By TIOL News Service

MUMBAI, SEPT 02, 2014: A Service Tax demand of Rs.1.90 crores and Rs.1.57 crores respectively has been confirmed against the appellant, a cable operator service provider, for the period 16.08.2002to 30.09.2004 & 01.10.2004 to 30.09.2005 respectively along with penalties and interest.

The demand is on the ground that the figures of subscriber base as furnished by the appellant to the department was much lower than the information received from the broadcasters and the statements of payments received from the appellant by the broadcasters also corroborated the huge difference between the two figures.

When the stay application had come before the Bench, noting that the Revenue had gone by the procedure laid down by the TRAI for calculating the subscriber base the CESTAT had ordered a pre-deposit of Rs.75 lakhs. We reported this order as 2008-TIOL-23-CESTAT-MUM.

The appeal was heard recently.

The appellant inter alia submitted that the demand of service tax is based on conjectures and surmises in as much as the department has not been able to unearth any evidence on the amounts alleged to have been received by the appellant in respect of the services rendered in excess of what has been declared in the service tax returns; that a similar investigation undertaken by the Income Tax department on the same basis adopted by the service tax department for determination and demand of income tax was set aside by the ITAT in appellant's own case; that payment of entertainment tax to the State Government adopting the subscriber base declared to the Broadcasters will not affect the service tax case as the measure of levy of entertainment tax is number of subscribers and not the consideration received whereas in the case of service tax, the measure of levy is consideration received for the services rendered.

The Revenue representative submitted that the agreement entered by appellant with the broadcaster is as per the guidelines provided in the Telecommunication (Broadcasting and Cable Services) Regulations, 2004 (TBCR) and the subscriber base adopted therein has a statutory basis and the appellant cannot deny or wish away the same; that once the subscriber base is decided as per law, the same would apply in respect of other laws also including service tax and, therefore, the demand of service tax on the basis of subscriber base adopted under TBCR cannot be faulted. It was further submitted that in the ITAT decision, the assessment made by the IT department was not on the basis of the TBCR but on the basis of Electricity connections provided by MSEB and which was rejected by the ITAT as being arbitrary and hence this decision had no relevance to the matter on hand. That as the agreements entered into with the broadcasters was never brought to the knowledge of the department invocation of extended period of limitation is justified.

After adverting to the definition of ‘subscriber base' contained in the TBCR Regulation and perusing the agreement dated 1-1-2003 entered into by the appellant with M/s Star India Pvt. Ltd., the Bench inter alia took the following view-

++ In the case before us, for the determination of the short payment of service tax, Revenue has adopted the number of subscribers given in the agreements entered into by the appellant with the broadcasters and the same has been compared with the figures adopted by the appellant for discharge of payment of service tax as declared in the statutory ST3 returns. Once the figures are taken from a written contract, which is in pursuance to a statute, namely, Telecom Regulatory Authority of India Act, 1997 and the regulations made thereunder, the same is beyond challenge.

++ The argument of the appellant that the agreement with the broadcasters declaring the subscriber base of the appellant are not relevant for the determination of service tax liability has no basis at all and we reject this contention totally.[Tamilnadu Electricity Board &Anr. Vs. N. RajuReddiar [1996 AIR 2025] refers].

++ The facts (involved in the ITAT decision) are completely different and distinguishable and hence the ratio of the said decision is not applicable.

++ Whether, on the basis of the subscriber base declared in the agreements with the broadcasters and the subscription charges given in the bills/invoice issued to the subscribers, can service tax demand be made and whether such an assessment of tax liability can be considered as arbitrary. Prior to its omission with effect from 10-9-2004, section 72 of the Finance Act, 1994 provided for best judgment assessment and read as follows:- x xxThe impugned order which is under challenge before us seeks to precisely do this based on the material gathered during the investigation and therefore, the said order is strictly in accordance with the legal provisions. Therefore, the determination of service tax liability in the impugned order cannot be challenged at all, especially in the absence of any contrary evidence adduced by the appellant as to its subscriber base. For the period subsequent to 10/09/2004, Section 73 which was substituted vide Finance Act, 2004, provided for rejection of declared value and determination of tax liability on the basis of the evidence available. Therefore, the confirmation of service tax demand on the basis of these legal provisions cannot be challenged/questioned. Once the liability to pay service tax is decided, the question of interest liability is automatic and consequential in terms of provisions of section 75 of the Finance Act, 1994.

++ Penalties cannot be imposed simultaneously under both the sections 76 & 78 with effect from 10-5-2008 as the law was amended to that effect. Prior to 10-5-2008 penalties under both the sections could be imposed simultaneously as held by the Kerala High Court in the Krishna Poduval case [2006-TIOL-77-HC-KERALA-ST].

Holding that there is no merit in the appeal, the same was dismissed.

(See 2014-TIOL-1659-CESTAT-MUM)