The Kolkata bench of the Customs Excise and Service Tax Appellate Tribunal ( CESTAT ) has deleted the penalty for the short payment of service tax and determined that no service tax is applicable to information technology and software services.
The appellant was registered as a service provider under the category of ‘broadcasting services’ and in the course of their business, the appellant had entered into a Distribution and Advertisement Time Sales Agreement with M/s. MSM Asia. Under the said agreement, the appellant had to provide services in the nature of granting distribution rights to MSM Asia with respect to certain channels. As per clause 4(1)(a) of the agreement, it is agreed between the parties that M/s. MSM Asia would be entitled to recover a certain amount from the appellant if the cost of distribution of channels incurred in a specified territory is higher than the gross revenue collected from such distribution.
The cost of distribution of the channel being higher than the gross revenue earned, the appellant reimbursed a certain amount to M/s. MSM Asia as per their agreement. The said amount is in dispute on which a Show Cause Notice was issued to the appellant demanding service tax under the category of ‘Information Technology Software Services’. A short demand of Rs. 2,297/- plus interest was also confirmed against the appellant on the basis of an audit conducted which found that the appellant had made short-payment.
The matter was adjudicated. The adjudicating authority confirmed the demand against the appellant under the category of ‘Information Technology Software Services’ of Rs 11,06,207/- along with interest; penalty was imposed. Demand on account of the short payment of service tax was also confirmed, along with interest, and penalty was also imposed.
Mr. Prasad Paranjape representing the appellant, submitted that in this case, the Show Cause Notice was issued to them to demand service tax under the category of ‘Information Technology Software Services’ whereas the Commissioner (Appeals) has confirmed the demand of service tax against them under clause (e) of Section 66E of the Finance Act, 1994 under reverse charge mechanism for declared service, therefore the Commissioner (Appeals) has gone beyond the scope of the Show Cause Notice and thus, the impugned order is not sustainable on this ground alone as held by the Apex Court in the case of Reckitt & Colman of India Ltd. V. Collector of Central Excise and again in the case of Caprihans India Ltd. v. Commissioner of Central Excise
He submitted that the amount has been reimbursed by the appellant for providing the channels, to be distributed by their distributor located outside India, that reimbursement of the said amount does not fall under the category of ‘Information Technology Software Services’ as there was no software involved in the said service.
The coram of Ashok Jindal ( Judicial member) and K. Anpazhakan ( Technical member) found that in this case initially the Show Cause Notice was issued to the appellant demanding service tax under the category of ‘Information Technology Software Service’ and matter came to be adjudicated by the adjudicating authority demanding the service tax under the category Information Technology Software Services
Further held that impugned demand confirmed by the Commissioner (Appeals) is beyond the Show Cause Notice. Therefore, the same was not sustainable in the eyes of law and accordingly, the said demand was set aside.
CESTAT held that there was no mala fide intention on the part of the appellant not to pay service tax. Therefore, further held that no penalty was impossible for the short payment of service tax by the appellant.
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