2025 (6) TMI 1014 - AT - Service Tax

Liability to pay service tax - cable operators service - appellants as Multi System Operators (MSOs) were liable to pay service tax on the gross amount charged for providing cable operator services to cable operators under the Finance Act 1994 or not - denial of Cenvat Credit on the ground that appellant had not provided any evidence - entitlement for cum duty benefit - invocation of extended period of limitation. Whether the appellants as Multi System Operators (MSOs) were liable to pay service tax on the gross amount charged for providing cable operator services to cable operators under the Finance Act 1994? - HELD THAT - The amounts computed in the show cause notice and confirmed in the impugned order is not the amount charged by the appellant to provide taxable service to the Cable Operators. Value adopted in the show cause notice and the impugned order being not the amount charged for providing the service of MSO to the cable operators and being entirely presumptive or speculative. In the case of West Coast Paper Mills Vs CCE ST Mangalore relied upon by the appellant no any allegation that such consideration has been specified under-stated. Whereas in the instant case income shown by the appellant has not been found correct and reliable. So this finding also not applicable in the instant case. Denial of Cenvat Credit on the ground that appellant had not provided any evidence - HELD THAT - The quantum of service tax paid on the input service received from the TV channels validity of tax invoice received and use of input service to provide output service to the cable operators was as evident and could not have been denied. The services of channels to SCV Cable Net forms part major input service based on which the service provider provides service to their subscribers. It is also argued that if duty is found payable on the final product the benefit of credit on the invoice cannot be denied. Benefit of cum-tax - HELD THAT - The value of taxable service is required to be treated as cum tax value and the benefit of cum tax is required to be extended. Details of income given by the appellants are not believable in comparison to department inquiry. Therefore appellants are not entitled for benefit of cum-tax. Extended period of limitation - HELD THAT - The facts and issues were in the knowledge of Department from 31.03.2005 onward. When the facts are in the knowledge of the Department there is no case of wilful mis-statement or suppression of facts or intention to evade payment of tax on the part of the appellant. The appellant has further explained that there were differences with the partner and ownership litigation before the Hon ble High Court and Hon ble Supreme Court and the matter was ultimately settled on 07.12.2010. The appellant has suffered financially the extra-ordinary circumstances in which the MSO service was provided during the period may be taken into consideration there was also confusion in the industry as to whether the MSO was liable to pay service tax from 10.09.2004. There was no deliberate suppression of facts or malafide intention on the part of the appellant. In these circumstances the period of limitation is not invokable - It is clear from the above mentioned facts that appellants purposefully and intentionally suppressed the facts and evaded payment of service tax. In these circumstances Learned Commissioner rightly invoked extended period as provided under Section 73 of the Finance Act. Therefore no any illegality in this regard. Conclusion - The appellants have failed to disclose their correct income/gross value. They have failed to pay service tax after registration. They have paid service tax initially and therefore the ground that there was genuine confusion about taxability is also not tenable. No any reasonable cause for such failure to pay. Since appellants tried to suppress the fact to evade payment of service tax therefore period of limitation is rightly invoked in the SCN. No cogent or sufficient documentary evidence relating to payment of service tax has been adduced so question of credit of CENVAT does not arise. There is no merit in the appeals. Therefore appeals are liable to be dismissed.

Summary

The core legal questions considered by the Tribunal in this case include:

1. Whether the appellants, as Multi System Operators (MSOs), were liable to pay service tax on the gross amount charged for providing cable operator services to cable operators under the Finance Act, 1994, particularly under Section 65(105)(zs) and Section 65(105)(zzzm).

2. Whether the value of taxable service for service tax purposes should be determined based on the gross amount charged by the appellants or could be assessed presumptively by the Department based on other data.

3. Whether the appellants were entitled to claim CENVAT credit on the input services (subscription payments to broadcasters) used to provide the output service to cable operators.

4. Whether the Department was justified in invoking the extended period of limitation under Section 73 of the Finance Act, 1994, for recovery of service tax, interest, and penalties, on the ground of suppression of facts and non-cooperation by the appellants.

5. The impact of ownership disputes and litigation on the appellants' liability and compliance with service tax obligations.

6. The applicability and effect of judicial precedents cited by the parties, including the Supreme Court decision in Union of India vs Intercontinental Consultants and Technocrats Pvt Ltd., and other Tribunal decisions.

Issue-wise Detailed Analysis

1. Liability to Pay Service Tax as MSO and Valuation of Taxable Service

The appellants provided MSO services to cable operators, who in turn supplied cable TV services to end consumers. The service of MSO was included within the definition of "Cable Operator" under Section 65(105)(zs) effective from 10.09.2004, and the "Sale of Space or Time for Advertisement" was included under Section 65(105)(zzzm) effective 01.05.2006.

Section 67 of the Finance Act, 1994, prior to and after its amendment on 18.04.2006, provides that the value of taxable service shall be the gross amount charged by the service provider for such service. Rule 6 of the Service Tax Rules mandates payment of service tax by the 5th or 6th day of the month following the calendar month in which payments are received.

The appellants contended that their declared income and payments to broadcasters represented the gross amount charged and that they had paid service tax accordingly. However, the Department found discrepancies between the number of connections declared by the appellants and the number reflected in agreements with broadcasters and cable operators, indicating under-invoicing and understatement of income.

The Commissioner's findings, based on verification of agreements, invoices, and statements recorded under Section 14 of the Central Excise Act, established that the appellants had served a higher number of subscribers than declared and had suppressed true details. The Department's valuation was based on the number of connections agreed upon with regional channels such as Gemini TV, which was considered a reliable proxy for actual subscribers.

The Tribunal noted that the valuation adopted by the Department was not arbitrary but grounded in documentary evidence and corroborated by third-party data. The appellants failed to produce authentic documents or credible evidence to rebut the Department's valuation.

The Supreme Court judgment in Union of India vs Intercontinental Consultants and Technocrats Pvt Ltd. was relied upon by both parties. The Court held that the value of taxable service must be the gross amount charged for such service and nothing more or less. The Tribunal observed that this precedent supported the Department's approach since the appellants had understated their gross receipts, and the Department had determined the correct gross amount based on available evidence.

2. Claim for CENVAT Credit on Input Services

The appellants claimed entitlement to CENVAT credit on the service tax paid to broadcasters for subscription of channels, which formed the input service used to provide output service to cable operators. They argued that denial of credit was unjustified, citing the Supreme Court decision in Formica India Division vs CCE, which held that if duty is payable on the final product, credit on inputs cannot be denied on technical grounds.

The Commissioner denied the credit on the ground that the appellants failed to produce evidence such as valid tax invoices or documents supporting the payment of service tax to broadcasters. The appellants did not furnish such documents even during the appeal proceedings.

The Tribunal upheld the denial of CENVAT credit, noting that the burden of proof lies on the appellants to establish entitlement. Mere assertions without documentary evidence were insufficient, and the denial was consistent with legal requirements.

3. Invocation of Extended Period of Limitation Under Section 73

The Department invoked the extended period of limitation under Section 73 of the Finance Act, 1994, on the ground that the appellants had suppressed facts, withheld information, and obstructed investigation. The appellants contended that there was no willful suppression since the Department had knowledge of the facts from as early as 31.03.2005, and that ownership disputes and litigation caused difficulties in compliance.

The Commissioner's order detailed multiple instances where the appellants failed to provide complete and correct information despite repeated summons and inquiries. The CEO's statements indicated non-cooperation and attempts to obstruct investigation. Income tax returns filed by the appellants did not reflect the true transactions of MSO operations.

The Tribunal found that the appellants had deliberately withheld information and suppressed facts to evade payment of service tax. The invocation of the extended period was justified as per the proviso to Section 73, which permits extended limitation in cases of fraud, willful misstatement, or suppression of facts.

The appellants' argument relying on judicial precedents that extended limitation is not invokable where facts are known to both parties was rejected on the basis that the appellants had actively concealed information and obstructed investigation.

4. Effect of Ownership Disputes on Liability

The appellants submitted that ownership disputes and litigation between shareholders of the MSO business impaired their ability to deposit amounts collected from cable operators and comply with service tax requirements. They produced an affidavit and Income Tax returns showing declared income and claimed that the dispute was settled by a compromise decree in December 2010.

The Tribunal noted that no documentary evidence such as the compromise agreement was filed, and the Income Tax returns were not reliable as they did not reflect the true income of the MSO operations. The Department's inquiry found that the appellants were operating the MSO business during the relevant period despite the ownership dispute.

The Tribunal held that ownership disputes did not absolve the appellants of their liability to pay service tax or to maintain proper records and cooperate with investigations.

5. Treatment of Competing Arguments and Final Application of Law

The appellants argued that there was confusion in the industry regarding the taxability of MSO services and that they acted in good faith. They cited a Tribunal decision from Chandigarh where appellants were held entitled to benefit of doubt due to such confusion.

The Tribunal distinguished that case on facts, noting that the appellants here had initially paid some service tax but later failed to pay and suppressed facts. The magnitude of understatement and concealment indicated deliberate evasion rather than bona fide confusion.

Regarding valuation, the appellants' submissions on declared income and payments were rejected due to lack of corroboration and documentary support. The Department's valuation based on agreements and third-party data was accepted as reasonable and lawful.

The Tribunal applied the legal framework of Section 67 and Rule 6, along with the principles established in the cited Supreme Court and Tribunal precedents, to conclude that the appellants were liable to pay service tax on the gross amount determined by the Department, were not entitled to CENVAT credit due to lack of evidence, and that the extended period of limitation was rightly invoked due to suppression and non-cooperation.

Significant Holdings

"Valuation of taxable service must be the gross amount charged by the service provider for such service provided or to be provided by him. Any other amount calculated not for providing such taxable service cannot be part of that valuation."

"The Department is justified in determining the gross amount based on agreements with broadcasters and cable operators, and on corroborative evidence, where the assessee fails to furnish correct and complete details."

"Denial of CENVAT credit is sustainable where the assessee fails to produce valid tax invoices or any documentary evidence to prove payment of service tax on input services."

"Extended period of limitation under Section 73 of the Finance Act, 1994 is rightly invoked where there is suppression of facts, non-cooperation, and deliberate concealment of information by the assessee."

"Ownership disputes and litigation among partners do not absolve the assessee from liability to pay service tax or from cooperating with departmental investigations."

"Confusion in the industry regarding taxability does not justify suppression of facts or non-payment of service tax once the assessee is registered and liable to pay."

Accordingly, the Tribunal dismissed the appeals, confirming the demand of service tax, interest, and penalties, and rejecting the claims for CENVAT credit and limitation relief.