By TIOL News Service

NEW DELHI, OCT 16, 2017: THE appellant was rendering taxable services by making available broadcast personnel, as per the requirement of M/s. Prasar Bharti.

As per the understanding , the appellant received a monthly fee equal to 10% of the basic fee payable to the hired broadcasting personnel through the appellant. In addition to this monthly fee, M/s. Prasar Bharti also reimbursed the fee payable to the broadcast personnel hired through the appellant.

While the appellant discharged service tax on the fee received by them from M/s. Prasar Bharti for the service of supply of manpower, they did not pay service tax on the amount reimbursed towards fee payable to broadcast personnel.

The Department was of the view that service tax was required to be paid on the full amount received by the appellant from M/s. Prasar Bharti. Accordingly, the demand was confirmed and penalties were imposed with interest.

The appellant is in appeal before the CESTAT and submits that the appellant was only acting as an agent of M/s. Prasar Bharti and had received reimbursement of the broadcast personnel fees which in turn had been paid by the appellant to the personnel as a “pure agent”. They rely on the decisions in Intercontinental Consultants & Technocrats Pvt. Ltd. =  2012-TIOL-966-HC-DEL-ST and Rolex Logistics Pvt. Ltd. -  2009-TIOL-270-CESTAT-BANG and submit that the Department was not justified in including the fees payable to the broadcast personnel which are in the nature of reimbursements.

The AR adverted to the CBEC letter F.No. B/3/16/TRU dt 27.07.2005 wherein it is clarified that service tax is payable on the full amount of consideration charged for such service.

After extracting section 67 of the FA, 1994, the Bench observed that the section specifies that wherever the provision of service is for a consideration, the taxable value would be the gross amount charged by the service provider for such service; that the Service Tax (Determination of Value) Rules, 2006 provides for exclusion from the taxable value, amount received in the capacity of “pure agent”.

Furthermore, in terms of rule 5(2) of the Service Tax Valuation Rules, 2006, expenditure incurred by the service provider as a ‘pure agent' can be excluded from the value of taxable service subject to the satisfaction of all the eight conditions specified therein. Moreover, ‘pure agent' is also defined in Explanation 1 to the said rule.

Noting that the adjudicating authority had elaborately discussed the criteria required to be satisfied to be called a ‘pure agent', the Bench reproduced paragraph 9.1 of the impugned order -

“The term pure agent has been defined in Explanation 1 to the said rule, detailed above. I note that the primary characteristics of a pure agent is that he enters into a contractual agreement with the recipient of service to act as his pure agent to incur expenditure or costs in the course of providing taxable service. The notice have not come forward with any such contractual agreement. Condition (iii) cited supra stipulates that the recipient of service is liable to make payment directly to the third party. In the present case I note that Doordarshan / M/s. Prasar Bharti are not making any payment to Broadcast Personnel directly but the entire amount is paid by Doordarshan / M/s. Prasar Bharti to the notice only and it is the notice who makes further payment to such personnel, hence this condition is not fulfilled in the present case. Further, condition (iv) cited supra stipulates that the recipient of service authorizes the service provider to make payment on his behalf. From the documents available on record, I do not find any such arrangement where DD / M/s. Prasar Bharti have authorized the notice to make payment to the broadcasting personnel on their behalf. The DD / M/s. Prasar Bharti in the present case makes a stipulated amount for each Broadcasting personnel besides the specified fee to the notice and the notice makes payment to each Broadcasting Personnel from its own account and as such I find that this condition is also not fulfilled by the notice. Another condition (vii) cited supra stipulates that the goods or services procured by the service provider from the third party as a pure agent of the recipient of service are in addition to the services he provides on his own account. However, I find that third party in the present case viz. Broadcasting personnel are not rendering any service to DD / M/s. Prasar Bharti. It is rather the noticee who are providing manpower supply or recruitment service to DD / M/s. Prasar Bharti for which the entire service charges, including the amount to be paid to such Broadcasting personnel is received by them. However, the service tax has not been paid on the entire amount received but only on a fraction thereof representing fee for the notice. In view of the above, I note that the notice do not qualify the above referred three conditions to be termed as a pure agent. I further note that section 67 of the Finance Act, 1994.”

Observing that the CESTAT is in agreement with the findings of the adjudicating authority in this regard, it was held that the appellant cannot be treated as a pure agent as defined in the rules and consequently, the appellant was required to discharge service tax on the full amount received from M/s. Prasar Bharti i.e. including both the commission at the rate of 10% as well as broadcast fees.

The impugned order was upheld and the appeal was dismissed.

(See 2017-TIOL-3711-CESTAT-DEL)