2018 (4) TMI 725 - AT - Service Tax

Appeal partially allowed; tax liability confirmed for server space, penalties set aside

ACL Mobile Ltd. Versus C.C.E., Delhi

The appeal was allowed on most issues, except for the confirmation of tax liability on reverse charge basis for server space facility availed by the ... Telecommunication services - Revenue entertained a view that the appellants did not discharge service tax under various categories for the period from 01.10.2003 to 31.03.2008 - supply of content like news, ring tone, games, SMS, alerts etc. to telecom operators who provided it to the subscribers - whether taxable under the support of business and commerce for the period 01.05.2006 to 31.05.2007? - Held that: - similar issue decided in the case of THE STATE OF ANDHRA PRADESH Versus M/s BHARAT SANCHAR NIGAM LTD, HYDERABAD [2011 (9) TMI 216 - Andhra Pradesh High Court], where it was held that “Value added services” fall within the ambit of “telecommunication services” as defined in Section 2(k) of the TRAI Act and Section 65(109a) of the Finance Act, 1994. Ringtones, music downloads, wall paper, music clips etc., fall within the definition of “development and supply of content” under Section 65(36c) and constitute “taxable service” under Section 65(105) (zzzb) of the Finance Act, 1994. Pre-existing entry continue to remain with the same scope and words even after the introduction of the new tax entry, thereby revealing that the new tax entry is an altogether new addition to the taxing scope - the tax liability under BSS is not sustainable for development and supply of contents to the telecom operators. MMR and management consultancy service - reverse charge mechanism - Held that: - It is clear that the appellants have entered into a joint - venture arrangement with shared responsibilities and obligations. The income is credited with common bank account and share d as per the pre - arranged percentage between the two parties - in such arrangement in terms of the said agreement, there could be no service inter-se between parties to the agreement - in this arrangement, there can be no tax liability on the appellant. Tax liability - facility of availing server /web hosting provided by the Foreign Service provider - Held that: - Though, the explanation to BSS gives only inclusive definition of infrastructure support, examining the present context of the support received by the appellant by way of server hosting, we are of the considered view that the same will fall under the overall category of infrastructural support service, which is part of the BSS - the question of revenue neutrality as a legal principle to hold against a tax liability is not tenable. Extended period of limitation - penalty - Held that: - The issue regarding tax liability on reverse charge basis was highly contentious involving multiple interpretation and litigation - there is no scope for invoking extended period of demand on such reverse charge and also impose penalty applicable to such tax - Service tax liability shall be restricted to the normal period of limitation. Except for confirmation of tax liability on reverse charge basis on server space facility availed by the appellant for normal period, the appeal is otherwise allowed on other issues - appeal allowed in part. Issues Involved:1. Tax liability on supply of content to telecom operators.2. Reverse charge tax liability on services received from foreign parties (management, maintenance, and repair service and management consultancy service).3. Tax liability under reverse charge for business auxiliary service in a joint venture arrangement.4. Tax liability on reverse charge basis for server space availed from a foreign service provider.Detailed Analysis:1. Tax Liability on Supply of Content to Telecom Operators:The first issue revolves around whether the supply of content like news, ringtones, games, SMS, alerts, etc., to telecom operators should be taxed under the category of 'support of business and commerce' (BSS) or 'development and supply of content.' The appellant contested the lower authority's decision, citing the Hon’ble Andhra Pradesh High Court's ruling in the BSNL case, which categorized such services under 'development and supply of content.' The Tribunal noted that the introduction of a new tax entry for development and supply of content presupposes that it was not covered by any pre-existing entries. Thus, the tax liability under BSS for the development and supply of contents to telecom operators was deemed unsustainable.2. Reverse Charge Tax Liability on Services Received from Foreign Parties:The second issue concerns the reverse charge tax liability on services received from foreign entities under management, maintenance, and repair service and management consultancy service. The appellant argued that there was no reverse charge tax liability prior to 18.04.2006, supported by the Hon’ble Bombay High Court's decision in the Indian National Ship Owners Association case. The Tribunal upheld this view, confirming no reverse charge tax liability for the period before 18.04.2006.3. Tax Liability under Reverse Charge for Business Auxiliary Service in a Joint Venture Arrangement:The third issue pertains to the tax liability under reverse charge for business auxiliary service in a joint venture arrangement with a foreign entity. The appellant argued that the joint venture arrangement involved shared responsibilities and income, with no service inter-se between the parties. The Tribunal agreed, referencing the Mormugao Port Trust case, which held that activities undertaken by co-ventures in furtherance of joint venture work do not constitute a service rendered to the joint venture. Thus, no tax liability was established for the appellant under this arrangement.4. Tax Liability on Reverse Charge Basis for Server Space Availed from a Foreign Service Provider:The fourth issue involves the tax liability on reverse charge basis for availing server space from a foreign service provider. The Tribunal noted that providing server space is an essential infrastructure requirement and falls under the category of infrastructural support service, part of BSS. The appellant's argument of revenue neutrality was rejected, as the Tribunal emphasized that tax liability is determined by legal provisions and not by the availability of credit. However, the Tribunal acknowledged the contentious nature of the issue and restricted the service tax liability to the normal period of limitation, setting aside the penalties imposed.Conclusion:The appeal was allowed on most issues, except for the confirmation of tax liability on reverse charge basis for server space facility availed by the appellant for the normal period. The penalties imposed were set aside, and the service tax liability was restricted to the normal period of limitation.