companies under "Business Auxiliary Service" (BAS).
2. Classification of services provided to M/s. Bennett and Coleman Co. Ltd. (BCCL) under "Management, Maintenance or Repair Services" (MMR Services).

Issue-wise Detailed Analysis:

1. Classification under "Business Auxiliary Service" (BAS):
Background: The appellant developed and supplied content such as news, cricket scores, and jokes to telecom companies like Reliance Communication and Aircel. These services were delivered via short codes and revenue was shared with telecom operators.

Revenue's Argument: The Revenue held that these services should be categorized under "Business Auxiliary Service" (BAS) as they were promoting the services of telecom operators.

Appellant's Argument:
- The show cause notice lacked clarity on the exact tax entry applicable.
- The services were provided on a principal-to-principal basis, not as customer care or input procurement for telecom companies.
- The revenue sharing model did not equate to an incentive or commission involving a three-party arrangement.

Tribunal's Findings:
- The agreement was on a principal-to-principal basis where the appellant developed and provided content to telecom operators.
- The Original Authority's classification under BAS clauses (iii) and (iv) was incorrect. The appellant was neither providing customer care services on behalf of telecom operators nor procuring inputs for them.
- The services provided did not fall under any sub-clauses of BAS, thus the tax liability under BAS was not legally justified.

2. Classification under "Management, Maintenance or Repair Services" (MMR Services):
Background: The appellant entered into an agreement with BCCL to develop, operate, and maintain online sites for BCCL's online publications.

Revenue's Argument: The activities were categorized as "Management, Maintenance or Repair Services" (MMR Services), specifically for software maintenance.

Appellant's Argument:
- The agreement was for providing comprehensive Information Technology services, not just maintenance or repair of software.
- Designing, operating, and maintaining a website is different from software maintenance.
- The contract involved a complete package of services, including website design and uninterrupted operation, not just software maintenance.

Tribunal's Findings:
- The agreement involved comprehensive IT services for online publications, not just software maintenance.
- The Original Authority failed to distinguish between maintaining a website and maintaining software.
- Websites are collections of data, not software. The appellant was engaged in designing and managing online publications, not in software maintenance or repair.
- The reliance on the CBEC Circular dated 7.10.2005 was misplaced as it did not appropriately apply to the appellant's services.

Conclusion:
The Tribunal set aside the impugned order, finding that the services provided by the appellant did not fall under the categories of "Business Auxiliary Service" or "Management, Maintenance or Repair Services" as determined by the Original Authority. The appeal was allowed, and the demand for service tax under these categories was not legally sustainable.