Tribunal Rules in Favor of Appellant, Rejects Service Tax Demands

The tribunal set aside the demand of Rs. 24,57,55,162/- in service tax on alleged commission paid to dealers for the period 2007 to 2012, ruling that the amount retained by the dealers was not charged by the appellant and could not be included in the assessable value for service tax. Additionally, the tribunal also set aside the demand of Rs. 4,63,27,911/- in service tax on security deposits collected for viewing cards for the period 2007-2008, stating that there was insufficient evidence to conclude that the deposit was liable to service tax. The appeal was allowed on 08/01/2019.

---

---

Issues Involved:

1. Demand of service tax on alleged commission paid to dealers.
2. Demand of service tax on security deposits collected for viewing cards.

Issue-wise Detailed Analysis:

1. Demand of Service Tax on Alleged Commission Paid to Dealers:

The primary issue pertains to the demand of Rs. 24,57,55,162/- in service tax for the period 2007 to 2012, based on the allegation that the dealers were paid commission, and service tax is payable on the same. The revenue's case hinges on the interpretation that the amounts retained by the dealers from the subscribers should be considered as commission paid by the appellant, thus subject to service tax.

The appellant argued that they are the owners of the Customer Premises Equipment (CPE), which includes set-top boxes, antennas, viewing cards, and other equipment. These are sold on a rental basis to distributors, who then sell them to dealers, who in turn sell them to subscribers. The appellant contended that service tax has been paid on the entire value of the set-top boxes sold to the distributors and that the dealers' markup does not constitute a commission paid by the appellant.

The appellant further explained that the dealers collect subscription charges from the subscribers, which are routed to the appellant via the distributor, and service tax is paid on the entire subscription amount. The markup allowed to the dealers is retained by them and does not enter the appellant's accounts. The appellant emphasized that the department has no records of the actual amounts collected by the dealers as markup, and the markup is not quantified by the appellant.

The tribunal noted that the Original Adjudicating Authority had treated the amount retained by the dealers as an expenditure incurred by the appellant and relied on Rule 5 of the Service Tax (Determination of Value) Rules, 2006, which has been struck down by the High Court of Delhi and affirmed by the Supreme Court in Union of India Vs. Intercontinental Consultants & Technocrats Pvt. Ltd. The tribunal found that the amount retained by the dealers was not charged by the appellant and thus could not be included in the assessable value for service tax.

The tribunal set aside the demand of Rs. 24,57,55,162/- along with interest and equal penalty.

2. Demand of Service Tax on Security Deposits Collected for Viewing Cards:

The second issue involves the demand of Rs. 4,63,27,911/- in service tax on security deposits collected for viewing cards for the period 2007-2008. The appellant collected a refundable security deposit of Rs. 400 per viewing card from the distributors, which was passed on to the dealers and then to the subscribers. The revenue argued that there was no evidence of the return of any security deposit, and thus service tax was payable on the same.

The appellant contended that the security deposit is not a consideration for the service but a refundable amount subject to the subscriber returning the viewing card in a functional condition within the specified timeframe. The appellant's books of accounts treated the security deposit as a contingent liability and showed it as a credit in the subscriber's account.

The tribunal found that the revenue had not conducted any investigation to determine whether any subscriber had returned the viewing card within the specified period and whether the appellant had refused to refund the deposit. The presumption that there was no evidence of return of any security deposit was not sufficient to conclude that the deposit was liable to service tax. The tribunal set aside the demand of Rs. 4,63,27,911/- along with interest and equal penalty.

Conclusion:

The tribunal set aside the impugned order and allowed the appeal, pronouncing the judgment in court on 08/01/2019.

---