ST - Fitment within an alternative classification suffices to erase proposal in the notice but cannot crystallize liability unless alternative was also proposed in notice: CESTAT
By TIOL News Service
MUMBAI, JUNE 20, 2018: THE appellant has been held liable to pay Service tax of Rs.1,00,58,679/- along with interest and equivalent penalty by the CCE, for the period 1st March 2003 to 31 st March 2007, vide order dated 05.03.2014, under the category –
'(zj) any service provided, or to be provided to any person, by a sound recording studio or agency in relation to any kind of sound recording.'
It is pertinent to note that the CESTAT had granted unconditional waiver from pre-deposit of the adjudged dues and stayed recovery by observing thus –
"5. … We notice that the activities undertaken by the appellant involves writing of scripts, recording voices of artists, producing the program, providing musical background and recording of sound. Thus, it is a combination of activities and not merely recording of sound. Therefore, we are of the prima facie view that the appellant's activity does not fall within the statutory definition of "sound recording"…"
We reported this order as - 2014-TIOL-1844-CESTAT-MUM.
The appeal was heard in January 2018 and an order was passed recently.
It is submitted before the CESTAT that the appellant does not provide the said service even though they do operate a sound recording studio and that their activity may, at a stretch , be classified as ‘advertising agency service' but, nevertheless, is excluded from the liability of tax owing to discharge of the tax by the principal advertising agency.
Reliance is placed on the clarification no. B-II/1/2001-TRU dated 9th July 2001 issued by CBEC. It is also submitted that cum-tax benefit as well that of limitation be extended in case taxability arises.
The AR supported the order.
The Bench inter alia observed -
++ the adjudicating authority was of the opinion that he did not have to go any further from the fact of the appellant being a production house with the facility of sound recording which rendered their clients clearly to be recipient sound recording service; ergo, the appellant is taxable. The tax collector must not only propose the classification as a pre-requisite for demand but also test the fitment of the activity within the definition itself.
++ it is seen from the records that the appellant had registered themselves under Service Tax Rules, 1994 as provider of sound recording service. However, that by itself is not sufficient to operate as a conclusive ground of taxability. Levy under Finance Act, 1994 is not on the persona but on the activity; neither registration nor wherewithal for rendering the service can substitute for classifying the activity within the definition of the service.
++ the discharge of tax liability on a former occasion or a claim entered will not suffice to impose the burden on the assessee for all time to come. Hence mere registration or even the operation of sound recording studio does not, by itself, bring the appellant within the fold of taxation.
++ it is the contention of the appellant that they produced radio spots. Radio spots are mini-programs that are intended to be broadcast for which the appellant would be engaged by an advertising agency or, at times, by the clients directly. On a perusal of the documents furnished by Learned Chartered Accountant, it would appear that most of the income emanates from the former. In any case, there is no dispute that the appellant produces an entire program which is then submitted to the client for further use. These may well be in the nature of sub-contract by an advertising agency but is, yet, an independent one.
++ there is no proposal to tax the activity as provision of ‘advertising agency service'; the appellant is not required to choose between alternate classification as that is the responsibility of the tax collector . Fitment within an alternative classification suffices to erase the proposal in the notice but cannot crystallize liability unless the alternative was also proposed in the notice.
++ in the present instance, the appellant undertakes the conceptualization, the script preparation, identification of voice, actual recording, editing and ultimate development of the entire as a package ready for broadcast and it is for this entire range of activities that the compensation is made by the client. Undoubtedly, sound recording is part of activity but it does not make for whole of the activity or the entirety of the activity. Nor can the consideration be disaggregated to value the sound recording undertaken in pursuance of the contract. The activity of the appellant is clearly not that of sound recording per se.
++ as the scope of contract, the consideration of which is sought to be taxed, extends well beyond sound recording in both the directions, we are of the opinion that the proposed classification would not be tenable for levy of the tax.
The impugned order was set aside and the appeal was allowed.
(See 2018-TIOL-1898-CESTAT-MUM)
