2025 (10) TMI 1160 - AT - Service Tax

Overseas lead managers, legal advisors and merchant bankers' fees and foreign TV ad time taxable under reverse-charge; demand time-barred

M/s. G.V. Films Ltd. Versus Commissioner of GST and Central Excise, Chennai

CESTAT Chennai held that services rendered by overseas lead managers, legal advisors, placement agents and merchant bankers in relation to GDR/FCCB issues ... Classification of services - Banking and Other Financial Services or not - Appellant availed the services of Lead Managers, Legal Advisors, Marketing Consultants, Placement Agents, Merchant Bankers, etc., located outside India and incurred expenditure in convertible foreign currency - applicability of reverse charge mechanism - service tax on sale of time slots on TV - invocation of extended period of limitation. Classification of services - Banking and Other Financial Services or not - Appellant availed the services of Lead Managers, Legal Advisors, Marketing Consultants, Placement Agents, Merchant Bankers, etc., located outside India and incurred expenditure in convertible foreign currency - applicability of reverse charge mechanism - HELD THAT:- A plain reading of para 2.3 of CBIC Circular F. No: B11/1/2000 TRU dated 09.07.2001 makes it very clear that the overseas agents who handle the issue of GDR/FCCB abroad are covered under Issue management and the services rendered by them are covered under ‘Merchant Banking Services’ as defined in Section 65(12) of FA 1994 - Therefore, the services received by the Appellant from the service providers located abroad with regard to their GDR / FCCB issue are clearly covered under Banking and Other Financial Service as per sub clause (iii) of Section 65(12) of the Finance Act, 1994. Further, as per 65(105) (zm) “taxable service' means any service provided or to be provided to by a banking company or a financial institution including a non-banking financial company, or any other body corporate or any other person, in relation to banking and other financial services. The taxable services of Banking and other financial services falling under Section 65 (105) (zm) of the Finance Act, 1994 are covered under the category (iii) of Rule 3 of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. The services falling under this category (iii) become taxable and liable for payment of service tax if the recipient of services is located in India for use in relation to business or commerce irrespective of the place where the Services are rendered. In respect of category (iii) service, it will suffice that the service receiver is located in India and used the said services for business or commerce. In the present case, all the conditions prescribed under Section 66A of the Act read with Rule 3(iii) of Taxation of Services Rules, 2006 are fully satisfied as the Appellant company has permanent base in India, and consequently the Appellant is liable to pay Service tax in terms of Section 68(2) read with Rule 2(1)(d)(iv) of Service Tax Rules.1994. The Appellant did not furnish details of how the GDR/FCCB funds were deployed. They have not furnished any offer document for issue of GDR/FCCB for deployment of funds. Therefore, the reasoning given by the Appellant that no services were received from Abroad cannot be accepted and it is inclined to accept the findings of the Adjudicating Authority in the impugned order on this score. Thus, the services are to be classified as “Banking and other financial services” and as the same is provided to the receiver in India, the Appellant becomes liable to pay the same under Reverse charge. Demand of Service Tax on sale of time slot for advertisement - HELD THAT:- It is noticed that from the terms of the MOU, the Appellant has received 65% of the money from Mavis/ 'IV Channele towards sale of free commercial time. None of the terms of the MOU indicates, that the Appellant has assigned their rights to telecast. Therefore, there is no merit in the Appellant’s contention, and the same is liable for rejection. Accordingly, the income received by the Appellant from Mavis is taxable under the category of “sale of space or time for advertisement” and they are liable to pay service tax on the said service. The demand of the service Tax of Rs 3,34,949/- confirmed in the impugned Order for the period 2007-08 to 2008-09 is to be sustained. Therefore, the question framed is also answered against the Appellant. Time limitation - suppression of facts or not - HELD THAT:- The facts are deemed to have been known to the Department and the theory of Suppression is ruled out. It is a genuine interpretational issue on classification of services and point of delivery of service and it has been held in a plethora of Decisions by Tribunals /Courts that extended period cannot be invoked in such a situation - there are no ingredients for invoking the extended period in this case as the authorities are seized of the issue of GDR from 2007 onwards and the Notice came to be issued only in 2011 after an unusually long delay of 4 years. After holding that Section 73(1) is not applicable, the only option is Section 73 covering the normal period of limitation, which during the disputed period stood at 1 year. The demand in this case is for the years 2006-07 and 2008-09, which will be clearly hit by limitation of time as the SCN was issued only on 22.10.2011 - the demand is hit by limitation of time. Thus, though the demand survives on the grounds on Taxability of services, it fails to stand the test of limitation of time and deserves to be set Aside - appeal allowed. ISSUES PRESENTED AND CONSIDERED 1. Whether services provided by overseas service providers in relation to issue of GDR/FCCB constitute taxable 'Banking and Other Financial Services' under Section 65(12) read with Section 65(105)(zm) and are taxable under reverse charge (Section 66A) where the recipient is located in India. 2. Whether receipts from allocation of television time slots and sharing of advertisement revenue fall within 'sale of space or time for advertisement' under Section 65(105)(zzzm) and are liable to Service Tax. 3. Whether invocation of the extended limitation period under the proviso to Section 73(1) (for fraud, collusion, wilful misstatement or suppression of facts) was justified on the facts, or whether the demand is barred by the normal period of limitation. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Taxability of overseas services in relation to GDR/FCCB as 'Banking and Other Financial Services' and applicability of reverse charge (Section 66A) Legal framework: Definitions in Section 65(12) (Banking and other financial services) and Section 65(105)(zm) (taxable service in relation to banking and other financial services); Section 66A and Rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006; reverse charge principles under Service Tax Rules. Precedent treatment: Tribunal decision treating issue expenses on GDR/FCCB as falling within merchant banking / banking and other financial services was relied on and applied. Interpretation and reasoning: The overseas service providers (lead managers, legal advisors, listing agents, placement agents, merchant bankers) rendered services connected with issue management of GDR/FCCB. CBIC circulars and the scope of merchant banking/issue management activities support classification under merchant banking, which is a sub-item of 'Banking and other financial services' in Section 65(12). Services provided from abroad but used in relation to business in India fall within category (iii) of Rule 3 and are taxable if the recipient is located in India and uses the services for business or commerce. The appellant failed to prove that funds or services were consumed outside India or that funds were deployed abroad; contemporaneous company profile and audit material indicated deployment in India (capital expenditure, acquisition of multiplexes, TV production). The appellant did not dispute the identity of overseas service providers named in the impugned order. Ratio vs. Obiter: Ratio - services rendered abroad for issue management of GDR/FCCB used by an Indian recipient for business are taxable under Banking and Other Financial Services and chargeable under reverse charge. Distinguishing earlier authorities where services were not received in India (technical testing, exhibitions, foreign-received services) was necessary; those decisions are not applicable on these facts (obiter distinction as applied to facts here). Conclusion: Services in relation to GDR/FCCB issue provided by overseas entities are taxable as 'Banking and Other Financial Services' under Section 65(12) / 65(105)(zm) and liable to Service Tax under reverse charge (Section 66A) where the recipient is located in India and uses the services for business. Issue 2 - Taxability of receipts from sale/assignment of TV time slots as 'sale of space or time for advertisement' (Section 65(105)(zzzm)) Legal framework: Section 65(105)(zzzm) defines taxable service relating to sale of space or time for advertisement, including Explanation I(ii): selling of time slots on radio or television by a person other than a broadcasting agency or organisation. Precedent treatment: The impugned order and comparable interpretations treat non-broadcaster persons who sell/market TV time slots or share in advertisement revenue as providers of 'sale of space or time for advertisement.' Interpretation and reasoning: The MOUs showed that the channel allotted a slot, marketed free commercial time and shared net advertisement revenue with the appellant on a 35:65 basis; appellant received 65% of advertisement revenue. Terms did not demonstrate an outright assignment of telecast rights by the appellant to the channel; instead, the appellant participated in sale/marketing of free commercial time and received consideration for such sale. The statutory language expressly includes selling of time slots by persons other than broadcasting agencies; the appellant falls within the statutory definition. Ratio vs. Obiter: Ratio - receipts representing a share of advertisement revenue arising from sale/marketing of free commercial time in TV slots by a person other than a broadcaster are taxable as 'sale of space or time for advertisement.' Conclusion: The amounts received by the appellant from television channels in relation to the telecasted serial constitute consideration for sale of time or space for advertisement under Section 65(105)(zzzm) and are liable to Service Tax for the relevant period (demand of Rs. 3,34,949/- sustained for 2007-08 to 2008-09 in the impugned order). Issue 3 - Invoking extended limitation (proviso to Section 73(1)) versus normal limitation Legal framework: Proviso to Section 73(1) extends limitation from one year to five years where non-payment/short-payment arises from fraud, collusion, wilful misstatement, suppression of facts or contravention with intent to evade tax. Precedent treatment: Authorities and established principles require clear evidence of suppression/intent or concealment to attract extended limitation; routine classification disputes or issues known to department in period are not sufficient. Interpretation and reasoning: The record shows departmental engagement and enquiries from DGCEI, Audit and SIR beginning in 2007 (letters dated 08.05.2007, 04.07.2007; appellant replies 24.08.2007), audit commencing June 2008, discrepancies communicated November 2008, and SIR enquiries in 2009. The department was therefore aware of relevant transactions within the period covered by the demand. The appellant disclosed GDR/FCCB issues in public financial statements and furnished documents to departmental officers when asked; no cogent evidence of deliberate suppression, fraud, collusion or contravention with intent to evade tax is shown. The extended period was invoked only when the SCN was issued in 2011 after a significant delay; the Tribunal found the prolonged delay and prior departmental knowledge inconsistent with the requirements for extended limitation. The matters amounted to interpretational/classification disputes rather than concealment. Consequently, extended period under proviso to Section 73(1) could not be sustained. Ratio vs. Obiter: Ratio - where departmental authorities had contemporaneous knowledge and the assessee furnished information/documents, and the dispute is essentially one of classification/interpretation, extended limitation under proviso to Section 73(1) cannot be invoked; normal one-year limitation applies. Conclusion: Invocation of the extended five-year period under the proviso to Section 73(1) was not justified on the facts; the demand issued in 2011 for periods including 2006-07 and 2008-09 is barred by the normal limitation and must be set aside on limitation grounds despite finding of taxability. Final Disposition (as derived from reasoning) Though the Tribunal upheld the taxability of imported banking/issue-management services and of sale of TV time slots, the extended limitation could not be sustained; the demand was time-barred under the normal limitation period and therefore the appeal was allowed with consequential reliefs.