2025 (8) TMI 799 - AT - Service Tax

Extended limitation period not allowed for service tax on broadcast signal retransmission; penalties under Section 78 set aside

M/s Ultra World Vision Versus Commissioner of Central Excise & CGST, Kanpur

M/s Ultra World Vision Versus Commissioner of Central Excise & CGST, Kanpur - TMI 1. ISSUES PRESENTED and CONSIDERED 1. Whether the appellant, as a local cable operator (LCO), is liable to pay service tax on cable operator services under the Finance Act, 1994, despite the Multi-System Operator (MSO) paying service tax on the same broadcast signals. 2. Whether the appellant is providing branded services and thus entitled to exemption under relevant exemption notifications. 3. Whether the extended period of limitation under proviso to Section 73(1) of the Finance Act, 1994, read with Section 174(2) of the CGST Act, 2017, is invokable for demand of service tax and penalties. 4. Whether the appellant is entitled to Cenvat credit of service tax paid by the MSO on input services beyond the prescribed time limits under Rule 4(7) and related provisions of the Cenvat Credit Rules, 2004. 5. Whether penalties under Sections 77 and 78 of the Finance Act, 1994 are justified for failure to register, maintain records, furnish information, pay service tax, and for suppression of facts. 6. Whether the demand of service tax on gross value of services received by the appellant is sustainable. 7. Whether the assessment under Section 72 of the Finance Act, 1994, based on MSO data, is correct. 2. ISSUE-WISE DETAILED ANALYSIS Issue 1: Liability of Local Cable Operator (LCO) to Pay Service Tax Despite MSO Payment Legal Framework and Precedents: Service tax on cable operator services was introduced vide Notification No. 08/2002-ST dated 01.08.2002. Definitions under Section 65(21) and 65(22) of the Finance Act, 1994, incorporate meanings from the Cable Television Networks (Regulation) Act, 1995 (CTN Act) for 'cable operator' and 'cable service'. The CTN Act defines a cable operator as a person who provides cable service through a cable television network and cable service as transmission or retransmission by cable of broadcast television signals. Circulars No. 80/10/2004-ST and F.No.B116/2005-TRU clarify the taxability of services provided by MSOs and cable operators, establishing that both are taxable entities in the service tax chain. Court's Interpretation and Reasoning: The Court observed that the MSO receives signals from broadcasters and transmits them to LCOs, who then retransmit to subscribers. The LCO fulfills the definition of cable operator as per Section 2(aa) of the CTN Act by providing cable service to last-mile subscribers. Reliance was placed on judgments of the Delhi High Court, CESTAT Delhi, and CESTAT Chandigarh confirming that LCOs are liable to pay service tax notwithstanding MSO's payment. Key Evidence and Findings: The appellant received signals from MSO and transmitted to subscribers without obtaining service tax registration or paying service tax. The appellant's contention that MSO payment exempts them was rejected as misconstrued, supported by the Punjab & Haryana High Court judgment which held that service tax is not payable twice on the same service due to availability of Cenvat credit. Application of Law to Facts: The appellant's activities fall within the taxable service definition, and the MSO's payment does not absolve the LCO from liability. The chain of service tax liability extends to both MSO and LCO as distinct taxable persons. Treatment of Competing Arguments: The appellant's argument of double taxation was addressed by explaining the Cenvat credit mechanism, which avoids cascading tax burden. The Court rejected the argument that MSO payment excludes LCO liability. Conclusion: The appellant as LCO is liable to pay service tax on cable operator services notwithstanding MSO's payment. Issue 2: Whether the Appellant Provides Branded Services and Entitled to Exemption Legal Framework and Precedents: Exemption under Notification No. 33/2012-ST and Notification No. 6/2005-ST applies to non-branded cable operator services. The definition of 'branded service' requires a connection in the course of trade between the product/service and a person using a brand name or mark, as elucidated by the Supreme Court in RDB Industries and Maheshwari Industries cases. Court's Interpretation and Reasoning: The Court found that the appellant retransmits signals received from the MSO without providing any brand to subscribers. Subscribers do not request branded services from the appellant. The appellant's service is thus non-branded. Key Evidence and Findings: The appellant's service consists of retransmission of MSO signals without any brand identification or enhancement of value by brand. The Court relied on judicial pronouncements distinguishing compulsory markings from brand names. Application of Law to Facts: Since the appellant does not provide branded services, they are entitled to exemption subject to fulfillment of threshold limits. Treatment of Competing Arguments: The appellant claimed entitlement to exemption; the revenue contended otherwise. The Court sided with the appellant on the branded service issue but noted threshold exemption conditions. Conclusion: The appellant is not providing branded services and is entitled to exemption under Notification No. 33/2012-ST and Notification No. 6/2005-ST, subject to aggregate value thresholds. Issue 3: Invokability of Extended Period of Limitation Legal Framework and Precedents: Extended limitation under proviso to Section 73(1) of the Finance Act, 1994, read with Section 174(2) of the CGST Act, 2017, applies where there is suppression of facts with intent to evade tax. The Tribunal in Blue Star Communication and others (2019) held that extended period is not invokable where there is bona fide belief or industry confusion. Court's Interpretation and Reasoning: The Court noted that the appellant was under bona fide belief of exemption entitlement due to industry confusion regarding tax liability between MSO and LCO. The subsequent Tribunal decision held extended limitation not applicable in such cases. Key Evidence and Findings: The appellant did not register or pay service tax, but the failure was in context of confusion and bona fide belief. The show cause notice was issued after the Tribunal decision clarifying the law. Application of Law to Facts: The Court held that extended limitation could not be invoked as the appellant lacked intent to evade tax knowingly and had bona fide belief of exemption. Treatment of Competing Arguments: Revenue argued suppression and evasion; appellant claimed bona fide belief and industry confusion. The Court favored the appellant on limitation. Conclusion: Extended period of limitation is not invokable; demand must be restricted to normal limitation period. Issue 4: Admissibility of Cenvat Credit of Service Tax Paid by MSO Beyond Prescribed Time Limits Legal Framework and Precedents: Rule 4(7), Rule 9(6), and Rule 9(9) of the Cenvat Credit Rules, 2004 prescribe timelines and conditions for availing Cenvat credit. The principle that credit must be claimed within six months or one year is well established. Decisions in Kusum Ingots & Alloys Ltd., Osram Surya Pvt. Ltd., and Rathi Ispat Ltd. uphold denial of credit claimed beyond prescribed periods. The Supreme Court has affirmed these principles. Court's Interpretation and Reasoning: The Court observed that the appellant failed to register, maintain records, or file statutory ST-3 returns showing availment/utilization of credit within prescribed time. The right to credit crystallizes only upon filing returns and maintaining records. The appellant's claim beyond the prescribed period is contrary to the statutory provisions. Key Evidence and Findings: No evidence of timely registration, record maintenance, or return filing was produced. The appellant availed credit beyond the prescribed period. Application of Law to Facts: The appellant is not eligible for Cenvat credit on input services beyond the prescribed period of limitation and without compliance with procedural requirements. Treatment of Competing Arguments: The appellant sought credit beyond limitation citing MSO payments; revenue relied on statutory rules and precedents denying such credit. The Court upheld revenue's position. Conclusion: Cenvat credit claimed beyond prescribed time limits and without compliance with procedural requirements is not admissible. Issue 5: Justification for Penalties under Sections 77 and 78 of the Finance Act, 1994 Legal Framework and Precedents: Penalties under Section 78 are imposed for failure to pay service tax and suppression with intent to evade. Sections 77(1)(a), (b), (c), and 77(2) impose penalties for failure to register, maintain records, furnish information, and file returns. Court's Interpretation and Reasoning: The Court found that the appellant neither registered nor filed returns, failed to maintain records, and suppressed facts, constituting contraventions attracting penalties. However, since extended limitation period is not invokable, penalty under Section 78 is set aside. Penalties under Section 77 are upheld for non-compliance with registration, record-keeping, and return filing obligations. Key Evidence and Findings: Non-registration, non-filing of ST-3 returns, failure to maintain records, and suppression of facts were established. Application of Law to Facts: Penalties under Sections 77(1)(a), (b), (c), and 77(2) are justified. Penalty under Section 78 is not sustainable due to limitation period issue. Treatment of Competing Arguments: Revenue supported penalties; appellant contested. The Court partially upheld penalties. Conclusion: Penalties under Sections 77(1)(a), (b), (c), and 77(2) are justified; penalty under Section 78 is set aside due to limitation. Issue 6: Demand of Service Tax on Gross Value of Services Received Legal Framework and Precedents: Section 67 of the Finance Act, 1994 mandates valuation of taxable services on gross amount charged. The Supreme Court in Intercontinental Consultants and Technocrats Pvt. Ltd. clarified that service tax valuation is on gross amount charged for the taxable service. Court's Interpretation and Reasoning: The appellant received subscription amounts from subscribers for cable services. The Court held that service tax is payable on the gross value of such subscriptions. Key Evidence and Findings: Subscription receipts from subscribers were established. Application of Law to Facts: Demand on gross value of subscription amounts is sustainable. Treatment of Competing Arguments: No substantive contrary argument was accepted. Conclusion: Appellant is liable to pay service tax on gross value of services received. Issue 7: Validity of Assessment under Section 72 Based on MSO Data Legal Framework and Precedents: Section 72 allows best judgment assessment if data is not furnished. The Tribunal in Blue Star Communication held that assessment based on MSO data without appellant's data is not correct. Court's Interpretation and Reasoning: The Court found that the appellant was not given opportunity to supply data of their activity. Assessment based solely on MSO data is unsustainable. Key Evidence and Findings: Lack of appellant's data submission was noted. Application of Law to Facts: The matter requires remand for appellant to furnish data and for reassessment within limitation period. Treatment of Competing Arguments: Revenue relied on MSO data; appellant claimed data was not considered. Court favored appellant's right to be heard and supply data. Conclusion: Assessment under Section 72 is not sustainable; matter remanded for reassessment on appellant's data within limitation. Additional Observations and Directions - The appellant is not entitled to threshold exemption as aggregate taxable value exceeded Rs. 10 lakh in relevant financial years. - Cenvat credit is available for service tax paid by MSO on input services, subject to compliance with Cenvat Credit Rules. - The matter is remanded to Original Authority for re-quantification of demand restricted to normal limitation period and for reassessment based on appellant's data within three months.