TMI Blog2023 (1) TMI 1142X X X X Extracts X X X X X X X X Extracts X X X X ..... lace of Provision of Service - HELD THAT:- It appears that service tax authorities have not appreciated the purpose, elucidated supra, and the context of Place of Provision of Service Rules, 2012. These Rules do not operate as a charging provision within the narrow field of taxing imports or exempting exports; they are intended for taxing all manner of services within the frame of section 66B of Finance Act, 1994. The Hon ble Supreme Court, in ALL INDIA FEDERATION OF TAX PRACTITIONERS ORS VERSUS UNION OF INDIA ORS [ 2007 (8) TMI 1 - SUPREME COURT] has held levy under Finance Act, 1994 to be destination-based consumption tax and, therefore, requiring consummation of the service to be linked to acknowledgement by recipient of the service. Consequently, by default, rule 3 of Place of Provision of Service Rules, 2012, holds the service to have been rendered at the place of the recipient and other rules substitute in specific circumstances. The deviation in rule 4(a) of Place of Provision of Service Rules, 2012 and, considering the specific circumstance of determination by tangible presence, it would not be amenable to stretching for coverage of deemed goods , if any, owing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able event in the hitherto existing indirect levies as the touchstone for determining occurrence in intangible, and invisible, services necessitated rules of engagement for crystallizing the levy consistent with axiomatic consummation in the recipient save for specific exceptions; hence the segregation of enumerated services for such outliers in the said Rules for fastening the liability according to location of property and location of performance respectively. Denial of the exemption that, intuitively and sufficiently, should conflate with earnings in convertible foreign exchange and situating of the recipient abroad by fitment of the impugned activities within one of the outliers is sought to be unhinged by the counter of the respondent herein. Revenue has not set out any justification of such fitment in its appeal; hence, the conclusion arrived at by the adjudicating authority will have to be tested against the argument proffered by the respondent for deciding on the correctness of taxability under section 65(105)(zi) of Finance Act, 1994 in the impugned order and the appropriateness of correct application of proviso in rule 3(1)(ii) of Export of Service Rules, 2005 will need s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ₹ 22, 93,97,457/-. 6. M/s Prime Focus Ltd, a pioneer in visual effects and 3D technologies, incorporated two subsidiaries - in UK and the Netherlands - with downstream subsidiaries operating out of countries in the Americas and Europe who, contracting clients desiring specialized services, entrusted execution to the respondent herein. According to the respondent, the activities undertaken by them are conversion from 2D to 3D , imparting special effects , post production service , equipment rental with support and digital asset management and content service and digital restoration service , which are claimed to be business support service/information technology software service and, which in accordance with rule 3 of Export of Service Rules, 2005 fulfill entitlement for exemption as exports. That was sought to be controverted in the show cause notice contending that the activities conform to section 65(105)(zi) of Finance Act, 1994 owing to provider being video production agency in section 65(119) in relation to video-tape production in section 65(120) of Finance Act, 1994 which would not be exports unless the whole, or part, of the performance is undert ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 3D by using ViewD software. The process of conversion from 2D to 3D involves the following : Tasking i.e. marking up still images for each shot to be converted, Rotoscoping i.e. isolating specific (or all) objects within a frame and cutting them out, 2D to 3D content conversion using the software i.e. creating stereo depth from an image that was originally shot as a flat single image by generating a second eye and sculpting depth with computer software, Paint, i.e. painting in, or recreating through paint software, missing portions of a photographed image that are revealed by the conversion process, Checking the final content for quality and delivering the same to the client. (iii) Imparting special effects: The Assessee stated at para 2.1.2 of the letter dated 13.08.2012 that they are doing the following things in this part: For example, a scene shot in normal background has to be shown in a 'crowd'. Prime Focus Ltd, using computer graphic designing techniques edits the portion of the scene and makes it look as if it were shot in a 'crowd'. (iv) Digital Restoration Services: The Assessee have s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the place where the service is actually performed signified by the temporary stationing of the corresponding goods upon which a provider worked. The adjudicating authority held that the flow of activities undertaken by the respondent involved finishing undertaken outside the country to which proviso in rule 3(1)(ii) applied and, relying upon circular no. 144/13/2011-ST dated 18th July 2011 of Central Board of Excise Customs (CBEC) clarifying that 2. ..This would include not only the physical part of providing the service but also the completion of all other auxiliary activities that enable the service provider to be in a position to issue the invoice. Such auxiliary activities could include activities like measurement, quality testing etc which may be essential pre-requisites for identification of completion of service. The test for the determination whether a service has been completed would be the completion of all the related activities that place the service provider in a situation to be able to issue an invoice. However such activities do not include flimsy or irrelevant grounds for delay in issuance of invoice. came to the conclusion that service so render ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... programme, event or function. In fact, this aspect has been considered even by the adjudicating authority in para 5.3 of the order. The activities of services of Computer Graphics, Digital Restoration, and Reverse Telecine all involving activities on old feature films is definitely a post-production film activity inter alia, rendered for service recipients abroad as per their requirements. This being so, we are not able to fathom how the adjudicating authority, having stated that the appellants are not engaged in the recording of any programme etc. has concluded that services or restoration, giving special effects etc. on the old films would be a Video Tape Production . Ostensibly, the department and the adjudicating authority have been influenced by the second limb of the definition of Video Tape Production in Section 65(120) of the Act. The definitions have to be read in totality and part thereof cannot be picked up to justify that the activities performed in the instant case will come under Video Tape Production Services . That would like putting the cart before the horse. The statutory provisions relating to taxation have to be construed literally without engraving any add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tivity on video or transfer to another media by provider of service to qualify as video-tape production ; there is no evidence that the material received by the respondent was recorded in video or that the respondent had, at any time, handled video as media. There is nary an allegation that respondent had undertaken any activity covered by the principal leg of the definition. Furthermore, the entirety of the basis for the impugned classification is that programme is involved in the activity for which section 65(86a) of Finance Act, 1994 has been drawn upon as noted by us supra. 14. The adjudicating authority appears to have failed to take note of the arrangement in section 65 of Finance Act, 1994 in which several of the definitions therein are intended as adjuncts of specific taxable service enumerated in section 65(105) of Finance Act, 1994 and must, therefore, be read in the context of those definitions. That should have been obvious from the rest of the definition placing emphasis on reception by general public through either directly or indirectly and, therefore, relate to the taxable service described in section 65(105)(zzu) of Finance Act, 1994. The enumeration of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 1994 which amplifies maintenance to include service in the context of cross-border transactions. He placed reliance on the decision of the Hon ble Supreme Court in Associated Cement Company Ltd. v. Commissioner of Customs [2001 (128) ELT 21 (SC)] and, in particular, on the finding that 30. It is true that what the appellants had wanted was technical advice or information technology. Payment was to be made for this intangible asset. But the moment the information or advice is put on a media, whether paper or diskettes or any other thing, that what is supplied becomes chattel. It is in respect of the drawings, designs, etc., which are received that payment is made to the foreign collaborators. It is these papers or diskettes, etc., containing the technological advice, which are paid for and used. The foreign collaborators part with them in lieu of money. It is, therefore, sold by them as chattel for use by the Indian importer. The drawings, designs, manuals, etc., so received are goods on which customs duty could be levied. According to him, the Hon ble Supreme Court in Tata Consultancy Services v. State of Andhra Pradesh [2004 (178) ELT 22 (SC)] had elaborated upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the question as regard leviability of the tax under a fiscal statute, it may not make a difference. A programme containing instructions in computer language is subject matter of a licence. It has its value to the buyer. It is useful to the person who intends to use the hardware, viz., the computer in an effective manner so as to enable him to obtain the desired results. It indisputably becomes an object of trade and commerce. These mediums containing the intellectual property are not only easily available in the market for a price but are circulated as a commodity in the market. Only because an instruction manual designed to instruct use and installation of the supplier programme is supplied with the software, the same would not necessarily mean that it would cease to be a goods . Such instructions contained in the manual are supplied with several other goods including electronic ones. What is essential for an article to become goods is its marketability. xxxxxxxx 74. It is not in dispute that when a programme is created it is necessary to encode it, upload the same and thereafter unloaded. Indian law, as noticed by my learned Brother, Variava, J., does not make any di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8. It is clear, electromagnetic waves are neither abstracted nor are they consumed in the sense that they are not extinguished by their user. They are not delivered, stored or possessed. Nor are they marketable. They are merely the medium of communication. What is transmitted is not an electromagnetic wave but the signal through such means. The signals are generated by the subscribers themselves. In telecommunication what is transmitted is the message by means of the telegraph. No part of the telegraph itself is transferable or deliverable to the subscribers. 18. Learned Authorized Representative also placed reliance on the decision of the Tribunal in Crompton Greaves Ltd v. Commissioner of Central Excise, Aurangabad [2015-TIOL-2724-CESTAT-MUM] and in Roha Dyechem Pvt Ltd v. Commissioner of Central Excise, Raigad [2017-TIOL-3448-CESTAT-MUM]. 19. Learned Chartered Accountant submitted that rule 4 of Place of Provision of Service Rules, 2012 would come into play only when goods, on which activity is to be undertaken by the provider of service, are supplied to India by the recipient of the service. He argued that the reliance placed on the decisions of the Tribunal in re Crom ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
