CA.K.Siva Rama Kumar
(A good number of Articles on the GST liability of the Local Cable Operators(LCOs) expressed a view that the LCOs are ‘agents’ of Multiple System Operators (MSOs) and suggested compulsory registration obligation as per Sec.24(vii),CGST Act, 2017 and consequently held the LCOs as liable to GST. In this Article, an attempt is made to take a fresh look at the issue by referring to the Model Standard Agreement between MSO and LCO as suggested By TRAI and followed by many MSOs is examined and the taxability of LCOs is discussed in the light of the Model Agreement.)
Cable Television is of ubiquitous presence across the Globe and has been a taxable service both in the Service Tax regime and in the present GST era too. The advent of Digital Addressable Cable System (DAS) brought about in the country has fielded two kinds of Service providers in this arena, viz., Multiple System Operators (MSOs) and the Local Cable Operators (LCOs), to deliver the television programs to the ultimate consumers, i.e., subscribers of Cable TV Service. A study on the taxability of the services rendered by them under the GST law is discussed as follows:
“Cable Service” means the transmission by cables of programs including re-transmission by cables of any broadcast television signals, as per Sec.2(b), Cable Television Network Regulation Act, 1995 and also as per Rule.2(b), Cable Television Rules, 1994 ( ‘CTR’ in short).
“Cable Operator” means any person who provides cable service through a cable television net work or otherwise controls or is controls or is responsible for the management and operation of cable television net works, as per as per Sec.2(aiii), Cable Television Network Regulation Act,1995 and also Rule.2(aaa),CTR, 1994.
“Cable Television Network” means any system consisting of a set of closed transmission paths and associated signals generation, control and distribution equipment, designed to provide cable service for reception by multiple subscribers, as per Sec.2(c), Cable Television Network Regulation Act,1995 and also as per Rule.2(c),CTR, 1994.
“Multi System Operator” means a cable operator who receives a programming service form a broadcaster and/or his authorised agencies and re-transmits the same or transmits his own programming service for simultaneous reception either by multiple subscribers directly or through one or more local cable operators(LCOs) and includes his authorised distribution agencies by whatever name called, as per Rule.2(ee), CTR,1994.
Rules. 3,4 and 5 of the CTR,1994 set out the procedure for registration of Cable TV Operators by the Registering Authority, who is the Head Post Master of a Head Post Office has been notified as the Registering Authority, vide S.O. 718 (E) dated 29.9.1994.
There is no second opinion on the Cable TV service being a Taxable Supply, as Sec.7, CGST Act,2017 defines the ‘supply’ as inclusive of any providing or agreement to provide a service for a consideration, in furtherance of business.
MODEL AND STANDARD INTERCONNECTION AGREEMENT BETWEEN MULTI SYSTEM OPERATOR AND LOCAL CABLE OPERATOR FOR OFFERING CABLE TV SERVICES THROUGH DIGITAL ADDRESSABLE SYSTEMS (DAS):
This Technical and Commercial Interconnection Agreement along with its Schedules and Annexures is executed on this _____ day of ______ 20_ by and between: __, having its office at ______, through its Authorised Signatory (hereinafter referred to as the “MSO” which expression shall unless repugnant to the context or meaning thereof be deemed to include its successors, assignees, legal heirs and executors) of the ONE PART.
———————- having its office at,————– through its Authorised Signatory (hereinafter referred to as the “LCO” which expression shall unless repugnant to the context or meaning thereof, be deemed to include its successors, assignees, legal heirs and executors) of the OTHER PART
The MSO and the LCO are hereinafter individually referred to as ‘Party’ and collectively referred to as “Parties”.
WHEREAS A. The MSO is a cable operator, who has been granted registration No. ____________ dated _______________ under the Cable Television Networks Rules, 1994, by the Ministry of Information and Broadcasting, for providing cable TV services through digital addressable systems in the areas of _______________________________notified by the Central Government under Section 4A of the Cable Television Networks (Regulation) Act, 1995.
B. The LCO is a Cable operator, who has been granted registration under the Cable Television Networks Rules, 1994, having postal registration No. __________dated __________, in the head post office ____________________, [ Name of the head post office] for providing Cable TV Services in ___________________________ [Mention the area].
C. TERRITORY: Territory, in the context of this Agreement is __________________ [mention the name of area(s)/ city(ies)/ district(s)/ state(s) for which this agreement is being signed.]
D. The Parties have mutually agreed to execute this Agreement between them to govern the roles, responsibilities, rights, obligations, technical and commercial arrangement in regard to the distribution of Television channels in the territory.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants contained herein, the Parties agree as follows: –
The words and expressions used in this Agreement shall have meanings as assigned to them in the Schedule to this Agreement. All other words and expressions used in this Interconnection Agreement, but not defined, and defined in the Act and rules and regulations made there under or the Cable Television Networks (Regulation) Act, 1995 (7 of 1995) shall have the meanings respectively assigned to them in those Acts or the rules or regulations, as the case may be.
2. TERM OF THE AGREEMENT ……………..
3 to 11. Terms of Agreement contd..
12. REVENUE SETTLEMENT BETWEEN THE LCO AND THE MSO AND RELATED RIGHTS AND OBLIGATIONS
12.1 The revenue settlement between the LCO and the MSO shall be in the following manner:-
(a) the charges collected from the subscription of channels of Basic Service Tier, free to air channel and bouquet of free to air channels shall be shared in the ratio of ________:_________________ between MSO and LCO respectively; and (b) the charges collected from the subscription of channels or bouquet of channels or channels and bouquet of channels other than those specified under clause (a) shall be shared in the ratio of ______:______ between MSO and LCO respectively.
14.1 Each party shall recognize the exclusive ownership of the property owned and installed by the other party and shall not have or claim any right, title or interest or lien of whatsoever nature.
14.2 Nothing contained herein shall constitute either Party as the agent or partner or the representative of the other for any purpose and neither Party shall have the right or authority to assume, create or incur any liability or obligation of any kind, express or implied, in the name of or on behalf of the other Party and the relationship between the MSO and the LCO is on “Principal to Principal” basis.
The above Model agreement is followed by many MSOs and LCOs. MSO receives Television signals from broadcasters and MSO re-distributes them to LCO, as per the bi-partite agreement between them. It is specifically agreed between them that the agreement is on a ‘Principal’ to ‘Principal’ basis and no intendment of agency between them can be imported into the document in the absence of specificity of such relation between the parties in the agreement.
GST on services to LCO: As per the agreement, the MSO re-distributes the signals received from broadcasters to LCO an MSO is liable to GST on the consideration received from LCO for such service. The rate of GST is 18%.
GST where MSO itself operates as LCO for an area: MSO sometimes operate as LCO in some areas covered by its licenced operational area. In such a case, as the MSO is otherwise covered by GST by virtue of its huge turnover, the services rendered by MSO as LCO are liable to GST. The collections from the subscribers are liable to GST@18%. In both the above scenarios, MSO can set-off eligible ITC as per the Act and Rules.
GST on other services by MSO: Where MSO renders other services like Set Top Box (STB) sale/ lease, or collects STB Activation Charges or Repair charges, all such services are liable to GST @18%.( Similarly, if such services are rendered by LCO, their liability to GST arises as per the facts of the case, as discussed below.)
As per the Model Agreement provided by TRAI, the MSO and LCO enter into an agreement to provide Cable TV services on a Principal to Principal basis. There is no Agency relationship between the MSO and the LCO as canvassed by many. Even if we look at the Legal Definitions of MSO and LCO, both are ‘Cable Operators’, and ‘cable Service’ is inclusive of both transmission (by MSO) and re-transmission (by LCO) of Television Signals. As such, the services of MSO and LCO need not necessarily be rendered in a Principal-Agent format only. They can be on a Principal to Principal basis, both factually and legally.
Those who advocate that all the LCOs are liable to GST as “Pure Agents” consider LCOs as agents of MSO and hence suggest compulsory registration irrespective of Turnover, in terms of Sec.24(vii), CGST Act,2017. Sec.24, CGST Act mandates compulsory registration under the Act , “persons who made taxable supply of goods and services or both “on behalf of” (emphasis supplied) other taxable persons whether as an agent or otherwise. Per contra, Sec.22, CGST Act,2017 states that “Every supplier shall be liable to be registered under this Act in the State or Union Territory, other than special category states, from where he makes a taxable supply of goods or services or both, if his aggregate turnover in a financial year exceeds twenty lakh rupees”.
As per the above referred provisions of the GST Law, it follows that unless a person is an agent of another and makes only intra-state supply, as in the case of LCO, the liability to get registered under the CGST Act arises only on his turnover crossing the threshold limit of Rs. 20 lakhs ( or any other applicable threshold limit figure).
Assuming that the MSOs operate on reasonably large area and their annual turnover exceeds the threshold limit, they are liable to GST on services rendered to LCOs and where they render direct services to subscribers. In the case of LCOs operating as per the Model agreement of TRAI with MSOs, the GST liability to such LCOs arises only when their turnover in a financial year crosses the threshold limit. Such LCOs who operate as agents of MSOs under a specific agreement of agency are liable to GST irrespective of the turnover of individual LCOs. In case, where the LCO is liable to GST, he is eligible to claim ITC on the service input from MSO and other eligible inputs.
Note: It is reported that M/s. Fastway Transmissions Pvt. Ltd., has approached the Authority for Advance Ruling (AAR), Haryana to decide ‘ whether local cable operators to whom signals of cable TV are provided by the applicant as MSO are agents of the applicant for the purpose of liability to GST of the applicants on services provided by the LCO to the end customers’, but the application was withdrawn subsequently by the applicant. The AAR had no occasion to consider the terms of the agreement between the MSO and LCO and passed order dt.16.3.2018 that the case was disposed of treating the application as withdrawn.
(The Author can be reached at ‘firstname.lastname@example.org’)