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TMI Blog2023 (1) TMI 1142X X X X Extracts X X X X X X X X Extracts X X X X ..... he show cause for recovery of Rs.58,36,22,011/- had been dropped in entirety in order-in-original no. 60-63/STCIV/ MRRR/16-17 dated 16th June 2016 of Commissioner of Service Tax-IV, Mumbai but the determination of classification with ramification on exports has prompted substantive memorandum of cross-objections on that finding. The dispute, thus, encompasses common ground as well as 'cause and consequence' contour for resolution. 2. That the impugned activities are, but for the factum of 'exports', taxable under Finance Act, 1994 is not in dispute; proceedings which were initiated alleging that, notwithstanding receipt of consideration from recipient of service based abroad in convertible foreign currency, the said service had been rendered in India did, however, culminate with the finding that partial rendering of service outside India sufficed for exemption as provided for in Export of Service Rules, 2005. Non-availability of the characteristic of commodities that lent itself to ease of ascertainment of taxable event in the hitherto existing indirect levies as the touchstone for determining occurrence in intangible, and invisible, services necessitated rules of engagement for c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pugned provision in the said Rules would not apply. This is not contested in the appeal of Revenue which, however, relies upon certain judicial decisions to contend that 'goods', for the purpose of the said Rules, does not have to be tangible or corporeal. 5. The dispute straddles the 'pre-negative list' and 'negative list' regimes with the first show cause notice issued for 2007-08 to 2011- 12 on 22nd October 2012 for recovery of Rs. 23,08,38,580/- followed by annual demand notices aggregating Rs. 35,27,83,431/- for 2012-13 to 2014-15. The impugned order, while dealing with taxability of the impugned activity in the two periods of service tax levy, has held that an amount of Rs. 14,41,123/- as consideration for 'equipment rental with support' had been erroneously included in the computation of demand for 2011-12 even though such consideration had been excluded in computation for the preceding years in the first notice for separate dropping and, by non-contest, limits the appeal of Revenue to Rs. 22, 93,97,457/-. 6. M/s Prime Focus Ltd, a pioneer in 'visual effects' and 3D technologies, incorporated two subsidiaries - in UK and the Netherlands - with downstream subsidiaries opera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ark-up which we pay in the currency that is billed to us"..' as well as '2.5) Analysis of different activities by the Assessee in the letter dated 13.08.2012: (i) Post Production Services: The assessee have stated at para 2.2.1 of the letter dated 13.08.2012 that 'Post Production activity' is generally understood in the film industry as being that part of film making process after the actual end of shooting and/recording the performance so as to make it fit for release. The process of editing, cutting, coloring, dubbing, title printing, imparting special effects, processing, adding, modifying or deleting sound etc. are some of the illustrative activities that are done after the process of recording of the performances, to prepare the content for release. (ii) Conversion of motion picture film shot originally in 2D to 3D: The assessee have stated at para 2.1.1 of the letter dated 13.08.2012 that they convert the films from 2D into 3D by using ViewD software. The process of conversion from 2D to 3D involves the following : * Tasking i.e. marking up still images for each shot to be converted, * Rotoscoping i.e. isolating specific (or all) objects within a frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... including the adjudicating authority, to the inference that these activities were the intendment of '(86a) "Programme" means any audio or visual matter, live or recorded, which is intended to be disseminated by transmission of electro-magnetic waves through space or cables intended to be received by the general public either directly or indirectly through the medium of relay stations;' in section 65 of Finance Act, 1994 and which would be within the ambit of 'recording of any programme' in section 65(120) of Finance Act, 1994, defining 'video-tape production' to conclude that the noticee was provider of the related service for the period prior to 1st July 2012. 9. For the period from 1st July 2012, service tax authorities proposed the applicability for 4(a) of Place of Provision of Service Rules, 2012 which shifts the place of provision from the location of the recipient of service to the place where the service is actually performed signified by the temporary stationing of the corresponding goods upon which a provider worked. The adjudicating authority held that the flow of activities undertaken by the respondent involved 'finishing' undertaken outside the country to whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccording to Learned Chartered Accountant appearing for the respondent, the entire case of service tax authorities, and now sought to be reiterated in appeal, has been erected, for the period prior to 1st July, 2012, on the shaky foundation of the activity as 'video-tape production' which is not consistent with the decisions of the Tribunal in Prasad Corporation Ltd v. Commissioner of Service Tax, Chennai [2018 (11) GSTL 104 (Tri.-Chennai)] and, thereafter, in Prasad Corporation Ltd v. Commissioner of Service Tax, Chennai-II [2021 - TIOL-44-CESTAT-MAD] as well as in Prasad Corporation Ltd v. Commissioner of GST & Central Excise, Chennai [(2019) 101 taxamann.com 460 (Chennai-CESTAT(17-12-2018)] with particular reference to '4. Heard both sides and have gone through the facts. It is clear that the services performed by the appellant definitely do not involve his recording of any programme, event or function. In fact, this aspect has been considered even by the adjudicating authority in para 5.3 of the order. The activities of services of Computer Graphics, Digital Restoration, and Reverse Telecine all involving activities on old feature films is definitely a post-production film act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rding of any programme, event or function on a magnetic tape or on any other media or device and includes services relating thereto such as editing, cutting, colouring, dubbing, title printing, imparting special effects, processing, adding, modifying or deleting sound, transferring from one media or device to another, or undertaking any video post-production activity, in any manner; in section 65(120) of Finance Act, 1994 is essential to determination of respondent as acceptable provider of the impugned service, its components are critical to evaluation of the proposition of Revenue for narrowing down to this particular 'taxable service' and, thus, deny exemption otherwise available on establishing that recipient outside the country had paid for it in convertible foreign exchange. 13. The inclusive leg of the definition pertains to the post-recording activity on video or transfer to another media by provider of service to qualify as 'video-tape production'; there is no evidence that the material received by the respondent was recorded in video or that the respondent had, at any time, handled video as media. There is nary an allegation that respondent had undertaken any activity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al of Revenue has been rendered inconsequential. 16. Insofar as the finding of the adjudicating authority for period after 1st July 2012 is concerned, appeal of Revenue contends that the interpretation assigned to goods as having to be, without exception, tangible for invoking rule 4 of Place of Provision of Service Rules, 2012 is contrary to judicial decisions. It was also averred that such narrow construction of 'goods' was not the intent of rule 4 of Place of Provision of Service Rules, 2012. 17. Learned Authorized Representative argued that the adjudicating authority had placed an erroneous construction on the scope of activity covered in rule 4(a) of Place of Provision of Service Rules, 2012 by misapplication of paragraph 5.4.1 of Service Tax Education Guide. According to him, this error is apparent from notification no. 134/94-Cus dated 22nd June 1994 which amplifies 'maintenance' to include 'service' in the context of cross-border transactions. He placed reliance on the decision of the Hon'ble Supreme Court in Associated Cement Company Ltd. v. Commissioner of Customs [2001 (128) ELT 21 (SC)] and, in particular, on the finding that '30. It is true that what the appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oods" within the meaning of the term as defined in the said Act. The term "all materials, articles and commodities" includes both tangible and intangible/incorporeal property which is capable of abstraction, consumption and use and which can be transmitted, transferred, delivered, stored, possessed etc. The software programmes have all these attributes. xxxxx 71. A software may be intellectual property but such personal intellectual property contained in a medium is bought and sold. It is an article of value. It is sold in various forms like - floppies, disks, CD-ROMs, punch cards, magnetic tapes, etc. Each one of the mediums in which the intellectual property is contained is a marketable commodity. They are visible to senses. They may be a medium through which the intellectual property is transferred but for the purpose of determining the question as regard leviability of the tax under a fiscal statute, it may not make a difference. A programme containing instructions in computer language is subject matter of a licence. It has its value to the buyer. It is useful to the person who intends to use the hardware, viz., the computer in an effective manner so as to enable him to obt ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or wavelengths for the transmission of particular types of services and information." The process of sending a signal is as follows :- "Data is superimposed on a carrier current or wave by means of a process called modulation. Signal modulation can be done in either of two main ways: analog and digital. In recent years, digital modulation has been getting more common, while analog modulation methods have been used less and less. There are still plenty of analog signals around, however, and they will probably never become totally extinct. Except for DC signals such as telegraph and baseband, all signal carriers have a definable frequency or frequencies. Signals also have a property called wavelength, which is inversely proportional to the frequency". (Encyclopedia of Technology Terms of Techmedia) 58. It is clear, electromagnetic waves are neither abstracted nor are they consumed in the sense that they are not extinguished by their user. They are not delivered, stored or possessed. Nor are they marketable. They are merely the medium of communication. What is transmitted is not an electromagnetic wave but the signal through such means. The signals are generated by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion. Hence the deviation in rule 4(a) of Place of Provision of Service Rules, 2012 and, considering the specific circumstance of determination by tangible presence, it would not be amenable to stretching for coverage of 'deemed goods', if any, owing to that limitation of pinpointing 'service' which is of essence in the said Rule. 21. The judgments in re Bharat Sanchar Nigam Ltd and in re Tata Consultancy Services, cited by Learned Authorized Representative, were rendered in disputes over attempted escapement from levy of tax on 'sale of goods' which, but for deeming provision in Article 366 6of the Constitution, is restricted to physical goods and, in determining the scope of escapement, held so in specific context. That does not hold for specific tax on 'services' within the legislative jurisdiction of Union of India and would certainly not for ascertainment of services having been exported within the prescription in rule 6A of Service Tax Rules, 1944. The premise on which Revenue has put forth its appeal for the period after 1st July 2012 is not tenable logically or legally. 22. For the above reasons, the appeal of Revenue fails and, with the cross-objection thus disposed off, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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