The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the service tax demand on ‘development and supply of content service’ as ‘business auxiliary service’.
M/s. Universal Power Systems Private Limited, the assessee challenged the impugned Order-in-Original No. 16/2013 passed by the Commissioner of Service Tax, Chennai and the period of dispute is from May 2006 to March 2011.
During the audit of the accounts of the appellant by the Internal Audit Group, it appeared that they had noticed the agreements entered by the appellant with music directors/music companies’ association for procuring ringtones and paid royalty charges at agreed rates per download.
It also appeared that there were separate agreements between the appellant and various mobile telecommunication operators to provide ringtones, pictures, etc., that could be downloaded by the customers from the mobile platform developed, installed and maintained by the appellant, for which the appellant was entitled to revenue sharing at agreed rates per download by those mobile operators.
A Show Cause Notice was issued proposing to demand the differential Service Tax of Rs.1,13,50,388/- for the period from May 2006 to March 2011 along with applicable interest and penalties taking recourse to the valuation as per Section 67 of the Finance Act, 1994 read with Rule 5 of the Rules ibid.
The appellant argued that the re-classification of their activity under business auxiliary service or business support service’ before the introduction of ‘development and supply of content service’ was not proper.
It was further stated that the copyright service was a secondary service obtained by them for use by the customers of the telecommunication operators, to whom the development and supply of content service were provided, for which reason they were not liable to Service Tax.
It was observed that valuation of taxable services for charging service tax, the authorities are to find what is the gross amount charged for providing ‘such’ taxable services and any other amount which is calculated not for providing such taxable service cannot a part of that valuation as that amount is not calculated for providing such ‘taxable service’.
It was viewed that Supreme Court in the case of Union of India v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. had held that” in the valuation of taxable service, the value of taxable service shall be the gross amount charged by the service provider ‘for such service’ and the valuation of tax service cannot be anything more or less than the consideration paid as quid pro qua for rendering such a service.”
While allowing the appeal, the two-member tribunal bench comprising Mr P Dinesha, (Judicial) and Mr Vasa Seshagiri Rao, (Technical) held that “neither on limitation nor on merit could the demand impugned be sustained and hence, the impugned order is set aside.”
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