Credit restriction of 20% for exempted services.

PJ/CASE LAW/2014-15/2441

Case:-M/s AMRITA ENTERPRISES PVT LTD Vs COMMISSIONER OF CENTRAL EXCISE , THIRUVANANTHAPURAM

Citation:-2014-TIOL-2145-CESTAT-BANG

Brief facts:-Applicant has filed this application for waiver of pre-deposit of service tax of Rs.1,72,82,962/-, interest and penalty.
The demand of Rs. 95,11,529/- is confirmed on the ground that the applicant has availed credit and used in excess of 20% as the applicant is providing both taxable as well as exempted service.
The demand of Rs. 56, 40,348/- is confirmed on the ground that the applicant has provided "Broadcasting Services" which cannot be considered as 'export of service'.
The demand of Rs. 15, 81,388/- is in respect of "Business Auxiliary Service" as the applicant received 'Business Auxiliary Service' from two foreign companies.
Remaining demands of approximately Rs. 5 lakhs in respect of "Renting of Immovable Property Service", "Sale of space or time for Advertisement" and "Broadcasting Services".

Appellant’s contention:-The applicant is mainly contesting the demands of Rs. 95,11,529/-, Rs. 56,40,348/- and Rs. 15,81,388/-. In respect of the demand of Rs. 95,11,529/-, the contention of the applicant is that as per the adjudicating authority, the applicant has transferred copyright in respect of films to their customers. The contention is that the adjudicating authority has held that transfer of copyright is exempted from taxable service. Hence, the applicants are not entitled for taking credit in excess of 20% under the provisions of Rule 6(3) of the CENVAT Credit Rules, 2004. The contention is that as per Section 65(55b) of the Finance Act, 1994, "Intellectual Property Service" means –

"(a) transferring temporarily; or

(b) permitting the use or enjoyment of any intellectual property right."

As per the scope of 'intellectual property right' as provided under Section 65(55a) means-

"any right to intangible property, namely, trademarks, deigns, etc. does not include copyright."

The contention is that the transfer of copyright is not included in the definition of 'Intellectual Property Service'. Therefore, it cannot be said that the transfer of copyright is exempted taxable service. Therefore, the finding of the adjudicating authority that the same is exempted service is not sustainable.

In respect of the demand of Rs. 56, 40,348/-, the contention of applicant is that as the service recipient is outside India who has paid the consideration in the convertible foreign exchange. As the service recipient is outside India, therefore such service cannot be treated as 'export of service'. The demand is on the ground that advertisements were broadcasted ultimately in India and that as broadcasting is performed in India and therefore, it cannot be treated as 'export of service'. The applicant relied upon Broad's Circular No. 111/05/2009-ST dated 28.2.2009 wherein it has been clarified that for the services that fall under the Category III [Rule 3(1)(iii)],the relevant factor is the location of the service receiver and not the place of performance. The applicant also relied upon the decision of the Tribunal in the case of Paul Merchants Ltd. vs. Commissioner of C. Ex., Chandigarh [2013 (29) S.T.R. 257 (Tri.-Del.)] = 2012-TIOL-1877 CESTAT-DEL. In view of this, the contention is that as the service recipient is outside India and therefore, the demand is not sustainable.

As regards the demand of Rs. 15,81,388/- in respect of 'business auxiliary service', the contention of the applicant is that the applicant is transmitting signals to cable operator who is situated outside India and the same cannot be held to be 'Business Auxiliary Service'.

In respect of the remaining demands which are approximately Rs. 5 lakhs, the applicant argued on merits in respect of these demand.

Respondent’s contention:-Learned Authorised Representative (AR) on behalf of Revenue relied upon the findings of the adjudicating authority and submitted that the transfer of copyright of film is to others and as per the provisions of Finance Act, it is not covered under 'Intellectual Property Service". Hence it is exempted service and the impugned order is correctly passed.

The contention of Revenue is that as the broadcasting service was provided in India and therefore, the place of performance is relevant for the purpose of levy of service tax. As the service provider is in India and the services were provided in India and therefore, it cannot be considered as 'export of service'.

The Revenue's contention is that as the applicant is receiving payments from cable operators who is outside India in respect of the service provided to the applicant and therefore, they are being recipient of service are liable to pay service tax.

Reasoning of judgment:- In respect of the demand of Rs. 95,11,529/-, as per the definition of 'Intellectual Property Service' which means – (a) transferring temporarily; or (b) permitting the use or enjoyment of any intellectual property right and as per the provisions of Section 65(55a) of the Finance Act, which means any right to intangible property, namely, trademarks, designs, etc. does not include copyright. In the present case, the applicant has transferred copyright and therefore, the same is not included in the definition of "Intellectual Property Service". Therefore, it cannot be said that the same is taxable service and it cannot be exempted service. The Hon’ble Tribunal did not find merit in the contention of the applicant in this regard.

In respect of the demand of Rs. 56,40,348/-, they find that the service recipient is outside India though the part of the advertisements is also broadcasting in India. The Board vide Circular No. 111/05/2009-ST dated 28.2.2009 clarified that for the services fall under the Category III [Rule 3(1)(iii)], the relevant factor is the location of the service receiver and not the place of performance. As the service recipient is outside India, therefore, there is merit in the contention of the applicant.

As regards demand of Rs. 15, 81,388/- in respect of 'Business Auxiliary Service' they find the applicant is receiving the service from the foreign cable operator in respect of their business. They find that the applicant has not made out prima facie case for total waiver of pre-deposit of the service tax for the normal period of demand i.e. Rs. 14,62,914/-.

In respect of the other demands which are approximately Rs. 5 lakhs, the applicant has not made out a case for total waiver of pre-deposit of the service tax.

In these circumstances, the applicant is directed to pre-deposit a total amount of Rs. 20, 00,000/- (Rupees Twenty lakhs only) within eight weeks from today and report compliance on 20.11.2013. Subject to deposit of above amount, pre-deposit of remaining dues is waived and recovery thereof is stayed during pendency of the appeal.

Decision:-Stay application allowed partly.

Comment:- The analogy of the case is that transfer of copyright is not covered in the definition of intellectual property services thereby meaning that it is exempted service. Hence, appellant cannot take credit in excess of 20% under the provisions of Rule 6(3) of the CENVAT Credit Rules, 2004. Secondly, export of service has to be decided based on consumption of service and not based on performance of service as clarified vide Board Circular No. 111/05/2009-ST dated 28.2.2009. Thirdly, the appellant is receiving the service from foreign cable operator and so the appellant is liable to pay service tax under reverse charge mechanism. Therefore, observing the overall circumstances of the case, part pre-deposit was ordered.

Prepared by :- Monika Tak

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PJ/CASE LAW/2014-15/2441

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