2018 (12) TMI 872 - AT - Service Tax

Classification of service - Franchise Services or not - ST-3 returns not filed - export of services - extended period of limitation - penalty. Held that - There is no dispute in respect of the activities undertaken by the Appellant. The role and activities undertaken by the Appellant, in respect of the grant of media rights have been summarized by the Hon ble Apex Court, in Union of India Vs Board of Control for Cricket in India 2017 (8) TMI 1496 - SUPREME COURT OF INDIA . The appellants are not only responsible for organizing the cricket matches but also to educate, promote, popularize, inform and entertain the viewers. For the said purpose appellants allow entry into the stadium for viewing the match and also ensure the telecast of the match for the purpose of those who cannot visit the stadium for viewing the said matches. For taking the live telecast of the matches to the home of viewers, Appellant grant media rights to selected party on exclusive basis. The party granted such media rights represents the BCCI, and is designated in terms of the agreement as Official Broadcaster - the services as provided by the Appellants to the M/s MSM, Singapore and M/s WSG are squarely covered by the definition of franchise services as defined by the Section 65(47), 65(48) & 65 (105) (zze) of the Finance Act, 1994. The activity of the telecast or broadcast of the IPL matches, has been assigned for a consideration to the licensee, and they have been permitted in terms of the agreement as official broadcasters of the IPL . Thus it is quite evident that the appellants have granted representational rights to the licensee, in relation to the telecast/ broadcast of the IPL matches. Since we are holding that the services provided by the appellant in terms of media rights agreement to the licensee to fall within the category of Franchise Services, we do not examine the claim for classification under the category of Commercial Use or Exploitation of Event. In our view, the category of Commercial Use or Exploitation of Event refers to the services being in relation to the Commercial Use or Exploitation of the Event for one time and is not in relation to grant of representational rights to perform a particular function over period of time. Whether the Services Provided by the Appellant will qualify as Export of Services for the purpose of Export of Service Rules, 2005 as amended from time to time? - Held that - Service provided by the appellants are provided in India and used in India. The service provided by the appellant is in form of the feed for the live broadcast of match, and not for transfer of media right. The recipient of service carries the said feed to the individual viewers. Transfer of media right is only to exclusively authorize the M/s MSM Singapore or M/s WSG to broadcast the said feed as Official Broadcaster for the IPL. Thus we are not convinced by the argument advanced by the appellant that in para C.8 that location of the person to whom the media rights have been transferred will determine the place where the service has been provided, and since in the present case the person to whom the media rights have been transferred is located in Singapore, the service should be treated as export of service. Since prior to amendments made in Rule 3, with effect from 27.02.2010, the requirement of providing the services from India for use outside India was mandatory and is not satisfied in the present case, the benefit of Export of Services Rules, 2005 will not be available to the appellants - benefit under Export of Service Rules, 2005 could not have been extended to the appellant, for the period prior to 27.02.2010. For the period after 27.02.2010, the said benefit has been extended to the appellant, to the extent they have shown that the payment against the said services was received in convertible foreign exchange. Time limitation - Held that - The appellants had not been declaring the income from media right agreement in their ST-3 returns, the appellants have suppressed the same with intention to evade payment of service tax. Thus extended period of limitation as provided for by the proviso to Section 73(1) has been rightly invoked for demanding Service Tax in the notice dated 14.10.2009. Penalty - Held that - Since we have held that extended period of limitation has been rightly invoked in the present case, the provisions of section 78 will get attracted automatically and hence the penalty as imposed in respect of the Show Cause Notice dated 14.10.2009 has to follow - Penalties under Section 76 and Section 77, are for the reason of contraventions of various provisions and acts of omission to perform the task as required to be performed under the provisions of the act. Such penalties are in nature of Civil Liabilities and do not require any contumacious conduct on the behalf of the defaulter. Penalties imposed under the provisions of Section 76 and 77 of the Finance Act, 1994 upheld. Demand of Interest - Held that - Since the demand of tax has been upheld the demand for interest will follow. It is now settled law that interest under Section 75, is for delay in the payment of tax from the date when it was due. Since appellants have failed to pay the said Service Tax by the due date interest demanded cannot be faulted. Appeal allowed in part.

Summary

Issues Involved:
1. Classification of services provided by the appellant.
2. Eligibility for export of service benefits.
3. Applicability of the extended period of limitation.
4. Justification for penalties under Sections 76, 77, and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The primary issue was whether the services provided by the appellant to M/s MSM Singapore and M/s WSG qualified as Franchise Services under Section 65(47), 65(48), and 65(105)(zze) of the Finance Act, 1994. The Tribunal analyzed the agreements and noted that the appellants granted media rights on an exclusive basis, including the right to use league logos and marks. The Tribunal found that the services provided by the appellants were indeed Franchise Services as they granted representational rights to the licensees to act as "Official Broadcasters of the IPL," thereby satisfying the definition of franchise services.

2. Eligibility for Export of Service Benefits:
The Tribunal examined whether the services provided qualified as export of services under the Export of Service Rules, 2005. For the period before 27.02.2010, the Tribunal held that the services did not qualify as export since they were provided and used in India. Post 27.02.2010, the Tribunal noted that the benefit of export of services was extended only to the extent that payments were received in convertible foreign exchange. The Tribunal found that substantial payments were made by M/s Sony Pictures Entertainment on behalf of MSM Singapore, which did not qualify for export benefits.

3. Applicability of the Extended Period of Limitation:
The Tribunal upheld the invocation of the extended period of limitation under Section 73(1) of the Finance Act, 1994, noting that the appellants had not declared the income from media rights agreements in their ST-3 returns, thereby suppressing facts with the intent to evade payment of service tax. The Tribunal referenced several judicial precedents to support the view that knowledge of the department does not preclude the invocation of the extended period if suppression is established.

4. Justification for Penalties under Sections 76, 77, and 78:
The Tribunal upheld the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994. It noted that the penalties under Section 78 were justified due to the suppression of facts. Penalties under Sections 76 and 77 were upheld as they pertain to civil obligations and do not require mens rea. The Tribunal referenced the Supreme Court decision in Gujarat Travancore Agency to support the imposition of penalties for non-compliance with statutory provisions.

Conclusion:
The Tribunal upheld the classification of services as Franchise Services, denied export benefits for the period before 27.02.2010, and confirmed the invocation of the extended period of limitation and the imposition of penalties. The appeal by the revenue challenging the cum tax benefit was dismissed. The appellants were allowed to avail CENVAT Credit on input services used for providing output services if otherwise admissible.