2023 (9) TMI 1283 - AT - Service Tax

Tribunal rules in favor of Appellant, sets aside service tax demand for Copy Right Services, emphasizing verification needed

M/s South City Projects (Kolkata) Limited Versus Commissioner of Service Tax, Kolkata

The Tribunal set aside the demand for service tax related to Copy Right Services as it was not included in the Show Cause Notice, reducing the Appellant's ... Levy of service tax - Renting of immovable property service - Amount relatable to Copy Right Services - Amount already paid and not adjusted - Short Claim of Property Tax - Amount already paid but not adjusted - HELD THAT:- There was no service tax demand on 'Copy Right Service'. Copy Rights Service as defined under Section 65(zzzzt) of the Finance Act 1994, specifically excludes the right covered under sub-clause(a) of clause(1) of Section 13 of the said Act, which deals with copy rights related to 'Original literary, dramatic, musical and artistic works' - it is found that the Copy Rights service rendered by the Appellant are related to 'Original Artistic Works' which are excluded from payment of service tax. Accordingly, the demand of service tax amounting to Rs.8,41,684/- is not sustainable. Even otherwise, there was no demand of service tax under the category of 'Copy Right Service' in the Notice. Hence, the demand of service tax of Rs.8,41,684/- confirmed in the impugned order is not sustainable on this count also. Regarding the remaining demand confirmed in the impugned order, the Appellant stated that as per the direction of the Hon'ble Supreme Court, the Lessees paid Rs.1,91,121/- which has not been taken into account by the adjudicating authority. They further stated that the adjudicating authority has excluded Property Tax amounting to Rs.56,83,647/-. However, actual property tax paid was Rs. 57,66,009/- Thus, an additional amount of Rs 82,362/- has also to be excluded on account of property tax. They also stated that there was a short adjustment of Rs.40,087/-paid by them which has not been appropriated - the claim of the Appellant on these counts needs to be verified by the adjudicating authority. For that purpose, the matter needs to be remanded back to the adjudicating authority. Appeal allowed by way of remand. ISSUES PRESENTED AND CONSIDERED 1. Whether a demand for service tax confirmed in adjudication as attributable to 'Copy Right Service' is sustainable where the activities relate to 'original artistic works' excluded by the statutory definition. 2. Whether amounts allegedly paid by third parties (lessees) and amounts of property tax actually paid but not adjusted by the adjudicating authority, together with other paid sums, have been properly accounted for in the confirmed demand, and whether failure to account for them vitiates the confirmed residual demand, interest and penalty. ISSUE-WISE DETAILED ANALYSIS Issue 1: Sustainability of demand characterized as 'Copy Right Service' when service relates to original artistic works Legal framework: Service Tax under the Finance Act, 1994, including the definition of 'Copy Rights Service' (Section 65(zzzzt)) and the exclusion of rights covered under sub-clause (a) of clause (1) of Section 13 (rights in relation to original literary, dramatic, musical and artistic works). Precedent treatment: The Tribunal applied the statutory text; no conflicting precedent was relied upon in the reasoning. The adjudicatory notice itself did not demand tax under the 'Copy Right Service' category. Interpretation and reasoning: The Tribunal examined the statutory definition and found that the services rendered by the taxpayer were in respect of 'original artistic works,' which fall within the exclusion expressly contained in Section 65(zzzzt). The Tribunal also noted the procedural deficiency that the original show-cause notice did not raise a demand under the 'Copy Right Service' category, so confirming that part of the demand in adjudication was unsupported by the notice. Ratio vs. Obiter: Ratio - where the service rendered falls within the statutory exclusion for original literary, dramatic, musical and artistic works, a confirmed demand for service tax as 'Copy Right Service' is unsustainable; additionally, confirming a demand in adjudication for a service category not included in the show-cause notice is procedurally unsustainable. No separate obiter was expressed. Conclusions: The Tribunal set aside the portion of the confirmed demand amounting to Rs.8,41,684/- that was attributed to Copy Right Service, and accordingly set aside interest and penalty insofar as they related to that portion of the demand. Issue 2: Verification and adjustment of amounts allegedly paid by lessees, property tax actually paid, and other payments - effect on remaining demand, interest and penalty Legal framework: Principles of adjudication requiring that previously paid amounts, adjustments, and allowable deductions (such as property tax where relevant to taxable value) be taken into account in computing net demand; consequence of netting off such amounts on interest and penalty liability under the Finance Act, 1994 (including Section 76 penalties where liability is found). Precedent treatment: The Tribunal did not cite specific precedents but applied standard adjudicatory principles that demands must reflect proper appropriation of payments and correct exclusions. Interpretation and reasoning: The Appellant claimed (i) lessees had paid Rs.1,91,121/- per higher court direction which was not accounted for; (ii) actual property tax paid exceeded the amount excluded by the adjudicating authority by Rs.82,362/- and thus should further reduce taxable value; and (iii) a short adjustment of Rs.40,087/- remained unappropriated. The Tribunal found these claims material to the balance of the confirmed demand and that the adjudicating authority had not verified or adjusted them. Because these adjustments, if accepted, could eliminate any residual liability and thereby negate interest and penalty, the Tribunal remanded the matter for fresh verification and appropriate accounting by the adjudicating authority. Ratio vs. Obiter: Ratio - where a confirmed demand may be affected by unverified payments, adjustments or excluded taxes, the appropriate remedy is remand for verification and re-computation rather than immediate affirmation; interest and penalty consequences must be reassessed after such verification. This directive is operative. No obiter discussion was made. Conclusions: The Tribunal remanded the file to the adjudicating authority with specific directions to verify and, if substantiated, adjust the amounts at (ii) lessees' payment of Rs.1,91,121/-, (iii) additional property tax exclusion of Rs.82,362/-, and (iv) the short adjustment of Rs.40,087/-. The Tribunal disposed of the appeal by setting aside only the Copy Right Service portion and directing reconsideration of the remaining confirmed demand; interest and penalty were set aside to the extent of the part of demand vacated, and to the extent the remand leads to elimination or reduction of liability, consequences on interest and penalty will follow on recomputation. Cross-references and procedural directions Where a part of a confirmed demand is set aside on statutory exclusion grounds and other parts depend on verifiable adjustments, the adjudicating authority must (a) verify documentary proof of payments and tax credits, (b) appropriately adjust the confirmed demand and recompute interest and penalty only after such verification, and (c) record reasons for acceptance or rejection of each claimed adjustment. The Tribunal's order vacated the excluded portion and remanded the remainder for such verification and recomputation.