TMI Blog2017 (9) TMI 507X X X X Extracts X X X X X X X X Extracts X X X X ..... y time barred - As regard demand of service tax on merit for the normal period, various vital facts and submissions of the Appellant were not properly verified by the Adjudicating Authority, therefore we remand the case relating to lease rentals & registration fees for the normal period with direction to Adjudicating Authority to verify whether the contentions made by the Appellants are correct. CENVAT credit - Capital goods - content delivery services and sale of space for advertisement service - Held that: - there was no contract or agreement between the Theatre owners and the persons whose advertisements were exhibited in cinema theaters. Only the Appellant had an agreement with such persons to exhibit the advertisements. Thus there is no ground to hold that the Appellant were providing any business supports service to Theater owner. The DCE equipment at the most can be said to have been jointly used by the Appellant and the Theater owner to provide the services of Sale of Space for Advertisement. The DCE Equipment being specified Capital goods as defined under Rule 2 (a) and having been used for providing output service are eligible for availment of credit. In terms of Rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nverted into encoded compressed file in MPEG 4 format. These compressed files (movies) are stored in Appellant's dedicated servers and delivered to theaters using satellite links. The movies so delivered are exhibited in theaters using Digital Cinema equipment leased by the Appellant to theater owners for which he is charging/paying VAT on lease rent. The Appellant is also charging fee known as Contents Delivery charges (CDC) from distributors/ producers and claiming exemption from service tax on aforesaid services in terms of Notification No.12/2007-ST dt. 01.03.2007. During screening of movies, advertisements are also screened which are procured by the Appellant from various advertising companies and revenue generated through such advertisement are being shared between the Appellant and cinema owners. The Digital Cinema Equipment includes Digital Projector, Digital Server, Computer Equipment including monitors, mouse and key board etc., UPS, CDMA Telephone, cables, digital cinema software embedded in the digital server, VSAT etc. 2.1 Based upon audit observation the Appellant were issued show cause notice dt 27.11.2012 demanding service tax for the period 2008-09 to 2012 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xable service by the assessee but used by the theatre owner for providing service to the Appellant, Even if the activity of the assessee is of sale of space for advertising then also it appears that they cannot avail the credit as it has been given on lease and only the theatre owner can avail credit as capital goods for providing service to the assessee. The activity of Appellant by using digital Cinema equipment is the content distribution service, a business auxiliary service/business support service provided to the distributor of the film as the case may be. In the case the license for playback is given online to the theatre on to the card based on the written confirmation from the producer/distributor for the period and number of shows played out at individual theaters. The service charge for activity is exempted as per notification no.12/2017. In terms of rule 6 (4) of cenvat credit rules cenvat credit is not allowed on capital goods used exclusively in providing exempted service and therefore the credit of digital cinema equipment is not available to the Appellant. Accordingly it was proposed to disallow credit availed by the Appellant on Capital goods ie. Digital Cinema E ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of goods by way of hiring, leasing, licensing or in any such manner without transfer of right to use such goods is subjected to service tax as declared Service . The definition of service was inserted w.e.f. 01.07.2012 under Section 65B (44) which means that transaction in which supply of goods is deemed sale within the meaning of Article 366 (29A) of the constitution of India would not be termed as service. He cites Para 6.6.1 of the CBEC Education guide. He further relies upon letter D.O.F. No.334/1/2008-TRU cit. 29.02.2008 Para 4.4. 3.2. He submits that the transfer of right to use any goods is leviable to sales tax/VAT as deemed sale of goods and transfer of right to use involves transfer of both possession and control of the goods to the user of goods without giving the legal right of possession and effective control. Whether a transaction involves transfer of possession and control can be ascertained form the fact whether or not VAT is payable/paid. That the transaction carried out under the agreement between the Appellant and parties is chargeable to VAT and no service element is involved. The DCE transferred for the exclusive use of Theatre owners and they have paid V ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied. The DCE is transferred by the Appellant to Theater owners for their use as per the agreement. There is consensus ad idem between the parties. Further is terms of clause 1B of the agreement the equipment is to be delivered by the Appellant to Theater owner. As per Clause 1 D of the agreement the Theatre owner is required to nominate a person well versed with handling of equipment. Thus the equipment is to be operated by a person appointed by the Theatre owner and not the Appellant. As per Clause 5J of the Agreement the Theatre owner is required to obtain all licenses, permits and other authorizations and documents at its own cost. In terms of clause 5K the Theatre owner shall be responsible for all injuries, losses and damages caused to the equipment. Further the Theatre owner will also indemnify the Appellant against any loss or damage arising to or in connection with the equipment for the reason other than normal wear and tear. Clause 16A of the agreement clearly stipulates that the Appellant has transferred the right to use of the DCE exclusively to the Theatre owner and the Theatre owner shall have effective control of the DCE and shall be free to make its full use for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement with the Theatre owners wherein the film distributors/ producers transfers the copyright of film for a limited period to the Theatre thereby allowing the theatre owners to display their films for limited number of shows during the contacted period. The Distributors thereby instruct the Appellant to ensure that the film is delivered and exhibited in those Theaters only for the specified period and pay CDC Charges. The same being taxable, the Appellant is paying Service Tax since 01.07.2012. In order that the film in their digital format does not get misused/ pirated and is run for number of shows as directed by Distributors, the Appellant send only the encrypted digital format. The Appellant then sends specific number of description keys i.e. licences which are stored on the smart card which in turn is installed in the server which is part of the DCE. The Theatre owner has in its custody the digital content of the film and digital licences for specified number of shows that he has contacted with the distributors. The Theatre owner is free to schedule those shows as and when he wants and for every playback of show he has to consume one licence. Once the allotted licence are ov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y for clarification as regard taxability of transaction of the lease rentals collected by the Appellant who ruled that the same was liable for VAT. The same was submitted to the Commissioner who has not given any findings on the same. That when the ARA has given its ruling, it was incorrect on the part of the Commissioner not to discuss the same and give his findings. 3.7. He further submits that Service Tax and VAT both are mutually exclusive in the present case. They have been paying VAT on such transaction since 2006 i.e. before the supply of Tangible Goods Service become taxable in 2008. He relies upon the judgment of Hon'ble Supreme Court in case of Ambuja Cements Ltd Vs. UOI - 2005 (4) SCC 214 and BSNL Vs. UOI - 2006 (2) STR 160 The demand of Service Tax on turnover on which VAT is already paid would result into double taxation. 3.8. As regard cenvat of CVD on Capital goods he submits that under Joint Business/ revenue sharing agreement for provision of sale of space for advertisement services, alongwith the large number of Theaters using the DCE Equipments they have created a unique platform which can be used by the advertisers to release their advertisemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f negative list regime w.e.f. 01.07.2012 Section 66D Clause (g) included selling of space or time slots for advertisements other than advertisements broadcast by radio or television . The said entry was deleted in Budget 2013 and is now taxable. As per joint business agreement clause 2 the Theatre owners has appointed the Appellant as sole advertisement concessionaire for procuring advertisements from the advertisers for display in Theaters and the activity is squarely covered as sale of space or time for advertisements services . The Commissioner has classified their service as Advertising Agency Service that classification as to whether sale or space or advertisement service is immaterial as in any event the capital goods has been given on lease to theaters. Therefore question of classification rightly or wrongly that too with intent to evade duty is wrong. Irrespective of category of service they are entitled for the credit which are used for providing taxable service. The DCE having been used for providing Advertising service and content delivery service which are taxable. output service and the said fact has not been disputed by the Commissioner. 3.9. Without prejudice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paying VAT since 2006 much before introduction of supply of tangible goods Service and the transaction has been assessed to VAT by the VAT Authorities, That subsequently the Service Tax Commissionerate conducted investigation and issued notice in July' 2012, That the Commissioner did not consider various correspondence submitted by the Appellant which shows that the investigation conducted as early as April' 2008 and thereafter issuance of show cause notice in 2012 cannot be attributable to suppress facts with intent to evade tax. He relies upon the judgment in case of NRC Lt. Vs. CCD - 2007 (5) STR 308. Secretary, Town Hall Committee Vs. Commissioner - 2007 (8) STR 170, Binlas Suplux Ltd. Vs. CCE - 2007 (7) STR 561, Continental Foundation vs. CCD (216) ELT 177 (SC), Padmini Products Vs. CCE - 1988 (35) ELT 543 (TRI), Tamilnadu Housing Board Vs. Collector - 1994 (74) ELT 9 (SC). He also draws our attention to para 33 of the impugned Order wherein the Commissioner held that cenvat credits has been disclosed in the returns filed by the Appellant and there is no suppression of facts. However with respect to demand of tax on rentals he held that Appellant suppressed ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h are covered within the scope of sale the transaction is liable to be taxed under the Service tax. In the transaction between the Appellant and various theater owners, there is no indication that there was either the intent nor the necessary ingredient of sale. The intent of Appellant was never to transfer the goods to Theatre owners. Mere location of the goods in the premises of theater owner is not transfer of right to use. While the Digital Cinema Equipment may be located in the premises of Theater owner, they neither possess the same nor have effective control over there. It has been held by the Courts that the conditions of the contract would decide as to whether a transaction would be covered under the transfer of right to use as was held by the Hon'ble Supreme Court in case of BSNL Vs. UOI[2006] 145 STC 91 (SC) and State of Andhra Pradesh Vs. Rashtriya Ispat Nigam Ltd - 2013 (31) STR 513 (SC). That Hon'ble Supreme Court in RINL case held that In the impugned order, it is stated, and rightly so in our opinion, that the effective control of the machinery even while the machinery was in use of the contractor was that of the respondent company: the contracto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e control was never transferred to Theatre owner and the Appellant could block the control card the usage of DCE by blocking the control card which was in equipment. In the later period they could take back the equipment if their usage Was below a certain limit, The Theatre owner had no say regarding the type of equipment, period and was bound to purchase the consumable from Appellant. The decision of Hon'ble High Court of Tripura in case of Tata Sky others relied upon by the counsel for Appellant is not applicable as the transaction is clearly distinguishable. He argues that the case of Mahyco Monsanto Biotech (India) Pvt. Ltd Vs. UOI - 2016 (44) STR 161 BOM shows that the effective control is essential to right of transfer of right to use whereas in the instant case there is no unfettered use or disposition by the theatre owner. The transaction is only of permissive use and not of transfer of right to use. That the case of G.S Lamba and Sons Vs State of A.P - 2011 (52) APSTJ 191 relied upon by the Appellant is distinguishable as clear distinction of conditions of the contract and can be drawn between the contracts entered into by G.S. Lamba, Grasim and Appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uishable as in the said case the inputs and capital goods were used in the power plant and this power plant was transferred/ leased out fully alongwith land, building, plant and machinery to another company for use whereas in the present case the whole plant has not been leased out but only the machinery goods which has been purchased by Appellants were leased out to another party. The said machinery has not been used by them for display of advertisement by the Theatre owner. That the theater was owned by the Theater owner, the machinery was displayed in premises of Theater owner and the machinery for displaying of advertisement was earned by the Theater owner out of which the share of 75% was taken by Appellant. The work done by the Appellant was only of selling of advertisement, collecting the sales revenue of advertisement, provide management information, equipment to the advertisers and pay the exhibitor on monthly basis the exhibitor's share. The exhibitor is Theater owner and the DCE cannot be used in any manner by the Appellant. The Appellant has availed cenvat credit of the equipment and the same was not reversed when the goods has been 'sold' to Cinema Owners. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any of the submission and facts made by the Appellant. The terms and condition of the agreement are its essence and is deciding factor for determination of nature of contract/ agreement. The findings of the impugned order nowhere leads to the conclusion on the basis of this vital aspect. The Appellant before the adjudicating authority and in their appeal memo has made submission on clause of agreements i.e. in terms of clause 1B of the agreement the equipment is delivered to the Theatre owner; in terms of clause 1D the Theatre owner would put a person well versed with handling of equipment; Clause 5J where the Theatre owner is required to get all permissions for installation of DCE ; Clause 5K as per which the Theatre owner shall be responsible for all injuries, losses and damages cause to the equipment and shall also indemnify the Appellant against any loss or damage arising to or in connection with the equipment for the reason other than normal wear or tear; Clause 16A as per which the Appellant has transferred the right to use of DCE exclusively to the Theatre owner and the Theatre owner shall have effective control of the DCE and shall be free to make its own use for theatrical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been paying VAT on such leasing of DCE since year' 2006. Further the fact remains that in 2008 they approached the authority for determination of disputed question which ruled that the services are liable for VAT. The adjudicating authority has not given any findings on this aspect when brought before him, We also find that DOF NO.334/1/2008- TRU dt. 29.02.2008 Circular in Para 4.4 also states that Supply of tangible goods for use and leviable to VAT/ Sales tax as deemed sale of goods, is not covered under the scope of the proposed service . Whether a transaction involves transfer of possession and control is a question of facts and is to be decided based on the terms of the contract and other material facts. This could be ascertainable from the fact whether or not VAT is payable or paid . It is not in dispute that the Appellant were paying VAT since 2006 and the services of supply of tangible goods came into service tax net later. The subject DOF was issued before the enactment and intended that the proposed service would not include the transaction on which VAT is Payable or paid . The Theaters are free to choose which movie to be displayed, the number of shows, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... period with direction to Adjudicating Authority to verify whether the contentions made by the Appellants are correct with regard to the theatre owners having freedom to choose movie, number of shows, timing of shows, to determine whether to play a movie or not and have operational control of the equipment through their own men or not. Also to verify weather play out of IPL matches or Local advertisements have happened in the past and pass a speaking order after giving an opportunity of being heard. The Appellant is at liberty to make all submissions before the adjudicating authority. 6.4. With regard to CENVAT Credit on Capital goods we find that it is not disputed that the Appellant and Theatre had joint partnership agreement to exhibit the advertisement and the proceeds were to be shared in the ratio of 75 : 25 or as the case may be. The advertisers were into agreement with the Appellant for such advertisement. Further we find that as per Rule 2(a) of CENVAT Credit Rules, 2004 specified capital goods used for providing output service would be eligible for credit. In this case the capital goods are specified capital goods and has been used for providing the output services of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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