TMI Blog2011 (5) TMI 703X X X X Extracts X X X X X X X X Extracts X X X X ..... se and Service Tax, New Delhi. As per the order, the Commissioner has confirmed demand of serviced tax amounting to Rs. 10,81,03,225 under business auxiliary service against the appellant for the period 1-7-2003 to 15-6-2005, under section 68 of the Finance Act, 1994. Interest under section 75 of the Act is also demanded. Further, penalties are imposed under sections 76, 77 and 78 of the said Act. 2. The Appellant is a wholly owned subsidiary company of M/s. ESPN (Mauritius) Ltd. The appellants had entered into two agreements dated 1-4-2002 with M/s. ESS Distribution (Mauritius) SNCET Compagnie (hereinafter referred to as "ESS"). One of the agreements appointed the Appellant as a representative of ESS in India to solicit television advertising on the Channels broadcast by ESS. It appears that appropriate service tax was paid for services under this contract and the matter is not before this Tribunal in this proceeding. Another agreement is for distribution of the ESPN Network Programming Service and the Star Sports Network Programming Service (hereinafter referred to as "the channels") in India and Nepal via Cable Television system, Satellite Master Antenna Television System an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enience, the definitions of broadcasting services prior to the amendment and after the amendment are reproduced below: Before Amendment of 2005 "Broadcasting' has the meaning assigned to it in clause (c) of section 2 of the Prasar Bharati (Broadcasting Corp. of India) Act, 1990 and also includes programme selection, scheduling of presentation of sound or visual matter on a radio or a television channels that is intended for public listening or viewing, as the case may be; and in the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the broadcasting charges on behalf of the said agency or organization, by its branch office or subsidiary or representative in India or any agent appointed in India or by any person who acts on its behalf in any manner." After the Amendment of 2005 "Broadcasting' has the meaning assigned to it in clause (c) of section 2 of the Prasar Bharati (Broadcasting Corp of India) Act, 1990 and also includes programme selection, scheduling of presentation of sound or visual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant is that since the agreement between the Appellant and M/s. ESS is a Revenue sharing agreement, it cannot be considered that the Appellant was providing business auxiliary service to M/s. ESS. They argue that whatever activity they were undertaking, was their own business activity and it was not a service to ESS. They rely on Circular No. 109/03/2009/STR dated 23-2-2009. The relevant extract of the circular is reproduced below:- "2.2 Another type of arrangement is where the contract between the theatre owner and the distributor is on revenue sharing basis i.e. a fixed and pre-determined portion i.e. percentage of revenue earned from selling the tickets goes to the theater owner and the balance goes to the distributor. In this case, the two contracting parties act on principal to principal basis and one does not provide servile to another. Hence in such an arrangement the activities are not covered under service tax. 2.5 The matter has been examined. By definition 'Business Support Service' is a generic service of providing 'support to the business or commerce of the service receiver'. In other words the principal activity is to be undertaken by the client while assista ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g mix (product, price, promotion, distribution). It is the communication link between sellers and buyers for the purpose of influencing, informing or persuading a potential buyer's purchasing decision. The specification of the elements creates a promotional mix or promotional plant. These elements are personal selling, advertising, sales promotion, direct marketing and publicity. A promotional mix specifies how much attention to pay to each of the give sub-categories and how much money to budget of each. A promotional plan can have a wide range of objective, including sales increased, new product acceptance, creation of broad equity, positioning, competitive realizations or creation of a corporate image Fundamentally, however, there are three basic objectives of promotion. These are (1) to present information to consumers as well as others (2) to increase demand and (3) to differentiate a product." 12. He further submits that for 4(a) and 4(b) of contract dated 1-4-2003 clearly says the nature of the activities and the remuneration paid for the activity. These clauses are reproduced below :- "4(a) Distributor shall pay 60 per cent of its total gross revenues to ESS Dist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ." 13. He contests that the terms of contract shows no objective other than promotion, marketing. Distribution is only part of marketing. Therefore, he argues that the activities undertaken by the Appellants clearly amount to services to ESS and they are being paid by way of 35 per cent of the total revenue which they collect from the customers on behalf of the ESS. He argues that the fact that the service was specifically covered by the amendments in "Broadcasting Services" with effect from 16-6-2005 cannot mean that the services as detailed in their contract was not covered by any other entry for the earlier period. He also argues that payment of service rendered can be in different ways and retaining a part of the amount collected from the ultimate consumer is a proper payment. It is not like a case where the goods are bought by a distributor and then sold to consumer. 14. He also argues that the party was not willing to produce copies of all the contracts executed by them but only when considerable pressure was brought upon them to do so they produced the documents. He argues that this fact clearly shows that there was a lack of bona fide. He also points out that for th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the prior period, what was the nature of the activity and how similar services were treated during the relevant period. In this case the service involved was sale of space or time in electronic media for display of advertisement. From the very stage of introduction of the service of Advertising Agency in the tax net, the legal position maintained was that the cost of space or time for carrying advertisements in print or electronic media was not covered by the entry for service of Advertising Agency. In 2001 legislation was made to tax the cost of time slots for advertising in electronic media under the services of Broadcasting Agency. In the circumstance the Tribunal ruled that the impugned service was not covered under the tax net prior to 2001. This ruling cannot be extrapolated to mean that if a service is specifically covered under one entry from a specified date that service could not have been covered by any other entry before the specified date. We are not able to agree with this argument without examining the other aspects relevant as pointed out above. 16.5 However the opinion canvassed by the Appellant is seen to be expressed in para 3(e) of the case of Glaxo Smithkline ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry similar to the situation wherein the Board clarified in its circular dated 23-2-2009 that neither the theatre owner nor the film distributor is doing a service to each other and each is working for furtherance of its own business. It is to be noticed that a theatre owner also may advertise for promoting the film being displayed in his theatre. But this promotional activity is not on behalf on the film distributor. Thus our finding on this second argument is in favour of the Appellant. 18.1 The next submission is that activities of a distributor cannot be considered as marketing of the product of ESS and does not involve any service to ESS. The case of Precot Mills dealt with the situation where one office of a company was raising a bill on another office of the same company for the purpose of internal accounting of the two different profit centres within the same company. Here the appellants M/s. ESS are two separate distinct companies. 18.2 The case of Rolls Royce Industries Power (I) Ltd. (supra) dealt with a situation where a company had taken upon itself the responsibly to run a power plant of another company. It was decided in that case that the engineers of the forme ..... X X X X Extracts X X X X X X X X Extracts X X X X
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