By TIOL News Service

NEW DELHI, JUNE 03, 2014: THE appellant have entered into agreements with various Telecom service Providers, such as, Bharti Airtel Ltd. etc. for supplying the content including user generated contents which enable the mobile phone subscribers receive advertisements, ring tones, general information like cricket scores etc. by the way of SMS. The Department was of the view that this service provided by the appellant to various telecom service providers during the period from 01/5/06 to 31/05/07 is "business support service". The demand raised is of Rs.53,02,577/-.

The appellant has also entered into a joint venture with a foreign partner M/s Technology Aided Systems, Kuwait (TASK) for smooth implementation of ACL Wireless Instant Messenger (WIM) application on M/s Mobile Telecommunication Company, Kuwait's (MTC's) network in its territory. The revenue earned by the joint-venture is in the ratio of 54.45%: 45.55%. The revenue share of TASK is remitted by the appellant (ACL) to TASK. The Department has alleged that the appellant has received Business Auxiliary Service of marketing of their services from TASK and accordingly has sought to levy service tax on the TASK'S revenue share, as the same had been shown in the books of accounts of the appellant company (ACL) as commission. The service tax demand of Rs.50,53,645/- for the period from 01/10/03 to 31/03/07 is on this basis.

Agreements have also been entered into with some parties abroad for providing virtual space to them on their servers to enable the Appellant to upload documents or personal or business information about themselves and their products and services, from where the same can be accessed by their customers by internet. For these services, they have made payment to those parties in convertible foreign exchange. The department is of the view that the services provided by the foreign parties to the appellant is taxable under "business support service". A demand of Rs.35,84,039/- for the period from 01/05/06 to 31/03/08 is on this basis.

The appellant company during period from 09/07/04 to 17/04/06 are also alleged to have received the taxable service of ‘maintenance or repair' from foreign service providers and according to the department, since this is import of service, the same would be taxable under Rule 2 (1) (d) of Service Tax Rules, 1994. On this basis service tax of Rs.36,949/- for the period from 09/07/04 to 17/04/06 is sought to be recovered from them. Similarly the appellant during the period from 01/01/05 to 31/03/06 are alleged to have received ‘Management Consultancy Service' from offshore service providers and on this service tax is demanded of Rs.67,922/-.

The Commissioner of Service Tax, Delhi confirmed the total service tax demand of Rs.1.40 crores against the appellant along with penalties and interest.

The appellant is before the CESTAT seeking a Stay in the matter.

It is submitted -

+ Maintenance of software service & Management Consultancy Service received from offshore service providers is chargeable only w.e.f 18/04/2006 since the relevant Section 66A has been introduced w.e.f. 18/04/06 - case law Indian National Shipowners Association vs. Union of India 2008-TIOL-633-HC-MUM-ST relied upon - demand involved is Rs.36,949/- & Rs.67,922/-

+ Service of supply of software content to telecom companies became taxable w.e.f. 01/06/07 by insertion of clause (zzzzb) in Section 65 (105) and, hence, during period prior to 01/06/07, the same service cannot be taxed as Business support service under Section 65 (105) (zzzq) - service tax demand involved is of Rs.53,02,577/-

+ Service tax demand of Rs. 50,53,645/- = what has been given by the appellant to TASK is the share of revenue of TASK and not commission for any service received from them, that in view of this, the service tax demand under Business auxiliary service on the amount paid to TASK is without any basis.

+ Service of Web hosting received from certain foreign service providers is Information Technology Service covered by Section 65 (105) (zzzze) which became taxable only w.e.f. 16/05/08 and, hence, during the period of dispute i.e. during period from 01/05/06 to 31/03/08, the same was not taxable and it is totally wrong to charge service tax by treating the same as Business support service. [demand involved is Rs.35,84,039/-]

The Revenue representative reiterated the findings of the adjudicating authority.

The Bench observed -

+ Demands in respect of Maintenance and repair/Management Consultancy service received by appellant from foreign service providers during the period prior to 18.04.2006 prima facie not sustainable in view of Bombay HC judgment in Indian National Shipowners Association [ST demands of Rs.36,949/- & Rs.67,922/- respectively]

+ Supply of software content for use in telecommunication service - prima facie this service became taxable by inserting clause (zzzzb) in Section 65 (105) of the Finance Act, 1994 w.e.f. 01/06/07 and, therefore, for the period prior to 01/06/07 no service tax could be charged by treating this service as business support service - well settled law that when a new entry regarding taxation of a service is introduced in the Act from a particular date, it has to be presumed that during the period prior to introduction of the new entry, that service was not taxable. [ST demand of Rs.53,02,577/-]

+ Prima facie there is nothing in the joint venture from which it can be inferred that TASK, Kuwait were providing the service of marketing or promotion of the services of the appellant and, as such, this joint venture agreement cannot be said to be an agreement between the service provider and the service recipient - prima facie demand not sustainable. [ST demand of Rs.50,53,645/-]

+ Web hosting service received by appellant from foreign service provider -appellant's plea is that this service is ‘Information technology service' covered by Section 65 (105) (zzzze) which came into force w.e.f. 16/05/08 and, hence, the same was not taxable during the period of dispute is not prima facie acceptable as this clause covers various services in relation to information technology software including development of information technology software, study, analysis, design and programming of information technology software, acquiring the right to use the information technology software supplied electronically etc. - in the present case this service is used by appellant for marketing of his products and, therefore, in our prima facie view, the same has to be treated as support service of business or commerce. Therefore, in respect of the service tax demand on this service, the appellant do not appear to have prima facie case in their favour. [ST demand of Rs.35,84,039/-]

Noting that out of the total Service Tax demand of Rs.1.40 crores, the service tax demand of about Rs.35,84,039/- appeared to be sustainable, the Bench directed the applicant to make a pre-deposit of Rs.30 lakhs and report compliance.

The challenge to the demand on the ground of time bar being a mixed question of law and fact would be considered at the time of final hearing, the Bench added.

(See 2014-TIOL-924-CESTAT-DEL)