Custom, Excise & Service Tax Tribunal
M/S Espn Software India (P) Ltd vs Cst, New Delhi on 17 October, 2013
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
West Block No. 2, R.K. Puram, New Delhi 110 066.
Date of Hearing : 14.8.2013
Date of Pronouncement : 17.10.2013
For Approval & Signature :
Honble Mr. Justice G. Raghuram, President
Honble Mr. Sahab Singh, Member (Technical)
1.
Whether Press Reporter may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?
2.
Whether it would be released under Rule 27 of the CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?
3.
Whether their Lordships wish to see the fair copy of the order?
4.
Whether order is to be circulated to the Department Authorities?
Service Tax Appeal No. 1301 of 2011 and 279 of 2012
[Arising out of Order-in-Original No. 49/2011 dated 31.3.2011 & 18/2011 dated 29.11.2011 passed by the Commissioner, Central Excise & Service Tax, New Delhi]
M/s ESPN Software India (P) Ltd. Appellants
Vs.
CST, New Delhi Respondent
Appearance:
Shri V. Sreedharan, Sr. Advocate - for the appellant Ms. Charanya L., Advocate, Shri Somesh Arora, Advocate - for the respondent Shri Pramod Kumar, Jt. CDR Service Tax Appeal No. 56999 of 2013 with Stay No.57569 of 2013 (Arising out of Order-in-Original No. 01-04/GB/2013 dated 10.1.2013 passed by the Commissioner, Service Tax, New Delhi) M/s Turner International India Pvt. Ltd. Appellant Vs. CST, New Delhi Respondent Appearance :
Shri N. Venkataraman, Sr. Advocate - for the appellant Shri Pramod Kr., Jt. CDR - for the respondent Coram : Honble Mr. Justice G. Raghuram, President Honble Mr. Sahab Singh, Member (Technical) F. Order No. 58020-58022/2013 Per Sahab Singh :
These are three appeals two filed by M/s ESPN Software India Pvt. Ltd. (hereinafter referred to as Appellant No. 1) and one filed by M/s Turner International India Pvt. Ltd. (hereinafter referred to as Appellant No. 2). Since the issue involved is common, these are being taken up together for decision. Appellant No. 1 has filed Appeal No. ST/1301/2011 and ST/279/2012 against Order-in-Original No. 49/2011 dated 31.3.2011 and 18/2011 dated 29.11.2011 respectively both passed by the Commissioner of Central Excise, LTU, New Delhi. Appellant No. 2 has filed Appeal No. ST/56999/2013 against Order-in-Original No. 1-4/GB/13 dated 10.1.2013 passed by Commissioner of Service Tax, New Delhi.
2. Brief facts of the case in Appeals of Appellant No. 1 are that Appellant No. 1 is wholly owned subsidiary of ESPN (Mauritius) Limited and is engaged in import, promotion, marketing, distribution and sub-distribution of the international ESPN network programming service (ESPN channels), STAR Sports Network programming service (STAR Sports Channel) and STAR Cricket network programming service (STAR Cricket Channel) in India through Cable TV Net work, satellite master antenna and DTH platforms received via satellite. ESPN is also engaged in the business of purchase of Advertisement Time Inventory on these channels and for further sale of Ad-time to third party advertisement in India. On the basis of an intelligence that ESPN was making substantial payment to foreign based broadcasters namely ESS Distribution (Mauritius) SNC at Compagnie, Mauritius (hereinafter referred to as ESSD) ESPN STAR Sports Mauritius SNC at Compagnie, Mauritius (hereinafter referred to as ESSM) towards import of broadcasting services namely TV channel Distribution Rights and purchase of Advertising Time Inventory in respect of ESPN, STAR Sport and STAR Cricket Channel but is not paying any service tax under the reverse charge mechanism, on the consideration paid to foreign based broadcasters towards import of such broadcasting services, investigations were taken up by Directorate General of Central Excise, Intelligence (DGCEI).
3. ESPN had entered into an agreement effective from 1.4.2003 and expiring on 31.3.2004 and automatically renewable for successive period of one year and other agreement dated 22.2.2008 (effective from 11.11.2005 and expiring on 31.3.2011) for distribution rights of ESPN channel. Similarly ESPN has entered into various agreements with ESSM in respect of distribution rights for STAR Sports Channel and STAR Cricket Channel. Agreements dated 1.4.2003 (for the period 1.4.2003 to 31.3.2004) automatically renewable for successive periods of one year and agreement dated 22.2.2008 (for the period 11.11.2005 to 31.3.2011) were for distribution rights of STAR Sports Channel. Agreement dated 1.4.2007 (for the period 1.4.2007 to 31.3.2012) was for distribution rights in respect of STAR Cricket Channel. ESPN has also entered into agreement with ESSD and ESSM for purchasing Advertisement Time Inventory. These agreements were dated 1.4.2004 (for the period 1.4.2004 to 31.3.2005) automatically renewable for further term of one year each and agreement dated 22.2.2008 (for the period 11.11.2005 to 31.3.2011 and agreements dated 1.4.2007 (for the period of one year) between ESPN and ESSM in respect of STAR Sports and STAR Cricket Channel.
4. On the basis of scrutiny of these agreements and other records and documents like Balance sheet, profit and loss account, Service Tax returns filed by them, invoices issued by the foreign broadcasters and statements of Shri Vinit Kumar Jain, Associate Director, Department felt that Appellant No. 1 is receiving taxable service as defined under Section 65(105)(zk) of Finance Act from foreign broadcasters and is liable to levy of service tax under reverse charge mechanism under Broadcasting Service. Accordingly, two Show Cause Notices dated 21.10.2010 and 13.4.2011 were issued to the Appellant No. 1 demanding service tax along with interest for the period April 2005 to March 2010 and April 2010 to December 2010 respectively and also proposing penalty on the appellants. These Show Cause Notices were adjudicated by the Commissioner, Service Tax, LTU vide Orders-in-Original No. 49/2011 dated 31.3.2011 and 18/2011 dated 13.4.2011 respectively confirming service tax amounting to Rs.225,78,99,391/- and Rs.73,97,95,551/- interest and equal amount of penalty on the appellants. Appellant has challenged these orders in the present appeals.
5. Brief facts of the case in respect of M/s Turner International India Pvt. Ltd. (hereinafter referred to as TIIPL) are that the appellant is subsidiary of M/s Turner Broadcasting System Asia Pacific, Inc., Hong Kong (TBSAP) and is engaged in import, promotion, marketing, distribution and sub-distribution of rights to the products of Time Warner Group of Companies to cable and broadcast entities, distribution of television programming services operated by Turner Entertainment Networks Asia (TENA) and Cable News Network (CNN), LP, LLLP for entertainment and news channels to customers and procurement of advertisement sales; distribution of television programming services (HBOSA) operated by HBO Pacific Partner, Netherlands (HBOPP) to customers and procurement of advertisement sales and production, display and related support services of TV programmes. An intelligence was gathered that Appellant No. 2 is evading service tax payable on various services and investigations were taken up by DGCEI.
6. Agreements dated 1.4.2006 was entered into by TENA with TIIPL for Distribution and Advertisement sales. There are Product Licensing Agreement and Promotion Licence Agreement both dated 11.1.2006 Service Agreement dated1.6.2004 is executed between TENA and TIIPL. On the basis of scrutiny of the Distribution and Advertisement Sale Agreement, Product Licensing Agreement, Promotion Licensing Agreement, Service Agreement, Programme Production Agreement etc . and other records and documents such as Balance Sheet, Profit and loss account, ST returns filed by the appellant, invoices received from foreign broadcasters and those issued by them department felt that TIIPL is liable to pay service tax under Broadcasting Services under reverse charge mechanism, Intellectual Property Right Service, Business Auxiliary Service provided to TENA in respect of Product Licensing and Promotion Licensing under Programme Production Service provided to TENA, Business Auxiliary Service to TENA in respect of Market Promotion Service for assistance in display of programme, Business Auxiliary Service to TENA/CNNI for commission earned while working as Advertisement Sale Representation of TENA/CNNI, Business Auxiliary Service in marketing of Cartoon Network and POGO channels provided to TENA. Accordingly, four Show Cause Notices were issued to the Appellant No. 2 as under :-
(a) Show Cause Notice dated 21.10.2010 issued by DGCEI, New Delhi for the period 2005-2006 to 2009-2010 for an amount of Rs.90,96,69,078/-.
(b) Show Cause Notice dated 22.10.2010 issued by Audit Branch of Service Tax Commissionerate for the period 2005-06 to 2009-10 for amount of Rs.94,62,78,125/-.
(c) Show Cause Notice dated 12.9.2011 issued by Range Superintendent of Service Tax Commissionerate on the basis of Show Cause Notice at (a) and (b) above for the period 1.4.2010 to 31.3.2011 for amount of Rs.6,92,52,551/-.
(d) Show Cause Notice dated 18.10.2012 issued by the Range Superintendent for the subsequent period 1.4.2011 to 31.3.2012 for amount of Rs.7,50,27,704/-.
The above four Show Cause Notices were adjudicated by the Commissioner vide Orders-in-Original No. 1-4/GB/2013 dated 10.1.2013.
TIIPL has challenged the impugned order in the present appeal.
7. Ld. Sr. Advocate Shri V. Sridharan appearing on behalf of the Appellants No. 1 submits that by a legal fiction appellant is already being taxed on service actually being provided by the foreign broadcasting agency and therefore there is no question of demanding service tax again on the same activity. He submits that definition of broadcasting can be divided into three parts, first being meaning assigned to it under Section 2 of Prasar Bharti Act, Second being programme selection, scheduling or presentation of sound or visual matter and third being service undertaken by the branch office or subsidiary or representative in India if any broadcasting agency is having its Head Office abroad. As per the third leg of definition activity of selling of Time slots to advertisers and collection of subscription charges (in real terms broadcasting means dissemination of any audio video content through signal) which does not involve any dissemination of signals on part of the appellant, through legal fiction created by legislature, has been brought under tax net as if appellant is rendering this activity on behalf of foreign broadcasters. He further submits that broadcasting service involves physical dissemination of signals by broadcasting agency and when there is no such physical dissemination of signals to a particular recipient, there can be no rendering of broadcasting service. He submits that there is no dispute that appellant No. 1 has not received any signal from a foreign broadcasting agency.
8. Ld. Sr. Advocate further points out that since uplinking of signals from ESS Singapore to satellite and down linking of such signal by Multi System Operators (MSOs) and cable operators in India is a service is one continuum, the question of the appellant being the recipient of a broadcasting service rendered by a foreign broadcasting agency does not arise and the appellant can be held recipient of service only if it receives signals from foreign broadcasting agency and under no other conditions. Since appellant has not received any broadcasting service from foreign entities, the present impugned orders are not sustainable.
9. Ld. Sr. Advocate further submits that appellant has paid the same amount in cash as would have been payable by the appellant and no further liability exists. Having paid service tax on the imported service, appellant would be eligible for availing credit of such service tax paid on the imported service and appellant is eligible to such credit for discharging its output tax liability. He relies on the following decision in support of his contention :
1. Keshar Mills 1953 (23) ITR 230 (SC)
2. Steel Authority of India Vs. CCE 1997 (90) ELT 287
3. TVL Kasi and Sethu - 2003 (131) STC 73
4. ITO Vs. Bachu Lal Kapoor 1966 (60) ITR 64
5. BHEL Vs. UOI 1996 (102) STC 373
6. Orissa Cement Ltd. AIR 1991 SC 1676
7. Pasupuleti Venkateswarlu AIR 1975 SC 1409
10. Ld. Sr. Advocate further submits that the demand is time-barred as extended period of limitation cannot be invoked in this case. He submits that the documents on which Department is relying to levy service tax have already been submitted at various points of time to the Department. He submits that in response to summons issued to the Appellant documents were submitted to the Department between 17.6.2004 and 16.6.2005. Suppression would only be wilful if there is an element of intent contained in it. Since the agreements between the Appellant and foreign entities were already submitted to the Department and the fact that service tax was not paid on remittance sent to foreign entities was known to the Department, suppression cannot be inferred in this case. He therefore submits the demands are not sustainable on merit as well as on limitation.
11. Ld. Sr. Advocate Shri R. Venkatraman appearing for Appellant No. 2 submits that TENA and other foreign entities are owners of channels through which programmes are beamed. These programmes are played out at a play stations located outside India and communication signals are uplinked to satellite located outside India. By telecasting these channels revenue is generated by owners of the channels by entering into distribution agreement for distribution of channels and collecting subscription and procurement of advertisement. Appellant No. 2 is based in India and has entered into an agreement with TENA. Appellant No. 2 in turn entered into an agreement with Zee Turner to promote, market, distribute and provide distribution rights in India. Zee Turner enters into agreements with Multi System Operators (MSO)/Direct to Home (DTH) for distribution of channels and MSOs had entered into agreements with Cable operators who connect these channels direct to individual customers. Technologically the programmes/channels uplinked to a satellite outside India are required to be downlinked in India and downlinking is done by MSO/DTH etc and this fact is undisputed that Appellant No. 2 does not downlink any programmes and does not receive any signals from satellite. The downliniking is done by MSO/DTH by using decoders supplied by the Appellant free of cost and if on account of non payment or any other reasons, Appellant informs TENA to block the defaulter from receiving signals.
12. Ld. Advocate further submits that out of the revenue generated by Appellant No. 2 by way of subscription/procurement of Advertisement charges, some amount or minimum guaranteed amount is paid to foreign broadcasters TENA and in the present case Revenue is demanding service tax on the amount paid to TENA under Broadcasting Service under reverse charge mechanism. He points out that Broadcasting in India is regulated by Prasar Bharti (Broadcasting Corporation of India) Act, 1990, Telecommunication (Broadcasting and Cable Services), Interconnection (Digital Cable Television Systems) Regulations, 2012, The Cable Television Network (Regulation) Act, 1976, and the Cable Television Network Rules. For payment of Service tax, the Finance Act, 1994 defines Broadcasting under Section 65(15), Broadcasting agency or organisation under Section 65(16) and taxable broadcasting service under Section 65(105)(zk). He submits that definition of Broadcasting has three limbs :
(i) Means part
(ii) First inclusive part
(iii) Second inclusive part He submits that Appellant No. 2 is a wholly owned subsidiary of Historic TBS Aisa LLC whose Head Office is located outside India and Appellant provides service of selling time slots, obtaining sponsorship, collects subscription charges and permits the right to receive communication signals by MSOs/DTH. He therefore submits that Appellant is a service provider and broadcaster under the second inclusive part of the definition and has discharged service tax liability in full on amounts received on subscription/advertisement charges and for services rendered by Zee Turner it is paid commission on which service tax is paid by Zee Turner.
13. Ld. Sr. Advocate further argues that Appellant cannot be termed as a service recipient and TENA as a service provider as technologically Appellant No. 2 does not receive any signals from TENA. Signals are directly received by MSO/DTH etc. and it is not permissible to read or interpret the inclusive part of the definition to include both the foreign channel and its representative for the simple reason that the foreign channel cannot do any of catalogued services in the inclusive part in India, because of the prohibition imposed by Ministry of Information and Broadcasting. Only the Indian entities falling under the inclusive clause and who have marketing and distribution rights can render these services and therefore Indian entities are service providers and not service recipients. Therefore demand on the ground of recipient of broadcasting service is not sustainable.
14. Ld. Sr. Advocate submits that demand has also been confirmed under Intellectual Property Right service on 98% of licensing/sub licensing fees because predominant nature of licensed property was held to be trade mark and not copy right. He submits that licensed products by TENA to TIPL are cartoon network characters (all Cartoon Network Originates and sesame characters) and these characters are nothing but artistic work as defined under Copyright Act 1957 and not trademarks. Therefore this demand is also not sustainable.
15. Demand has also been confirmed against the Appellant No. 2 under Business Auxiliary Service on 40% of sub licensing fee collected and retained by the appellant towards consideration for service provided to TENA. Learned Counsel submits that the agreements with TENA grant exclusive license to various cartoon characters permitting TIIPL to enter into sublicensing agreements in India. These agreements are on principal to principal basis and make the Appellant the exclusive license holder. The commercial exploitation is done by the Appellant in its own capacity and not as a service provider. Without prejudice, if demand under IPR Service is held against them, this demand is available as Cenvat Credit and the whole exercise becomes revenue neutral.
16. Ld. Sr. Advocate further submits that demand was confirmed under Programme Producer Service provided by the Appellant to TENA. Programme Production Service came into effect with effect from 10.9.2004. He submits that Appellant No. 2 does not create, produce or develop any programme but only supervises these activities and this activity may fall under Support Service of Business and not under Programme Producer Service.
17. Demand has been confirmed under Business Auxiliary service on commission income earned while working as Advertising Sale Representative of TENA during 2005-06. Ld. Sr. Advocate submits that this commission income was not received in foreign exchange and during the period 2005-06, receipt of consideration in foreign exchange was not a stipulated condition for claiming benefits under export of service; therefore the demand is liable to be dropped.
18. A demand has also been confirmed under Business Auxiliary Service on reimbursement expenses paid by TENA towards marketing of Cartoon Network Pogo and sesame marketing. He submits that this issue stands settled in view of Delhi High Court judgement in case of Intercontinental Consultants and Technocrats Pvt. Ltd. and demands needs to be set aside.
19. Ld. Sr. Advocate submits that without prejudice to the fact that transactions are not taxable, Appellant No. 2 makes an alternative submission of eligibility of Cenvat credit of service tax paid by them and that the whole exercise is revenue neutral. He submits that as Appellant No. 2 has already discharged service tax on amounts received on account of subscription/Advertisement, Appellant is eligible to Cenvat credit of tax paid by them and can utilise such credit for payment of service tax demanded from the Appellant. He further points out that the Commissioner in para 39.10 conceives the Cenvat eligibility and transaction as revenue neutral. On the basis of Cenvat eligibility and if transaction is revenue neutral, the extended period cannot be invoked since revenue neutrality exists for the same Appellant and consequently penalties are also not imposable on the Appellant. Ld. Sr. Advocate further submits that interest under Section 75 also is not payable in the present proceedings.
20. Shri Somesh Arora, Special Counsel for Revenue submits that Appellant No. 1 is discharging service tax liability under Indian Leg of activities under Distribution Agreement and Ad-Time Inventory Purchase Agreement but is not paying tax on import of services from ESSD and ESSM. He submits that selling of time slots and distribution of services are part of broadcasting service even at the time of import independently and in the case of Ad-Time Inventory Purchase Agreement. ESSD and ESSM sell them time slots in bulk, as such selling of time slot is covered under Broadcasting Services and there is nothing in the Finance Act that prevents two transactions which are independent to be subjected to tax under one defined service; and a service provider in one transaction can be service receiver in another transaction.
21. He further submits that the word Dissemination appearing in the definition has a wide connotation and distribution as undertaken by ESSD/ESSM comes within the meaning of broadcasting service as they not only provided the legal rights to Appellant No. 1 but also the wherewithal, by providing set top boxes and chips which activate reception of signals. He submits that in service tax every transaction for the purpose of tax, has to be treated separately and that the argument that the Appellant No. 1 has discharged tax liability on the total value cannot be accepted as every link in the Cenvat chain and every transaction is required to be taxed at each stage. The claim that the Appellant No. 1 will be entitled to Cenvat credit is required to be tested on its own merits after tax is paid by the Appellant and double taxation argument advanced by the Appellant is unsustainable as the two transactions are different.
22. He points out that ESPN was concerned with the technical side also in down linking signals through sale of Set top boxes and activation of smart card in India.
23. Ld. Counsel submits that the contention of the Appellant No. 1 that activity amounts to commercial exploitation of copyright and therefore exempted under IPR service during the relevant time is untenable as broadcasting services is of prior existence and is more specific than exception of copyright under IPR.
24. On the point of limitation and penalty he submits that Commissioner has given clear findings that there is suppression of fact with intent to evade service tax as the facts came to light only after investigation was taken up by the Department. The fact that chips through which signals received are controlled and activated was never revealed by them and it came to light during the course of recording of statement of Shri Vineet Kumar Jain. Intention to evade is further established by the fact that Distribution Agreement was non est and was entered into in 2008. Therefore suppression of fact by the Appellant No. 1 is clearly established as held by the Commissioner attracting extended period of limitation as well as imposition of penalty. He also referred to various case laws submitted during the course of hearing.
25. Shri Pramod Kumar, Jt. CDR appearing for Revenue in ESPN Appeal No. ST/279/2012 and the TIIPL Appeal adopts arguments advanced by Shri Somesh Arora. Shri Kumar further reiterated the findings of the Commissioner in Order-in-Original No. 18/2011 dated 29.11.2011 passed by Commissioner, Service Tax, LTU and Order-in-Original NO. 104/GB/13 dated 10.1.2013 passed by Commissioner, Service Tax, Delhi.
26. We have heard both sides. Major issue to be decided in these appeals is whether Appellant No. 1 and No. 2 are liable to pay service tax as recipients of broadcasting Service under reverse charge mechanism. Broadcasting and Broadcasting agency or organisation has been defined under Section 65(14) and Section 65(15) as under (prior to 2005).
65(14) Broadcasting has the meaning assigned to it in clause (c) of Section 2 of the Prasar Bharati (Broadcasting Corporation of India) Act 1990 (25 of 1990) and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges on behalf of the said agency or organisation, by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner; 65(15) broadcasting agency or organisation means any agency or organisation engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting broadcasting charges on behalf of the said agency or organisation.
Broadcasting and broadcasting agency or organisation have been defined as under with effect from 16.6.2005.
65(15) Broadcasting has the meaning assigned to it in clause (c) of Section 2 of the Prasar Bharti (Broadcasting Corporation of India) Act 1990 (25 of 1990) and also includes programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or organisation, by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner. 65(16) broadcasting agency or organisation means any agency or organisation engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organisation, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or organisation. Taxable service is defined under 65(105)(zk) of the Finance Act as under :-
Any service provided or to be provided to a client, by a "broadcasting agency or organization" means any agency or organization in relation to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes service provided by its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or organisation.
Explanation For the removal of doubts, it is hereby declared that so long as the radio or television programme broadcast is received in India and intended for listening or viewing as the case may be, by the public, such service shall be a taxable service in relation to broadcasting, even if the encryption of the signals or beaming thereof through the satellite might have taken place outside India. Section 2(c) of (Prasar Bharati (Broadcasting Corporation of India) Act, 1990 reads as under :-
42(c) broadcasting means the dissemination of any form of communication like signs, signals, writing, pictures, images and sounds of all kinds by transmission of electro-magnetic waves through space or through cables intended to be received by the general public either directly or indirectly through the medium of relay stations and all its grammatical variations and cognate expression shall be construed accordingly.
27. On going through the definition of Broadcasting we notice that the definition can be grouped into three categories:
(1) Under means category it refers to actual Broadcaster who provides the service in terms of Section 2(c) of Prasar Bharati (Broadcasting Corporation of India) Act, 1990.
(2) Under the first inclusive clause, the following services are also considered to be broadcasting.
Programme, selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing.
3. Last part of the inclusive definition consists of following three limbs :
(a) List of entities (in case of broadcasting agency or organisation having its head office situated in any place outside India)
(i) Branch office;
(ii) Subsidiary;
(iii) Representative in India;
(iv) Any agent appointed in India; or
(v) By any person who acts on its behalf.
b. List of activities performed by the service providers mentioned (i) to (v) above which are the activity of selling of time slots, obtaining sponsorship for broadcasting of any programme, collecting the broadcasting charges, permitting the right to receive any form any communication like sign, signal, writing, picture, image and sound of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means c. last limb of the definition enumerates the list of recipients of the service namely cable operators, multi-system operators or any other person The cumulative effect of these three limbs results in rendition of broadcasting service under the second inclusive part of definition and in these appeals before us we note that
(i) Appellant No. 1 and Appellant No. 2 are based in India and are having head offices outside India.
(ii) They provide the service of selling time slots, obtaining sponsorship, collecting subscription charges and permitting the right to receive communication signals by MSOs/DTH.
(iii) Appellant Nos. 1 and 2 are service provider and broadcaster under the second inclusive part of definition.
(iv) Both the appellants have discharged service tax liability as service providers.
28. In the appeal by ESPN, the Appellant No. 1, the Commissioner examined the issue of taxability of service rendered by Foreign Based Broadcasters ESSD for import of TV Channel rights. ESSD has entered into an agreement with Appellant for distribution of ESPN channels in India, Nepal or Bhutan. In terms of the agreement ESSD does not raise any invoice or debit note on ESPN in respect of Distribution Agreement and payment for distribution rights are made by ESPN to ESSD.
29. We also note that while discussing the issue the Commissioner reproduced para 11 of the Show Cause Notice in para 20.11 of the order :-
11. From the facts of the matter, the argument advanced and relevant provisions of law, as discussed in foregoing paras, it appears that ESPN has entered into agreements for obtaining TV Channel distribution rights and Ad Time inventory from foreign based broadcasters namely ESSD and ESSM, operating TV Channel Services broadcasted in the TV Channel signals of ESPN Channel. STAR Sports Channel and STAR Cricket Channel by transmission of electro-magnetic waves as well as made available Ad Time inventory on the said TV Channels in terms of the above mentioned Distribution and Ad-Time Agreements. It appears that providing of services in the nature of permitting the right to distribute the TV Channels and sale of Advertisement Time inventory by the above referred foreign based broadcasters and receipt of the same by ESPN in India, amounts to import of services appropriately classifiable under the taxable service category Broadcasting Service. Thus, ESPN appears to have imported broadcasting services from ESSD in the form of distribution rights for ESPN Channel, STAR Sports Channel and STAR Cricket Channel which were further distributed by ESPN in India through MSOs and Cable Operators. ESPN also appear to have imported broadcasting services from ESSM in the form of Advertising time inventory on ESPN Channel, STAR Sports Channel and STAR Cricket Channel which were further sold by ESPN in India to advertisers. The amounts paid by ESPN to the foreign broadcasters viz. ESSB and ESSM, in consideration for grant of TV Channel distribution rights and Advertisement Time inventory, appear to be consideration for import of broadcasting services, liable for payment of service tax by ESPN under reverse charge mechanism, in terms of provisions of Section 66A of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994 and Taxation of services (provided from outside India and received in India) Rules, 2006.
30. Para-11 shows the narration of the allegation by the Department in the Show Cause Notice. Commissioner straightway concluded that demand was made with reference to the transaction between ESSD as a service provider and Appellant as a service recipient. These conclusions drawn from the allegations in the Show Cause Notice are prima facie not sustainable.
31. Commissioner has examined the distribution agreements between ESPN and ESSD, definitions of Broadcasting; Broadcasting agency or organisation and taxable service and held that ESSD, the foreign broadcaster is a broadcasting agency or organisation as per the first part of the definition (means part plus first inclusive part) and is providing taxable service to the appellant. Commissioner has further held that the appellant has paid the service tax under the second inclusive part of the definition for the service provided to MSO/cable operators.
32. We find that Appellants do not have any technology for receiving signals or downlinking facilities. Signals are directly received by the MSOs/cable operators from the satellite through Set Top Boxes and smart cards supplied by the Appellant. Technically they are not recipients of any broadcasting service. However, on going through the definition of Broadcasting we note that in the definition after the means part and first inclusive part the words and in case of broadcasting agency or organisation having its head office situated any place outside India includes the activities of selling time slot or obtaining sponsorship for channels or collecting broadcasting charges also exist. Definition is to be read as a whole and so read cannot be interpreted to conclude that the Appellant is a service recipient as per the means and first inclusive part of the definition and a service provider under the second inclusive part of the definition.
33. The Commissioner in his findings has held that the issue before him is taxability of distribution rights given to the Appellant as per the Agreement. We note from the second inclusive part of the definition that only permitting the right to receive signals in any form by transmission through electromagnetic waves through space or cable to MSO/cable operators is an aspect covered as taxable and Distribution rights given by ESSD to the Appellant and which are not covered under the definition are not taxable and therefore this finding of the Commissioner is not sustainable.
34. Similar findings have been recorded by the Commissioner in respect of ESSM in respect of STAR Sports and STAR Cricket channels after examining the Distribution Agreement between ESPN and ESSM and definitions of Broadcasting, Broadcasting agency or organisation and the taxable service. In view of our observations in respect of ESSD, we hold that ESSM is not a service provider and Appellants are not recipient as held by the Commissioner and the distribution rights given by ESSM to the appellants are not taxable.
35. In case of Appellant No. 2, the Commissioner examined the taxability of service under para 39.7 and 39.8 of the Order-in-Original. Commissioner has held that the appellant being covered under means part is a broadcasting agency and provided the service of broadcasting and has discharged the service tax liability as service provider. He holds in para 39.8 of the order that appellant being an agent of the foreign broadcaster is liable to pay service tax as recipient of services under reverse charge mechanism. We find that appellant is covered under second inclusive part of the definition of Broadcasting. Similarly appellant is a broadcasting agency also by virtue of inclusive definition of Broadcasting agency. Taxable service under Section 65(105)(zk) means any service provided or to be provided by a Broadcasting Agency and providing broadcasting service by virtue of being based in India and having a head office outside India. The finding of the Commissioner that the appellant is service recipient on the basis of the second inclusive definition is not therefore sustainable. Moreover, the foreign broadcaster is engaged in uplinking the signal to a satellite outside India and downlinking of signal is done by MSOs/Cable operators in India and appellants technologically does not receive any broadcasting service. Appellant is covered under broadcasting agency and broadcasting and also under definition of taxable service in the capacity of branch office, subsidiary representative/agent in India and having head office outside India and is thus a service provider and not a service recipient, as held by the Commissioner.
36. In view of our analysis above, we are of the view that in both appeals filed by Appellants No. 1 and the appeal filed by the Appellant No. 2, the demands on the both Appellants are not sustainable under the reverse charge mechanism and consequently interest and penalty are also not imposable. We order accordingly.
37. A demand is confirmed against the Appellant No. 2 under Intellectual Property Services provided to clients in India. Appellant No. 2 has classified 98% of licensing or sub licensing fee towards copyright and has not paid the service tax on the same. It is the contention of Revenue that 98% of fees is chargeable to service tax under Intellectual Property Services as the predominant nature of property was trademark and not copyright. For the sake of convenience, we reproduce below the definition under various Acts.
Finance Act 1994 Section 65 (55a) Intellectual property right means any right to intangible property, namely, trademarks, designs, patents or any other similar intangible property, under any law for the time being in force, but does not include copyright;
Section 65 (55b) Intellectual property service means, - (a) Transferring [temporarily]; or (b) Permitting the use or enjoyment of, any intellectual property right.
Section 65(105)(zzr) taxable service means any service provided or to be provided to any person, by the holder of intellectual property right, in relation to intellectual property service. The term Trade Mark has been defined under clause (2b) of Section 2 of Trade Mark Act, 1999 Section 2(b) trade mark means a mark capable of being represented graphically and which is capable of distinguishing the goods or services of one person from those of others and may include shape of goods, their packaging and combination of colours; and
(i) in relation to Chapter XII (other than section 107), a registered trade mark or a mark used in relation to goods or services for the purpose of indicating or so as to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right as proprietor to use the mark; and
(ii) in relation to other provisions of this Act, a mark used or proposed to be used in relation to goods or services for the purpose of indicating or so to indicate a connection in the course of trade between the goods or services, as the case may be, and some person having the right, either as proprietor or by way of permitted user, to use the mark whether with or without any indication of the identity of that person, and includes a certification trade mark or collective mark. Section 2(m) mark includes a device, brand, heading, label, ticket, name, signature, word, letter, numeral, shape of goods, packaging or combination of colours or any combination thereof. Copyright Act:
Section 14. Meaning of copyright For the purposes of this Act, copyright means the exclusive right subject to the provisions of this Act, to do or authorise the doing of any of the following acts in respect of a work or any substantial part thereof, namely:-
(a) in the case of a literary, dramatic or musical work, not being a computer programme, -
(i) to reproduce the work in any material form including the storing of it in any medium by electronic means;
(ii) to issue copies of the work to the public not being copies already in circulation;
(iii) to perform the work in public, or communicate it to the public;
(iv) to make any cinematograph film or sound recording in respect of the work;
(v) to make any translation of the work;
(vi) to make any adaptation of the work;
(vii) to do, in relation to a translation or an adaptation of the work, any of the acts specified in relation to the work in sub-clauses (i) to (vi);
(b) in the case of a computer programme,- (i) to do any of the acts specified in clause (a);
(ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme;
Provided that such commercial rental does not apply in respect of computer programme where the programme itself is not the essential object of the rental.
(c) In the case of an artistic work, -
(i) to reproduce the work in any material form including depiction in three dimensions of a two dimensional work or in two dimensions of a three dimensional work;
(ii) to communicate the work to the public;
(iii) to issue copies of the work to the public not being copies already in circulation;
(iv) to include the work in any cinematograph film;
(v) to make any adaptation of the work;
(vi) to do in relation to an adaptation of the work any of the acts specified in relation to the work in sub-clauses (i) to (iv);
(d) in the case of a cinematograph film, -
(i) to make a copy of the film including a photograph of any image forming part thereof;
(ii) to sell or give on hire or offer for sale or hire, any copy of the film, regardless of whether such copy has been sold or given on hire on earlier occasions;
(iii) to communicate the film to the public;
(e) in the case of a sound recording,-
(i) to make any other sound recording embodying it;
(ii) to sell or give on hire, or offer for sale or hire, any copy of the sound recording, regardless of whether such copy has been sold or given on hire on earlier occasions;
(iii) to communicate the sound recording to the public.
Explanation For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation. Section 2 (c) Artistic work means
(i) a painting, a sculpture, a drawing (including a diagram, map, chart or plan), an engraving or a photograph, whether or not any such work possesses artistic quality;
(ii) work of architecture; and
(iii) any other work of artistic craftsmanship. The dispute relates to Cartoon Characters. It is the contention of the assessee that Cartoon Characters are created by TENA and are the artistic work and are clearly covered under Copyright Act whereas Revenue contests that these are Trademarks and not artistic work and are thus covered under IPR Services.
38. Product Licensing Agreement and Promotional Licensing Agreements were executed between TENA and TIIPL. TIIPL i.e. Appellant No. 2 executed sub licensing agreements between TIIPL and Bombay Dyeing and Manufacturing Co. Ltd., TIIPL and M/s Brittania Industries and TIIPL and M/s Bata India Ltd. In case of Bombay Dyeing agreement was made for sub licensing the property Powerful Girls for use in home furnishing. In Schedule A sub licensed properties were listed as PPG, Dexter Laboratory, Johny Bravo, Courage, Cow & Chicken, Codername Kids Next Door, CN Logo and all related Characters and Elements had been shown as Trademark of Cartoon Network. Similarly in case Brittania Industries sub licensed property is Tom and Jerry for use on erasers, pencils and magnetic slap on a wrist bands for promotion of product of Brittania Industries. In Schedule A of Licensed Property and Trademark Notices of sub licensing agreements PPG, Dexters Laboratory, Johney Bravo etc. and all the related Characters and Elements are shown as Trademark of Cartoon Network. Similarly in case of Bata India sub licences property is Ben 10 to be used for promotion of Bata School Shoes, shoe accessories and school bags. From Schedule A of the agreement it is clear that Character and Elements are shown as Trademark of Cartoon Network
39. On going through the definition of artistic work as defined under Section 2(c) of the Copyright Act, 1957, we find these Characters and Elements are covered under clause (i) as these come within drawing, engraving or a photograph.
40. In view of the above, we are of the view as these characters fall within the definition of artistic work in Section 2(c) of the Copyright Act are hence excluded from the definition of Intellectual Property. The demand confirmed is therefore unsustainable.
41. A demand is confirmed by the Commissioner under taxable services of Business Auxiliary Service provided by TIIPL to TENA in respect of Product Licensing and Promotion Licensing. Appellant has entered into agreement with TENA in respect of Product Licensing and Promotion Licensing. Appellant is sub licensing TENAs licensed properties to clients in India and out of income generated from sub licensing the products, 60% is required to be remitted to TENA and 40% retained by the Appellant. It is the contention of the Appellant that after License Agreement is executed with TENA, Appellant has right to reproduce the Copyright material. We find this argument of appellant is not acceptable because if they have the right to reproduce, why are they paying 60% of revenue to TENA, particularly when they are already paying Copyright fee to TENA. We find the sub licensing of products to clients in India amounts to promotion of product and properties of TENA and is covered under Business Auxiliary Service under Section 65(19) of the Act. Appellant is at liberty to claim Cenvat credit of service tax paid in accordance with law.
42. Commissioner has also confirmed service tax under taxable service of Programme Producer Service as defined under Sections 65(105)(zzzu) read with 65(86a) and 86(b) of the Act. It is the contention of the Appellant that they are not engaged in producing any programme but providing assistance in production of programme to TENA and their role is that of supervisor and these services are appropriately covered under support service of business which came into effect with effect from 1.5.2006. We find that as per Service Agreement between TENA and the Appellants, the Appellant has to create, produce and develop the concept/format creation/acquisition and to provide pre-production, production and post-production services to create programme content intended for broadcasting on TENA international channel network and in the invoices amount is charged as Fees for Production Services Rendered. We therefore have no doubt in holding that the activity undertaken by them falls under taxable service of Programme Producer Service as defined under Section 65(105)(zzu).
43. Commissioner has confirmed the demand under Business Auxiliary Service on commission Income earned while working as Advertising Sale Representative of TENA. Appellant has earned some commission on revenue generated on account of Advertisement Sales during the year 2005-06. Their contention is that during the period of dispute (prior to 18.4.2006) there was no requirement under Export of Service Rules to receive the consideration in foreign currency. On the other hand, Commissioner has denied the benefit on the ground the consideration were not received in foreign exchange. We find that service recipient is located outside India and services have been provided to TENA by the Appellant. TENA does not have any commercial or industrial establishment or any office in India. Receipt of consideration in foreign currency was not a necessary condition prior to 18.4.2006 and accordingly we find that services are covered under Export of Service Rules during the disputed period and this demand is not sustainable.
44. Commissioner has also confirmed the demand under Business Auxiliary Service for marketing of Cartoon Network and POGO channel for the period 2005-06 and 2007-08. Appellant has recovered the reimbursable expense incurred by them during the course of marketing TENA TV channel namely cartoon network and POGO channel etc. It is the contention of the Revenue that these expenses were incurred for marketing TENA channels and are therefore covered under Business Auxiliary Service and Commissioner has confirmed the demand holding that service tax is leviable on gross amount charged under Section 67 of the Act. We find that Delhi High Court in case of International Consultant and Technocrat 2012-VIL-106/DEL-57 has held that reimbursable charges for rendition of taxable service cannot form part of gross amount charged towards taxable service. We therefore following the judgement of Delhi High Court set aside that part of demand.
45. Appellant No. 2 contends that extended period of limitation cannot be applied in their case as they have not suppressed any fact and they were under bonafide belief that service tax is not leviable. We find that under Section 73 of Finance Act, where service tax has not been levied or short levied, tax can be demanded within one year from the relevant date. However if tax has not been levied or short levied by reason of, fraud, collusion, wilful, misstatement, suppression of fact etc tax can be demanded within 5 years from the relevant date. The Commissioner has discussed the invocation of extended period in para 46 of Order-in-Original and has held that appellant has suppressed the facts from the department as they did not get themselves registered for these services, pay the service tax and file ST-3 returns. The appellant did not pay any service tax under Intellectual Property Service, Business Auxiliary Service in respect of Product Licensing Agent/promotion licensing Agent and on Programme Producer Service and did not file any Return for these services. We do not find any fault in finding of the Commissioner in invoking extended period of limitation and consequently Appellant is liable to interest and penalty.
46. In view of the above
1) Appeals filed by Appellant No. 1 are allowed.
2) In respect of appeal filed by the Appellant No. 2 we set aside the order-in-original in respect of following activity.
(i) Broadcasting services under reverse charge mechanism.
(ii) Business auxiliary service provided by the appellant to TENA on commission income earned while working as Advertising Sale Representative of TENA.
(iii) Business Auxiliary Service in nature of marketing of Cartoon Network and POGO channel.
(iv) Intellectual Property Service provided by the Appellants to clients in India.
3. In respect of appeal filed by Appellant No.2 (TIIPL) we uphold the order-in-original confirming service tax, interest and penalties in respect of
(i) Business Auxiliary Service provided by the Appellant to TENA in respect of Product Licensing and Promotional Licensing.
(ii) Programme Producer service provided by the Appellants to TENA
47. Appeal filed by Appellant No. 2 is partly allowed as above. Stay petition also stands disposed of.
(Pronounced on 17.10.2010) (Justice G. Raghuram) President (Sahab Singh) Member (Technical) RM 2