2008 (9) TMI 140 - AT - Service Tax

Service Tax Applicability on Subscription Charges Upheld, Recomputation Ordered

Commissioner of Customs, Central Excise & Service Tax, Hyderabad-II Commissionerate Versus Worldspace India (P.) Ltd.

The tribunal upheld the applicability of Service Tax on subscription charges collected by the respondents under the expanded definition of 'broadcasting ... Respondents render support services to Worldspace Inc.(WSI) like assisting WSI in servicing its Indian customers etc. - WSI has the facility to broadcast audio channels to various regions in the world including India - there was some doubt regarding the scope of the term ‘client’ in view of the Circular B11/1/2000-TRU, dated 9-7-2001 - Since the matter is of interpretation, penalties are not justified - however, appellant is liable to pay tax & interest under category of ‘broadcasting services’ Issues Involved:1. Classification of services rendered by the respondents under 'broadcasting service'.2. Applicability of Service Tax on subscription charges collected by the respondents.3. Interpretation of the term 'client' as per the Board's Circular of 2001.4. Legality of penalties imposed under sections 76, 77, and 78 of the Finance Act, 1994.5. Applicability of cum-tax benefit in determining the tax liability.Detailed Analysis:1. Classification of Services Rendered by the Respondents under 'Broadcasting Service':The respondents, Worldspace India Private Limited, provide support services to Worldspace Inc. (WSI) including assisting in servicing Indian customers, marketing, promotion, and collecting subscription charges. The revenue issued a show-cause notice proposing a demand of Service Tax under the category of 'broadcasting service'. The Commissioner (Appeals) set aside the Order-in-Original, which had confirmed the demand, on the grounds that the subscribers are listeners and not 'clients' as defined in the Board's Circular of 2001. However, the tribunal noted that the scope of 'broadcasting service' was expanded in 2005 to include customers or subscribers, thus covering the services rendered by the respondents.2. Applicability of Service Tax on Subscription Charges Collected by the Respondents:The respondents argued that the subscription charges collected from listeners do not qualify as taxable under 'broadcasting service' since listeners are not 'clients'. The tribunal, however, observed that the amendments made in 2005 expanded the definition of 'broadcasting service' to include services rendered directly to customers or subscribers. Therefore, the subscription charges collected by the respondents are subject to Service Tax as they fall under the expanded scope of 'broadcasting service'.3. Interpretation of the Term 'Client' as per the Board's Circular of 2001:The respondents relied heavily on the Board's Circular of 2001, which defined 'client' as a person who sponsors a program or buys a time slot for advertisements. The tribunal noted that while the 2001 Circular was not withdrawn, subsequent amendments in 2005 expanded the definition of 'broadcasting service' to include services to MSOs, cable operators, and direct customers. The tribunal concluded that the 2001 Circular lost its relevance in light of these amendments, and the term 'client' now includes subscribers or listeners who pay for the broadcasting services.4. Legality of Penalties Imposed under Sections 76, 77, and 78 of the Finance Act, 1994:The tribunal considered the respondents' argument that the issue involved legal interpretation and that penalties should not be imposed. Referring to the case of Hindustan Steel Ltd. v. State of Orissa, the tribunal opined that penalties are not justified in this case due to the interpretative nature of the issue. Therefore, while the respondents are liable to pay Service Tax and interest, the penalties imposed under sections 76, 77, and 78 are not warranted.5. Applicability of Cum-Tax Benefit in Determining the Tax Liability:The respondents requested the cum-tax benefit, arguing that the amount received from customers should be considered inclusive of Service Tax. The tribunal agreed with this contention, directing the Original Authority to recompute the tax liability, extending the cum-tax benefit. This re-computation should be completed within two months from the date of the tribunal's order.Conclusion:The tribunal upheld the Order-in-Original, confirming the applicability of Service Tax on the subscription charges collected by the respondents under the expanded definition of 'broadcasting service'. However, it remanded the matter to the Original Authority for re-computation of tax liability, extending the cum-tax benefit, and ruled that penalties are not justified due to the interpretative nature of the issue.