Revenue-sharing cable services: tax applies only to the consideration received by each service provider, not subscriber collections retained elsewhere.

Under Section 67 of the Finance Act, 1994, service tax on cable services is payable only on the consideration actually charged by each service provider for its own taxable service. In a revenue-sharing arrangement, the multi system operator supplied signals to local cable operators, while the local operators collected subscription from subscribers and used their own network to provide the service, so the operator was not taxable on amounts retained by the local cable operators. The disputed balance demand, denial of Cenvat credit and the limitation issue were remanded for fresh adjudication because the record was insufficiently analysed and further evidence was required.

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Issues: (i) Whether a multi system operator providing cable services under a revenue-sharing arrangement was liable to pay service tax on the gross amount collected from subscribers by the local cable operators or only on the amount received by it from the local cable operators; (ii) Whether the confirmation of the short-paid service tax, denial of Cenvat credit, and invocation of the extended period of limitation were sustainable.

Issue (i): Whether a multi system operator providing cable services under a revenue-sharing arrangement was liable to pay service tax on the gross amount collected from subscribers by the local cable operators or only on the amount received by it from the local cable operators.

Analysis: The valuation rule under Section 67 of the Finance Act, 1994 requires tax to be levied on the gross amount charged by the service provider for the service actually rendered. The cable television framework showed that the multi system operator supplied signals to local cable operators, while the local cable operators used their own network to transmit those signals to subscribers and collected the subscription from them. The agreements and record showed a principal-to-principal revenue-sharing structure, with each service provider responsible for tax on its own consideration. The principle that service tax attaches to the service actually provided, and only to the consideration for such service, supported the view that the multi system operator was not taxable on the subscribers' collections retained by the local cable operators.

Conclusion: The issue is decided in favour of the assessee. The multi system operator is liable to pay service tax only on the amount received by it from the local cable operators.

Issue (ii): Whether the confirmation of the short-paid service tax, denial of Cenvat credit, and invocation of the extended period of limitation were sustainable.

Analysis: The confirmation of the residual demand and denial of credit were made without adequate discussion or proper reasoning. Since the matter turned on factual and legal verification, including the plea against the extended period of limitation and the supporting documents for credit, a fresh adjudication was required after giving the assessee an opportunity to produce evidence and explain its claim.

Conclusion: The issue is decided partly in favour of the assessee. The disputed portion of the demand and the Cenvat credit disallowance were set aside and remanded for fresh decision, including on limitation.

Final Conclusion: The revenue's challenge to the main demand failed, while the assessee obtained relief on the substantial service-tax issue and a remand on the remaining disputed demand and credit issues for reconsideration.

Ratio Decidendi: Under a revenue-sharing cable service arrangement, service tax is payable only on the consideration actually charged by each service provider for its own taxable service, and not on amounts collected by another participant in the chain.

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