TaxTMI 
TaxTMI 
TaxTMI 
2020 (7) TMI 265
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....ad 'broadcasting service' in the hands of the Appellant under the reverse charge mechanism. According to the Appellant, the Master Service Agreement, the Agreement entered into between Intelsat and the Appellant is for securing a dedicated 8MHz bandwidth on the transponder of Intelsat satellite IS-10/IS-20, the satellite, while according to the Department the down linking of the signals from the satellite is transmission of signals covered by the definition of 'broadcasting' and, therefore, leviable to service tax. 3. The Appellant is a Public Limited Company having its corporate office in Noida and its registered office at 7A, Sandesh Nagar, Kankhal, Haridwar. The Appellant claims to be engaged in the business of broadcasting socio, spiritual and cultural television channels, for which it has a network of three 24x7 television channels, namely Aastha, Aastha Bhajan and Vedic. 4. An Agreement was entered into between the Appellant and Intelsat on February 27, 2008. It provides that upon execution of a service order by both the parties under the Agreement, Intelsat shall provide to the Appellant and the Appellant shall purchase from Intelsat, the services described in the service ....
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....e Act, 1994 on the above said amount paid during the period 2009-10 to 2014-15 (upto July 2014) xxxxxxxxxx 5. In view of the above, it appears that the assessee is liable to pay Service tax amounting to Rs. 1,06,43,622/- including Edu. Cess and SHE Cess for the period 2009-10 to 2014-15(upto July 2014) at applicable rates on the amount of paid to M/s Intelsat using the transponder of their satellite for down-linking and up-linking of the programme." [emphasis supplied] 8. The Appellant submitted a detailed reply pointing out that it had not received any 'broadcasting service' from Intelsat, since the activity of using the transponder of the Intelsat satellite for down linking and up linking of the programme signals is not covered under the definition of 'broadcasting service'. It was also stated that the Appellant was neither a recipient of 'broadcasting service', nor was Intelsat a service provider. 9. The Commissioner, however, did not accept the contentions advanced by the Appellant and confirmed the demand for the period upto June, 2012 but dropped the demand for the remaining period after June, 2012. The Commissioner observed that the activity would fall within the defini....
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....alf in any manner. The use of word 'includes' expands the 'persons' who can be subjected to levy of tax. In case the 'person' located in India, engaged in providing broadcasting service, had its head office outside India, he could not escape the tax on this ground and he too was brought within the ambit of service provider, therefore, the party's interpretation is wrong to assume that only Indian broadcasting entities could be taxed. The taxing event is the provision of taxable service which in the instant case, though being performed outside India, is very much covered within the definition of taxable service in the light of Explanation to Section 65(105)(zk) of the Act. Further, as the taxable service has been provided by a broadcasting organization not having any branch/subsidiary etc. in India the service tax has to be recovered from the recipient located in India in terms of Section 66A of the Act. 11. The Commissioner repelled the submissions advanced by the Appellant that allocation of bandwidth was not a service but supply of goods and the observations are as follows : 5.6.9 I would like to refer to Point 5.1 and 5.3 of the MSA which titled "Confirmed Outage" and....
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.... uninterrupted availability of signals it becomes prime objective and the intention behind entering into the agreement. It is a settled principle of law that sale and purchase of goods is made for cash, deferred payment or other valuable consideration. As already pointed out this is a case where the provider is actively involved throughout the tenure of the MSA and is also governed by the requisition made by the party in a Service Order. The transmission plan too is provided to M/s Intelsat which can be amended from time to time. I find this is not case of simple one time sale where the act of sale occurs in the beginning. It is provided in Point 4.2 of the MSA that the invoices are to be raised on monthly basis, thus it is a case of continuous supply. Therefore, I find that in such case the reason for making the payment or not making a payment or making a part payment for any duration, become the principal aim of the said contract. This reason has clearly been linked with the uninterrupted availability of Signals as per Point 5.1 and 5.3 of the MSA. Accordingly, I reiterate that what has been provided by M/s Intelsat was 'broadcasting' service only." [emphasis supplied] 12. The ....
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....broadcasting' in terms of section 2(c) of the Prasar Bharat Act would only include the actual broadcaster and not the satellite service provider; and the later parts of the definition would include specific activities specified thereunder which would in no manner cover the case of Intelsat as a 'broadcasting agency or organization', as defined under section 65(16) of the Act. In support of this contention, reliance has been placed upon the decision of the Delhi Tribunal in ESPN Software India (P) Ltd. vs CST, New Delhi 2014 (35) STR 927 (Tri-Del); (vii) If the activity of re-transmission of amplified electromagnetic waves by Intelsat is held to comprise broadcasting, then this would lead to double taxation on the same activity; and (viii) Intelsat has leased the space segment to the Appellant and this transaction would amount to direct sale of 'goods' within the meaning of article 366(12) of the Constitution and not for providing any service. 14. Shri Vivek Pandey, learned Authorized Representative of the Department, has, however, made the following submissions: (i) The definition of 'broadcasting agency or organization' under section 65(16) of the Act means any agency or or....
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...., religious channels, music channels, movie channels and infotainment channels. The digital audio-video outputs from these servers are subsequently passed on to the earth station or teleport. 2) Earth station/ Teleport operator: The earth station/ teleport operator takes the audio-video signals from the broadcaster and encodes, modulates and converts the content to high power electro-magnetic waves and up-links it to the allocated/ designated space segment of the satellite, which is located in the geo-stationary orbit of the earth. A geo-stationary orbit is an imaginary orbit located above the earth's meridian at an approximate height of 36,000 kms. from the surface of the earth. The earth station has a transmit antenna pointing accurately to the satellite to which the signal is to be transmitted/ beamed. This is known as the uplink antenna and is generally 9.3 meters in diameter. 3) Satellite Operator: Satellites are used for many purposes including broadcasting. The satellite operator owns the satellite and leases out space segments on the satellite to customers as per their requirement. The satellite operator can either be a government organization or a private organizat....
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....ry of Information and Broadcasting for obtaining uplink and downlink permission/ license. d) After the broadcaster receives the license for a particular TV Channel, it approaches the uplink service provider for up-linking of the TV channel. The Uplink Service Provider also has to take certain permissions from Wireless Planning Commission, Wing of Department of Telecom (DoT), Ministry of Communication and Network Operation and Control Centre for Uplink of that particular TV channel. After obtaining the requisite permissions from the concerned Regulatory Authorities, the teleport owner i.e. uplink service provider starts the uplink of the channel. The satellite operator provides the technical parameters related to the allocated space segments/ bandwidth on the particular transponder of the satellite on which the earth station is required to uplink the radio frequency signals. e) Based on the technical parameter provided by the satellite operator, a detailed carrier plan giving all the technical details about the uplink is prepared by the earth station operator and sent to Wireless Planning Commission and Network Operation and Control Centre for necessary approvals. f) The earth....
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....ite and grants permission to launch the satellite. c) The space on satellite can be independently and simultaneously be used for any purpose for example Communication, VSAT, Navigation etc. from different geographically locations." 4) Cable Distributor (MSO and Local Cable Operator) : A cable/ DTH operator obtains a copy of the downlink permission granted to a channel, which approaches it for carrying their channels, on their network for further re-distribution to the masses/ end users/ consumers/ subscribers. 17. To appreciate the contentions of the parties, it would also be appropriate to reproduce the relevant terms of the Agreement and the Service Order. AGREEMENT 18. Clause 1 deals with 'AGREEMENTS', while the 'Provision of Services' is contained in clause 2 of the Agreement. They are reproduced below : "1. AGREEMENTS 1.1 Agreements. By executing this MSA, Intelsat and Customer agree that, upon execution by both Parties of a service order pursuant to this MSA (each, a "Service Order"), Intelsat shall provide to Customer, and Customer shall purchase from Intelsat, the services described in such Service Order (the "Service(s)"), in accordance with, and subject to ....
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....le to Intelsat for any and all use of the Service or transmissions via the Service by any third party user throughout the chain of use (each a "User" and collectively the "Users") to the same extent as Customer would be for its own use or transmissions, and all references in the Agreement to Customer's responsibilities to Intelsat regarding Customer's use or transmissions shall be interpreted accordingly. 3.3 Operational Requirements and Non-interference. Customer shall use each Service, and shall require that its Users use such Service, if applicable, in compliance with the "Operational Requirements" contained in the Service Order, as such may be amended by Intelsat from time to time upon notice to Customer, and which can, for convenience, be located at http://www.intelsat.com/resources/earthstations/iess.asp or www.panamsat.com/customer support/legal agreements.asp. Customer shall configure, equip and operate its transmit facilities so that the interface of these facilities, in outerspace, with the Satellite shall conform to the characteristics and technical parameters of the Satellite. Customer shall follow Intelsat's procedures for initiating or terminating any tr....
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....e obligation, to inspect any Customer-Provided Facilities together with associated facilities and equipment used by Customer, or by a third party under the authority of Customer, to transmit to the Satellite. Intelsat shall use all reasonable efforts to schedule inspections to minimize the disruption of the operation of the facilities, and Customer shall make the facilities available for inspection at all reasonable times. Any such inspection shall not be deemed approval of the facilities by Intelsat or a waiver of any of Intelsat's rights hereunder. 3.5 Transmission Plan. No later than ten (10) business days prior to the Service Start Date, Customer shall provide Intelsat with a transmission plan (the "Transmission Plan") which complies with the Operational Requirements. Customer must have Intelsat's written approval of the Transmission Plan, which approval shall not be unreasonably withheld or delayed, prior to, and as a condition to, Customer's commencement of the Service. Customer shall also be permitted, subject to Intelsat's prior written approval, to modify the Transmission Plan from time to time, subject to the terms of the applicable Service Order. Intelsat's....
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.... to minimize the disruption to users of the Satellite. Customer acknowledges, however, that Intelsat may interrupt Service without notice in any situation that in the opinion of Intelsat has caused or is likely to cause harm to any satellite or related infrastructure of Intelsat or a third party or interference with any satellite or related infrastructure of Intelsat or a third party. Customer shall immediately cease transmissions to the affected Satellite when required to do so by Intelsat under this Section." 22. The 'Suspension of Service' is contained in Clause 8 of the Agreement and relevant clauses 8.1 and 8.3 are reproduced below : "8. SUSPENSION OF SERVICE 8.1 Suspension for Cause. Intelsat may suspend a Service in any circumstance in which Intelsat would have the right to terminate the related Service Order or this MSA for cause under Section 7.1 above, provided that any notice that would be required for termination for cause is also given for such suspension. In no event shall Intelsat's election to suspend a Service be construed as a waiver of Intelsat's right to terminate the Service Order or this MSA. 8.3 Effect of Suspension. Customer shall immediately....
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....ment 3 Operational Requirements for PanAmSat Satellites Attachment 4 Special Terms And Conditions Title : Eup Global Sales & Marketing Date : August 27, 2002" 24. The aforesaid Service Order refers to four Attachments. Attachments 1(a) and 1(b) dealing with Transmission Parameters are as follows : Attachment 1(a) Transmit Location: Singapore, Singapore Satellite SFD: -86.50 dBW/m2 Tx Earth Station Size: 13.0 m Tx EIRP: 59.2 dBW Rx Location: Various, India Rx Earth Station Size: 3.0 m Rx Earth Station G/T: 19.7 dB/K EIRP Twd Rx Earth Station: 40.4 dBW Satellite EIRP (per carrier): 25.2 dBW Satellite EIRP Beam Centre: 26.6 dBW Minimum C/N: 7.47 dB Allocated Bandwidth: 4.0000 MHz Uplink Frequency: 6002.0000 MHz Uplink Polarization: Vertical Downlink Frequency: 3773.0000 MHz Downlink Polarization: Vertical" Attachment 1(b) Transmit Location: Singapore, Singapore Satellite SFD: -86.50 dBW/m2 Tx Earth Station Size: 13.0 m Tx EIRP: 59.2 dBW Rx Location: Various, India Rx Earth Station Size: 3.0 m Rx Earth Station G/T: 19.7 dB/K EIRP Twd Rx Earth Station: 40.4 dBW Satellite EIRP (per carrier): 25.2 dBW Satellite EIRP Beam Centre:....
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....o comply with the payment terms of this Full-Time Agreement. Accordingly, notwithstanding Section II(A)(1) of the Master Agreement, PanAmSat hereby agrees to permit Customer to pay PanAmSat the Total Initial Payment (consisting of the Service Fees for the September and October, 2002 and Security Deposit) by not later than October 31, 2002. Accordingly, from and after November 1, 2002, all other payments shall be due in advance on the first business day of the month in accordance with Article II of the Master Agreement. xxxxxxxxxx" 27. It is important to note that the name of the PanAmSat Corporation was changed to Intelsat Corporation by Certificate of Amendment dated July 03, 2006. This apart, CMM Broadcasting Network Limited was changed to Aastha Broadcasting Network Limited on October 13, 2003. 28. In April, 2008 Customer Service Transfer Agreement was entered into between Aastha Broadcasting Network Limited (Transferor), Vedic Broadcasting Limited (Transferee) and Intelsat Corporation and the relevant portion is reproduced below : "WHEREAS, both the Transferor and transferee are Customers of Intelsat under certain Agreements executed by and between the Transferor and Intels....
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....hout any alteration/modification of the program content with the help of internal process of set on-board equipments. The radio frequency signal sent back to the earth by the satellite is received by the cable operator/DTH service provider through a downlink antenna, which points towards the satellite. 31. It also needs to be kept in mind that a broadcaster who desires to launch a channel, has to first approach a satellite operator for leasing a space segment on its satellite. The choice of a satellite depends on the target audience which is based on the footprint area of the satellite, which is a designated region on earth. The satellite operator then allocates the required space segment on an appropriate transponder of the satellite. Thereafter, the broadcaster and the satellite operator enter into an agreement for the charges to be paid by the broadcaster. The broadcaster has also to enter into an agreement with an earth station for up-linking the proposed television channel. For this purpose, the broadcaster has to obtain permission/licence for uplinking and down linking. Based on the technical parameters provided by the satellite operator, a detailed carrier plan giving all t....
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....tions' defined in the Service Order. Under Clause 2.3 Intelsat reserved to itself the right to assign and/or reassign the space segment allocation of the Customer within the satellite identified in the Service Order or to move the Service to a different satellite and/or a different orbital location. Clause 3.3 of the Agreement requires the Appellant to use each Service in compliance with the 'operational requirements' contained in the Service Order. The Appellant has also to configure, equip and operate its transmit facilities so that the interface of these facilities, in outerspace, with the Satellite shall conform to the characteristics and technical parameters of the Satellite. Clause 4 deals with 'charges and payments'. 'Charges' have been explained to refer to all charges specified in the Service Order and the fixed recurring monthly charges specified in the Service Order are due and payable in advance. Clause 5 deals with 'Service Outage'. A 'confirmed outage' occurs when the Service fails to meet the service specifications for a period of time specified in the Service Order and such failure is confirmed by Intelsat. If a confirmed outage occurs, then under Clause 5.3 Intelsa....
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....lause 2 provides for total initial payment/termination right. Under this clause PanAmSat acknowledges that the customer has to obtain certain licensing from the Indian Government in order to comply with the payment terms of the Full Time Agreement. It is for this reason that the customer has been permitted to pay the charges for the month of September and October, 2002 and the security deposit by October 31, 2002, but from and after November 01, 2002 all other payments would be due in advance on the first business day of the month in accordance with Article II of the Master Agreement. 40. This fact is also clear from the Office Memorandum dated 25 June, 2006 issued by the Ministry of Information & Broadcasting regarding remittance of foreign exchange towards hiring of transponder by the Appellant and the same is reproduced below : "This is with reference to M/s. Vedic Broadcasting Ltd's letter dated 22.1 2009 and subsequent correspondence requesting for correction in the No Objection issued vide OM of even number dated 21.1.2009 for remittance of foreign exchange towards hiring of transponder on foreign satellite. 2. In supersession to this Ministry's O.M. of even No. ....
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....ransponder Segment equivalent to the amount of bandwidth specified in the Service Order and associated power on the service transponder. Thus, the monthly fixed payment made by the Appellant to Intelsat relates to the lease of space segment capacity of the transponder and has nothing to do with the signals that are transmitted. This apart, the Office Memorandum dated 25 June, 2009 also supports this position. By the said Office Memorandum, the Ministry of Information & Broadcasting conveyed its no objection for remittance of foreign exchange by the Appellant to the extent of US$ 4,80,000 for the period from November, 2008 to October 2009 to Intelsat towards meeting the charges for hiring transponder on IS-10 satellite. It needs to be noted that if the monthly services were dependent on signals, the charges would be variable and not fixed and would, therefore, be calculated at the end of the month. The transmission of signals is as a result of the use of the space segment capacity of the transponder of the satellite. The relay station, as noticed above, is able to uplink the programme signals which are then reflected to the earth by the Intelsat transponder on the footprint area of ....
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....pointed in India or by any person who acts on its behalf in any manner." "65(16) 'broadcasting agency or organization' means any agency or organization engaged in providing service in relation to broadcasting in any manner and, in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes its branch office or subsidiary or representative in India or any agent appointed in India or any person who acts on its behalf in any manner, engaged in the activity of selling of time slots for broadcasting of any programme or obtaining sponsorships for programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means to cable operator including multisystem operator or any other person on behalf of the said agency or organization." 45. 'Taxable Service' under section 65(105)(zk) of the Finance Act means : "65(105)(zk) - 'taxable service' means any service provided or to be provided to a client, by a bro....
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....ewing are also included in the definition of 'broadcasting'. 49. The second inclusive definition consists of the following three limbs : (a) List of entities in case of 'broadcasting agency or organization', having their head office situated outside India - (i) branch office (ii) subsidiary (iii) representative in India (iv) any agent appointed in India (v) or by any person who acts on its behalf (b) List of activities performed by the service providers mentioned under (i) to (v) above, like the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture, image and sounds of all kinds by transmission of electro-magnetic waves through space or through cables, direct to home signals or by any other means. (c) Last limb of the definition enumerates the list of recipients of the service, namely, cable operators, multisystem operators or any other person. 50. The contention of the Department is that the activity undertaken by Intelsat in downlinking of the signal is transmission of signal and would fa....
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....term 'relay station' has not been defined under the Prasar Bharati Act. A relay station would be a fixed station or a mobile station such as a satellite that receives signals and rebroadcasts them at the same or a different frequency to extend the reach of the broadcaster. In the present case, relay station would be Intelsat that receives, amplifies and retransmits the signals to the desired footprint area on the earth. Intelsat, being a relay station itself, therefore, cannot be said to be a broadcaster under section 2(c) of the Prasar Bharati Act. The Commissioner, therefore, clearly fell in error in concluding that Intelsat would be a broadcaster under section 2(c) of the Prasar Bharati Act. 54. It has now to be seen whether any service of 'broadcasting' as contemplated under the first inclusive part of the definition of 'broadcasting' under section 65(15) of the Finance Act has been performed by Intelsat. 55. The submission of learned Counsel for the Appellant is that Intelsat has not carried out any activity like programme selection, scheduling or presentation of sound or visual matter on a radio or a television channel that is intended for public listening or viewing. This ....
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....iding a designated band with a frequency of a particular band in a particular transponder of a satellite which is used for transmitting the signals at a particular minimum speed and of a particular power means that the activity carried out by Intelsat would be of 'broadcasting' and, therefore, Intelsat would be a 'broadcasting agency or organization'. 59. It is not possible to accept the contention of learned Authorised Representative of the Department. The second inclusive part of the definition of 'broadcasting' under section 65(15) of the Finance Act is in the context of a 'broadcasting agency or organization' having its head office situated in any place outside India. It is only in the case of a 'broadcasting agency or organization' that the activities mentioned in the second inclusive part of the definition, have to be examined, since 'broadcasting agency or organization' under section 65(16) of the Act means any agency or organization engaged in providing service in relation to broadcasting. It has already been seen that Intelsat is not providing any service of 'broadcasting' under the means part of the definition or the second inclusive part of the definition of 'broadcasti....
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....elsat is engaged in transmission of electromagnetic waves/signals. 62. This position has been seriously disputed by learned Authorized Representative of the Department and some interesting issues have been raised to defend the impugned order of the Commissioner. It has been submitted that the Agreement contains features relating to both allocation of bandwidth and transmission of signals and, therefore, the activity which gives the essential character to the transaction as per section 65(A)(2)(b) of the Finance Act would be the main activity. In this connection, the following submissions have also been advanced : (i) In the Revised Carrier Plan, the rate of transmission of data/signal has been specified as 4095.8 Kilobytes per second and the minimum downlink signal strength as 15.6 decibel watts which indicates that the speed and strength of transmission of data/signal have been recognized as two crucial aspects of the Agreement in addition to frequency bandwidth; (ii) As per clause 3.3 of Attachment 2 relating to Services Attachment dealing with frequency assignment, PanAmSat reserved the right to assign and/or reassign customers space segment allocation within the service tr....
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....ed by Intelsat; and (vi) Even if the test of "intention of the parties" behind the said activity as explained by the Supreme Court in Bharat Sanchar Nigam Ltd. is applied, it would be clear that the intention of the Appellant is to get the TV programmes in the form of radio waves transmitted from one part of the earth to another and it is not the intention of the Appellant to hire a space on the satellite. It is of prime importance to the Appellant that the transmission of TV programmes at a particular speed and of a particular power or signal is obtained so that the quality of TV programmes remain unaffected during the transmission. Clauses 5.1 (confirmed outage) and 5.3 (outage credit) of the Agreement indicate that the fee paid to Intelsat is directly related to the provision of uninterrupted service. 63. Learned Authorized Representative of the Department has laid much emphasis on the Revised Carrier Plan to contend that since the rate of transmission of data signal has been specified as 4095.8 Kilobytes per second and the minimum downlink signal strength as 15.6 decibel watts, it means that the speed and strength of transmission of data/signal are two crucial aspects of the....
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.... Clause 3.3 of Attachment 2 makes it clear that the assignment and/or reassignment of the space segment allocation of the Appellant and space segment allocation of other customers within the service transponder or to other transponders within the applicable uplink and/or downlink beam of the satellite is to minimize mutual interference between the adjacent satellites in order to ensure compliance with applicable coordination agreements with other networks, and/or to permit efficient loading of the satellite. This is a step to ensure non-interference of signals with corresponding transponders so that the lease segment capacity of the transponder is effectively utilized by the broadcaster or broadcasting agencies or organizations. 67. It has also been submitted by the learned Authorized Representative of the Department that certain terrestrial facilities have also been provided under Clause 2.2 of the Agreement with space segment allocation. 68. It is not possible to accept this submission. Clause 2.2 of the Agreement provides that Intelsat shall provide its service using satellite and/or terrestrial facilities owned and/or operated by Intelsat and/or third parties under contract w....
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....ement, Intelsat reserves to itself the right to assign and/or reassign space segment allocation provided to the Appellant within the satellite identified in the Service Order or to move the Service to a different satellite provided that any such change does not result in a failure of the Service to meet the Service Specifications. Clause 1.0 of Attachment 2 to the Service Order fixes the space segment. Thus, the Service agreed to be provided to the Appellant comprises of bandwidth which is the space segment capacity. Any interruption of service will necessarily refer to the space segment capacity and not transmission of signals. 'Interruption of Service', therefore, would refer to non-functioning of the transponder, as a result of which there would be no transmission of signals. A transponder may not function for various reasons including loss of power. It is in such a situation that a right has been conferred on the Appellant to seek remedies regarding 'outage' credit in accordance with Clause 5.3 of the Agreement. 73. It has also been contended by learned Authorized Representative of the Department that the test of 'intention of the parties behind the transaction should be exami....
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....vice - (1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub-clauses of clause (105) of section 65. (2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:- (a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description; (b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion is applicable; (c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration." 77. A bare perusal of section 65A(1) shows that classification of 'taxable services' shall be determined according to the terms of the sub-clauses of clause (105) of section 105. Sub-section (2) of section 65....