2023 (7) TMI 1238 - AT - Service Tax

Service tax demand on DTH set-top boxes quashed, treated as deemed sale under Article 366(29A), VAT applicable

CESTAT Mumbai allowed the appeals, setting aside service tax demands on charges collected for supply of set-top boxes (STBs) by a DTH operator. The ... Deemed sale under Article 366(29A) - Supply of Tangible Goods for Use (STGU) as taxable service - broadcasting service and its scope - transfer of right to use goods - negative list regime - principal service vs services used for providing principal service - valuation/characterisation conflict between VAT and service tax - consideration of additional grounds under Rule 10 of CESTAT (Procedure) Rules - duplication of demandConsideration of additional grounds under Rule 10 of CESTAT (Procedure) Rules - Whether the miscellaneous applications for consideration of additional grounds should be allowed and taken on record. - HELD THAT: - On examination of the applications and the case records the Tribunal found that the averments justified consideration of the additional grounds. The Tribunal therefore directed that the additional grounds filed by the appellants be taken as part of the appeal memorandum for consideration and disposal. Objections by Revenue to non-consideration of the additional grounds were held to be without basis and dismissed. The Tribunal also dealt with the Revenue's review/rectification application against an interim order and accepted the Revenue's subsequent withdrawal of that ROM application, dismissing it as withdrawn.Additional grounds taken on record and objections by Revenue dismissed; the ROM application was dismissed as withdrawn.Broadcasting service and its scope - Supply of Tangible Goods for Use (STGU) as taxable service - Whether provision/supply of Set Top Boxes (STBs) by the DTH operator falls within the ambit of broadcasting service or as STGU taxable service for levy of service tax. - HELD THAT: - The Tribunal analysed the statutory definitions and types of activities falling within 'broadcasting' and found that transmission of signals, programme selection and permitting reception to the public are covered but the physical provision of STBs does not fall within those categories. For the pre-2012 regime it applied the principle that classification must be under the head most specifically applicable and held that STBs are outside the scope of broadcasting. For the post-2012 Negative List regime it applied Section 66F(1) and held that principal service does not include services merely used to provide the principal service unless specified; no such specification exists. Consequently the Tribunal concluded that supplying STBs cannot be equated to broadcasting service nor automatically included within it.Provision of STBs does not fall within the ambit of broadcasting service or as part of broadcasting for levy of service tax.Transfer of right to use goods - deemed sale under Article 366(29A) - negative list regime - principal service vs services used for providing principal service - Whether the supply/provision of STBs to subscribers amounts to rendition of service (amenable to service tax) or constitutes a deemed sale by transfer of right to use goods attracting State VAT. - HELD THAT: - The Tribunal examined documentary material, statutory scheme (including TRAI/DTH Regulations) and relevant precedents including Supreme Court and High Court decisions on 'transfer of right to use' and effective control. It noted that STBs are part of Customer Premises Equipment and are necessary to receive DTH signals but the supply of STBs to subscribers is a one time provision of equipment. The Tribunal found that effective control and right to use of STBs rested with the subscribers, the appellants did not retain effective control, and VAT had been paid and accepted by State authorities on such transactions. Applying the principles in Quick Heal and Bharti Telemedia and relevant CBEC guidance, the Tribunal held that where the right to use goods is transferred and VAT is paid, the transaction is a deemed sale and not a taxable service under STGU or otherwise.Supply/provision of STBs to subscribers is a deemed sale (transfer of right to use goods) and not a service chargeable to service tax.Supply of Tangible Goods for Use (STGU) as taxable service - valuation/characterisation conflict between VAT and service tax - Whether charges collected as rentals for STBs are amenable to service tax under any other taxable category (including STGU) despite VAT being paid. - HELD THAT: - The Tribunal examined Revenue's reliance on decisions treating similar components as part of service value and distinguished them on facts and subsequent higher court authority. It reiterated that where the transaction amounts to deemed sale and VAT has been paid, the component cannot be included in service tax valuation. The Tribunal rejected Revenue's reliance on Idea Mobile, UCN Cable Network and certain Tribunal precedents as inapplicable on facts or overruled by higher judicial pronouncements. The conclusion was reinforced by statutory and CBEC guidance that components treated as deemed sale should not attract service tax.Charges for STBs given on rental/lease basis are not includible in service tax valuation; they are deemed sale components and not amenable to service tax under STGU or other heads.Duplication of demand - Whether the subsequent adjudication confirming demands for the period from 01.04.2015 to 31.03.2017 amounted to a duplicative demand in view of earlier adjudication. - HELD THAT: - The Tribunal observed that the issue in both impugned orders was identical. Having concluded that the adjudged demands were not sustainable because the STB component constituted deemed sale and not service, the Tribunal set aside the impugned orders. The Bench noted the appellants' contention of duplication and dealt with both appeals together, recording that the order will have equal force in both matters.Impugned orders confirming the service tax demands (including the period 01.04.2015 to 31.03.2017) set aside; appeals allowed, with consequent relief to appellants (thereby addressing the duplication contention).Judicial decorum and appropriate participation by Revenue officers - Whether the conduct of the Commissioner of CGST & Central Excise, Aurangabad in seeking adjournments and claiming non service justified comment and referral for administrative examination. - HELD THAT: - The Tribunal recorded displeasure at the Commissioner's assertions of non service and apparent ignorance of long standing facts (including change of name following NCLT order and prior recording in the impugned order). The Bench concluded that seeking adjournments without valid grounds obstructed justice delivery and that the Commissioner's suggestion to refer the matter to a Larger Bench was inappropriate. The Tribunal directed that the supervisory authorities examine the matter for such action as deemed fit to ensure proper presentation by departmental officers in judicial forums.Tribunal expressed strong observations regarding the Commissioner's conduct and directed supervisory authorities to examine the matter for appropriate action.Final Conclusion: The Tribunal held that the supply/provision of STBs to subscribers constitutes a deemed sale (transfer of right to use goods) and not a taxable service under broadcasting or STGU; additional grounds filed by the appellants were admitted; the impugned orders confirming service tax demands (including the period 01.04.2015 to 31.03.2017) were set aside and the appeals allowed; the Tribunal also recorded adverse observations about departmental conduct and directed administrative examination. Issues Involved:1. Consideration of Additional Grounds2. Judicial Decorum and Participation by Revenue Officers3. Nature of Activity and Taxability of Set Top Boxes (STBs)Summary:1. Consideration of Additional Grounds:The appellants and the Revenue filed miscellaneous applications under Rule 10 of the CESTAT (Procedure) Rules for consideration of additional grounds. The Tribunal heard the applications and found the averments justified for consideration, thus dismissing the objections raised by the Revenue. The appeals were taken up for hearing and decision on merits.2. Judicial Decorum and Participation by Revenue Officers:The Tribunal noted inappropriate conduct by the Commissioner of CGST and Central Excise, Aurangabad, who sought unnecessary adjournments and claimed ignorance of the appellants' additional grounds despite evidence of service. The Tribunal emphasized the need for proper judicial decorum and recommended that the supervising authorities take appropriate action against such conduct.3. Nature of Activity and Taxability of Set Top Boxes (STBs):The appellants provided broadcasting services through DTH and supplied STBs to customers on a rental basis, treating the transaction as a deemed sale and paying VAT. The Revenue argued that the rental charges for STBs should be included in the taxable value for service tax under broadcasting services. The Tribunal examined the definitions and statutory provisions for 'broadcasting' and 'Supply of Tangible Goods for Use' (STGU) and concluded that the provision of STBs is outside the scope of broadcasting services.The Tribunal referred to judicial precedents, including the Hon'ble Supreme Court's judgment in Quick Heal Technologies Limited and the Hon'ble Tripura High Court's judgment in Bharti Telemedia Ltd., to establish that the effective control over the STBs was with the customers, making the transaction a deemed sale subject to VAT and not service tax. The Tribunal also dismissed the Revenue's reliance on the UCN Cable Network Pvt. Ltd. case, as it did not consider the relevant High Court judgment.Conclusion:The Tribunal set aside the impugned orders, holding that the appellants' provision of STBs on a rental basis is a deemed sale, not subject to service tax. The appeals were allowed in favor of the appellants.