Taxability of service of Foreign entities could not determine without test of Taxation of Service Rules

Star India Pvt Limited Vs Commissioner of Service Tax (CESTAT Mumbai)

Conclusion: In a significant case of Star India, the CESTAT had held that the impugned order had failed to identify the ‘taxable service’ that the erstwhile foreign entities had obtained from the foreign service provider without which the test of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 was not applied.

Held: Assessee-company (M/s. Star) challenged the fastening of levy of service tax of ₹ 52,37,68,283 under section 73 of Finance Act, 1994 for 2009-10, which pertained to the payment of ₹ 508,51,28,961 received by M/s Star, Hongkong for the use of the visibly recognizable mark of the latter along with the other recognizable channel mark – and alleged to be a consideration for having received ‘intellectual property service’ from the overseas entity as culled out from the books of accounts of assessee. The present demand pertained to the payments made during 2009-10 to M/s Star L, Hong Kong by three foreign companies owning television channels. According to him, the three entities had appointed M/s Satellite Television Asian Region Limited, Hongkong as their agent for advertisement sales and channel distribution in India either by themselves or through sub-agents and that the Hongkong entity delegated their agency for India, Nepal and Bhutan to the appellant. It would appear that the three foreign companies sought to be merged with assessee and the scheme had received the approval of the High Court of Bombay. The case built up the tax authorities was that assessee appeared, from their accounting treatment of the payments made to M/s Satellite Television Asian Region Limited, Hongkong, to be the recipient of ‘intellectual property service’ for 2009-10 and, hence, liable to tax. It was contended that the payments made in the inter regnum by these foreign companies to the other Hongkong entity and reflected in the redrawn accounts of the appellant as required after the merger was sought to be taxed in show cause notice issued almost four years after the occurrence of the actual merger. Hence, it was to ascertain if the records of payment from the ‘appointed date’ or from the ‘effective date’ was the more appropriate starting line for payment of tax by assessee on the impugned consideration and, if it be the former, the extent to which section 66A of Finance Act, 1994 would operate for taxability. It was held that the impugned order had failed to identify the ‘taxable service’ that the erstwhile foreign entities had obtained from the foreign service provider without which the test of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 was not met. The adjudicating authority had failed to consider the deemed demutualization of amalgamated entity and amalgamating entities for the period prior to effective merger and had superficially applied the appointed date conundrum to the ‘no brainer’, and default, articulation in section 66A of Finance Act, 1994 without taking in the entire canvass of this special provision of law to charge tax on specifically intended transactions.  The impugned order had failed to be in compliance with the mandate of section 66A of Finance Act, 1994 warranting it to be set aside.

FULL TEXT OF THE CESTAT MUMBAI ORDER

This appeal of M/s Star India Pvt Limited, against the fastening of levy of service tax of ₹ 52,37,68,283 under section 73 of Finance Act, 1994 for 2009-10, pertains to the payment of ₹ 508,51,28,961 received by M/s Star L, Hongkong for the use of the visibly recognizable mark of the latter along with the other recognizable channel mark – and alleged to be consideration for having received ‘intellectual property service’ from the overseas entity as culled out from the books of accounts of the appellant. The charging of interest under section 75 of Finance Act, 1994, the imposition of penalty of like amount under section 78 of Finance Act, 1994 and penalty under section 77 of Finance Act, 1994 in order-in-original no. 01- COMMR/ST-II/PK/20 14-15 dated 27^th February 2015 of Commissioner of Service Tax, Mumbai-II are also under challenge. To bolster the claim of the tax authorities, it was pointed out that tax on payment of ₹ 165,07,41,250 for the same facilitation had been duly discharged for 2010-11 in accordance with the stipulations in section 66A of Finance Act, 1994 on service procured from outside the country.

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