2025 (10) TMI 1132 - AT - Service Tax

Partly allowed appeal; extended period and penalty upheld for deliberate non-payment of service-tax; remands film-rights transfer and late CENVAT credit

M/s Narne Networks Pvt Ltd. Versus Commissioner Of Central Excise and Service Tax Hyderabad - III

CESTAT HYD - AT partly allowed the appeal. The tribunal upheld invocation of the extended period and penalty for deliberate non-payment and non-filing of ... Levy of penalty - Delayed payment of service tax - Broadcasting Service - levy of service tax on sale of Film Right Service - availment of irregular CENVAT Credit. Penalty - Broadcasting Service - discharge of service tax liability much later when they filed Service Tax Returns - HELD THAT:- The Department has invoked extended period alleging deliberate intent to evade payment of duty. It has been observed by the Adjudicating Authority that the appellant collected Service Tax but did not pay to the Government. This aspect was also suppressed in the sense that no Service Tax Returns were filed during relevant time despite their having collected the Service Tax. Hence, mensrea was clearly manifested. It is found that the grounds taken for sustaining the invokation of extended period by the Adjudicating Authority is correct in the facts of the case. The appellant had intentionally withheld the amount of Service Tax collected over a long period of time and had also withheld filing of Service Tax Returns despite their being registered under Finance Act as service providers and liable to and also adhere to requirement of filing returns etc., and also being aware of other procedural requirement as well as requirement to pay Service Tax. Thus, there was sufficient ground for invoking extended period - there was no reasonable cause for non-payment and a financial distress, which is also not duly substantiated, cannot be a reasonable cause for non-payment of duty, as and when due - the benefit of Section 80 cannot be extended. Levy of service tax on sale of Film Right under the category of Copy Right Service - temporary transfer of copyright or permanent transfer of copyright - HELD THAT:- Reliance has been placed by the appellant on the judgment of Hon’ble High Court of Madras in the case of Vendhar Movies Vs Jt. Dir, D.G. of GST Intelligence, Chennai [2019 (6) TMI 110 - MADRAS HIGH COURT] and Pr. Commissioner of CGST & Central Excise, Chennai Vs Wunderbar Films Private Ltd., [2024 (3) TMI 17 - MADRAS HIGH COURT], whereas, Department has relied on AGS Entertainment Pvt Ltd., & others Vs Union of India & Others [2013 (7) TMI 23 - MADRAS HIGH COURT]. While in the judgment in Vendhar case, Hon’ble High Court, the Learned Single Judge, iteralia, held that expression perpetual transfer has to be considered as not temporary and therefore allowed the Writ Petition by way of remand. In view of Wanderbar judgment supra, which took into account various judgments on the issue, it is considered appropriate to remand the matter to Original Authority to re-examine the contract in the light of referred judgments to come to conclusion as whether the transfer or assignment is temporary or otherwise. The entire aspect of contract would has to be examined as a whole to come to a definitive conclusion in the given factual matrix. Irregular availment of Cenvat Credit - HELD THAT:- Admittedly, all the credit has been taken beyond six months or for that matter even for one year but taken on the strength of invoices issued during the period, when there was no such restriction on taking the credit within a specific period. However, it is also noted that what has been provided that under the law and Cenvat Credit Rules is that it should be a bonafide invoice and should meet other conditions and be eligible for taking credit in relation to their manufacture of goods or provision of output service. It is found that this aspect has not been examined and the only aspect which was examined is that the credit has been taken beyond six months period. Thus, though in the absence of any statutory requirement for putting any restriction on claiming the credit within a specified period in respect of any duty paying document for eligible credit, and there being no statutory documents in which the credit taking and utilising of credit was to be reflected for taking and utilising the credit, once it is established that these invoice were being duly accounted for in their private financial record during the relevant period and they were also otherwise eligible for taking credit in respect of said documents in accordance with provisions of the Cenvat Credit Rules, they shall be eligible for taking the credit and can utilise the same. In order to determine this, the matter needs to be remanded back where the appellant will be have an opportunity to submit all the relevant documents including private record for accounting such invoices for examination and perusal of the Adjudicating Authority and thereafter, the credit to the extent eligible, would have to be allowed. Appeal allowed in part. ISSUES PRESENTED AND CONSIDERED 1. Whether penalty under Section 78 of the Finance Act, 1994 is sustainable where service tax was collected but not paid and returns were not filed, and whether benefit of Section 80 (for reasonable cause) can be extended where non-payment is attributed to alleged financial distress or change of management. 2. Whether assignment/sale of copyright in a cinematograph film described as 'perpetual' in the agreement constitutes a permanent transfer (outside service tax under Section 65(105)(zzzzt)) or a temporary transfer subject to service tax, and what factual/contractual analysis is required to decide leviability. 3. Whether Cenvat credit availed after more than six months (and even beyond one year) of invoice issuance is inadmissible by reason of amendments introduced by Notification No. 21/2014-CE(NT) dated 11.07.2014, or whether (a) the time-limit amendment is prospective only and (b) credit can be allowed if invoices were bona fide and accounted for in private/business records during the relevant period. 4. Whether the 'extended period' of limitation for recovery/demand is invokable on facts showing deliberate withholding of collected tax and suppression of filing returns (mens rea), and whether invocation of extended period influences penalty imposition. ISSUE-WISE DETAILED ANALYSIS - I. Penalty under Section 78 and applicability of Section 80 Legal framework: Section 78 Finance Act, 1994 permits penalty where duty is not paid as required; Section 80 provided discretionary relief for reasonable cause (note: provision omitted with effect from 14.05.2015 but relevant as per temporal operation where claim arises during its existence). Precedent treatment: Reliance placed by appellant on precedents allowing equitable consideration under Section 80 where reasonable cause shown; Revenue relied on established principle that mens rea and deliberate defaults justify extended period and penalty. Interpretation and reasoning: The Tribunal examined admitted facts - collection of service tax, prolonged non-payment, and non-filing of returns until 2014 - and concluded these demonstrated deliberate withholding and suppression. Financial distress was not adequately substantiated and, as a matter of law, cannot automatically constitute reasonable cause for non-payment. Change of management and late payment during investigation did not negate earlier mens rea. Ratio vs. Obiter: Ratio - where a service provider collects tax, fails to file returns and withholds tax over a long period without reasonable substantiation, extended limitation and penalty under Section 78 are sustainable; Section 80 relief is not available in absence of reasonable cause. Obiter - general observations on scope of 'financial distress' as a defence. Conclusions: Penalty under Section 78 as applied to the broadcasting service demand is upheld; benefit of Section 80 denied for lack of reasonable cause and presence of mens rea. Invocation of extended period on these facts is justified. ISSUE-WISE DETAILED ANALYSIS - II. Levy on assignment/sale of film right (temporary vs permanent transfer of copyright) Legal framework: Service tax entry for copyright services (Section 65(105)(zzzzt) pre-1.7.2011 and later provisions) applies to temporary transfer/permitting use or enjoyment of copyright (excluding certain categories per Copyright Act). Classification hinges on whether transfer is temporary or permanent; permanent transfers generally fall outside the service tax entry as a sale/assignment. Precedent treatment (followed/distinguished): Authorities and courts have held that the substance of the contract controls classification; earlier Single Judge authority treated 'perpetual' as indicative of non-temporary transfer, but a later Division Bench remanded for reconsideration and kept issues open (not a definitive procedural ratio that 'perpetual' always equals permanent). Relevant decisions were considered without adopting an absolute rule; prior decisions (including AGS/Wunderbar line) require detailed contractual analysis. Interpretation and reasoning: The Tribunal set out the operative contract terms: exclusive world satellite, terrestrial and multiple broadcast rights assigned for consideration, assignment described as irrevocable/perpetual and Sun TV's right to sub-assign; but noted conflicting findings by the Adjudicating Authority that some rights purportedly were not assigned without adequate basis. Because classification depends on contractual language and surrounding statutory copyright concepts, and prior higher court decisions advise remand where contract interpretation is unresolved, the Tribunal remanded the issue for re-examination of the agreement and factual matrix in light of relevant jurisprudence. Ratio vs. Obiter: Ratio - determination of levy on sale/assignment of film rights is fact and contract specific; where contractual terms and surrounding circumstances are unclear or contradicted by authority findings, remand for fresh adjudication is appropriate. Obiter - the label 'perpetual' is not conclusively determinative; entire contract and rights reserved/retained must be examined. Conclusions: Demand under 'sale of film right/transfer of copyright of cinematographic film' set aside and remanded to the Adjudicating Authority to reassess whether the transfer was temporary or permanent by a holistic evaluation of the contract and applicable Copyright Act principles, and in light of cited precedents. ISSUE-WISE DETAILED ANALYSIS - III. Irregular availment of Cenvat credit (time-limit amendment and admissibility) Legal framework: Cenvat Credit Rules require invoices to be bona fide and conditions of Cenvat admissibility to be met; Rule amendments by Notification No. 21/2014-CE(NT) (11.07.2014) introduced a six-month time limit (later extended to one year) for taking credit from date of invoice/document. Precedent treatment (followed/distinguished): Tribunal relied on authorities holding that time-limit amendments operate prospectively and cannot be applied retrospectively to invoices issued before the amendment. Decisions were invoked to support the view that restriction cannot deprive parties of credit where rules at the time of invoice issuance contained no such time bar. Interpretation and reasoning: The Department's sole ground was that credit was taken beyond six months as shown in ST-3 filings in late 2014. Tribunal found the amendment's wording and legislative intent indicate prospective application; invoices issued prior to 11.07.2014 cannot be invalidated by the later time-bar. However, admissibility still requires that invoices be bona fide and that eligibility under Cenvat Rules be satisfied. The Adjudicating Authority had focused only on the time-limit ground and not examined whether invoices were accounted for in private/business records and otherwise eligible; accordingly, the matter was remitted to permit production and verification of private accounting records and other eligibility criteria. Ratio vs. Obiter: Ratio - the six-month limitation introduced on 11.07.2014 is prospective and does not apply to invoices issued before that date; bona fide invoices accounted for in business records and otherwise meeting Cenvat conditions can support credit notwithstanding late availing where no prior statutory restriction existed. Obiter - emphasis that ST-3 filings alone do not determine eligibility without examination of underlying records. Conclusions: Demand of Rs. 1,40,14,440/- for irregular credit and related penalty set aside and remanded to enable the adjudicating authority to examine private/business records, verify eligibility of invoices under Cenvat Credit Rules, and determine allowable credit and any penalty in accordance with law. ISSUE-WISE DETAILED ANALYSIS - IV. Invocation of extended period Legal framework: Extended period of limitation for recovery may be invoked where mens rea/deliberate attempt to evade tax is found; statutory scheme permits extended limitation and enhanced consequences where deliberate suppression exists. Precedent treatment: Courts have sustained extended period where deliberate concealment, failure to file returns despite registration, or intentional withholding of collected tax is established. Interpretation and reasoning: Tribunal found factual basis for extended period: admitted collection of tax, failure to file returns for long periods, and delayed payment only during investigation. These facts manifest deliberate intent and suppression; therefore extended period is invokable both for unpaid service tax on broadcasting services and for any improper credit taken and utilised, subject to re-determinations on remand where applicable. Ratio vs. Obiter: Ratio - where deliberate withholding of collected tax and failure to file returns is established, extended limitation can be invoked; such findings also support penalty imposition. Obiter - procedural observations on interrelationship of extended period findings and later remanded factual determinations. Conclusions: Extended period is invokable for recovery of unpaid service tax and for recovery of improperly taken/utilised credit if adjudicating findings on remand substantiate suppression or deliberate evasion. OVERALL DISPOSITION (AS REFLECTED IN REASONS) a) Demand and penalty in respect of Broadcasting Services sustained; Section 80 relief denied. b) Demand in respect of sale/transfer of film rights set aside and remitted for fresh contract-based adjudication to determine whether transfer was temporary (taxable) or permanent (not taxable). c) Demand and penalty relating to alleged irregular Cenvat credit set aside and remitted for detailed examination of eligibility, private accounting records and bona fides of invoices; admissible credit to be allowed accordingly. d) Extended period of limitation held invokable where deliberate withholding and suppression are established; applicability preserved pending remand outcomes.