By TIOL News Service

NEW DELHI, MARCH 01, 2014: PURSUANT to audit conducted by the department, it was alleged that the appellant had provided ‘Video Production Agency service'and eventually a SCN was issued on 20.09.2011 calling upon the petitioner to remit service tax, interest and penalty, for providing the said taxable service.

The adjudicating authority confirmed the service tax liability of Rs.5,22,10,109/-; disallowed CENVAT credit of Rs.40,800/-(availed in respect of Golf Club membership fee); allowed CENVAT credit of Rs.37,604/- availed in respect of medical insurance services; and levied interest and penalties.

Before the CESTAT, the applicant submitted that it was not a Video Production Agency providing a service in relation to video tape production; that it merely acted as an interface between Discovery Asia INC, USA and video content providers in India whom the applicant identified and engaged to undertake providing of Indian language content superimposition on the original programmes produced by Discovery Asia for eventual uploading to Discovery Asia for telecast to Indian audiences; that invocation of the extended period of limitation was unjustified since the petitioner bonafide believed that its activities do not fall within the ambit of the taxable service alleged; that Revenue had the necessary inputs for classifying the service and possessed relevant information as to the gross consideration received on this allegedly taxable service since 2009 but did not chose to act, till issuance of the SCN dt.20.09.2011and that in any event, imposition of penalties was arbitrary.

The Bench noted the following contents from the agreement dated 1.8.2006 entered into between the applicant and Discovery Asia, Singapore -

++ The applicant is a company engaged interalia in the business of producing, sourcing, supplying and promoting high quality educational and real life entertainment programmes and is ready and willing to source the programmes for Discovery Asia on the terms and conditions as set out in the agreement.

++ Clause 2 (b)(i) covenants that Discovery Asia should provide programmes and the petitioner shall dub, edit and do all necessary acts to customize such programmes in accordance with the directions of Discovery Asia.

++ In pursuance of this clause, the applicant provided customization of the content received from Discovery Asia by video tape production processes such as editing, cutting, colouring, dubbing and modifying or deleting sound, activities enumerated in Section in 65(120) of the Act, though by getting some of these aspects enumerated by content providers with whom the petitioner entered into separate agreements.

And thereafter the CESTAT held -

“6. …, we are not wholly satisfied that invocation of the extended period of limitation is unsustainable. With regard to classification of the service provided, we are prima facie of the view that since under the agreement between the Discovery Asia and the petitioner, the obligation of dubbing, editing and executing all necessary acts to customize Discovery Asia programmes in accordance with its directions is that of the petitioner; the rendition of this service is the essence of this contractual obligation; and the outsourcing of this service to third party content providers amounts only to sub-contracting its obligation under the contract. Therefore there appears no escape from the liability to tax for having provided the video production agency service in relation to the video tape production under Section 65(105)(zi).

7. In the aforesaid circumstances, we consider that the case is evenly balanced, both on the classification of the taxable service aspect and on validity of invoking the extended period of limitation.”

The applicant was directed to make a pre-deposit of 25% of the service tax liability assessed plus the proportionate interest thereon within six weeks and report compliance for obtaining Stay in the matter.

(See 2014-TIOL-320-CESTAT-DEL)