By TIOL News Service

MUMBAI, JAN 03, 2019: BOTH, the assessee and the Revenue, are in appeal against the order passed by the CST, Mumbai confirming a total Service Tax demand of more than Rs.131crores(by extending benefit of cum-tax, which benefit is challenged by Revenue) covered by four SCNs and imposing various penalties and interest.

The appellant-asesseeeentered into media rights license agreement as licensor with M/s MSM Satellite, Singapore (MSM or Licensee) & M/s World Sports Group (India) Pvt. Limited (WSG or Licensee ) licensing them the media rights for telecast of IPL matches. They also entered in Memorandum of Understanding dated 16.04.2008 with M/s Live Current Media Inc (LCM), Canada to design, build, operate, maintain & promote the IPL website as the sole IPL website sanctioned by appellant. They also received certain amounts from M/s Pioneer Digisys under the head of "Media Right Incomes".

Revenue was of the view that the said services are liable to tax under the category of "Franchise Services".

Accordingly, demand notices were issued and confirmed as mentioned above. The period involved is 2007-08 to 2011-12.

Aggrieved, the subject appeals have been filed. The appellant has not challenged the part of the order confirming the demand in respect of services provided by them to Pioneer Digisys Pvt. Ltd.

The appellant-assessee inter alia submitted that the Finance Act, 2010 introduced a new category 'Commercial use or exploitation of any event' effective from 01.07.2010 and as an abundant caution, the appellant started paying service tax under this new category on 'media rights income' from service recipients located inside India and in respect of recipients located outside India they claimed the benefit of export of service. A host of case laws were also cited to fortify their stand that the demand is not sustainable. Insofar as the extension of benefit of cum-tax is concerned, the appellant relies upon the decision in Advantage Media Consultant - 2008-TIOL-548-CESTAT-KOL wherein such benefit was given.

The AR while supporting the order of the adjudicating authority confirming the demand also averred that the simple act of signing a contract with an entity located abroad would not render the service as exports.

After considering the elaborate submissions made by both sides, the Bench in a verbose order (running into almost hundred pages)liberally extracted from the decisions in Mahyco Monsanto Biotech India Pvt. Ltd. - 2016-TIOL-1766-HC-MUM-VAT], Delhi Public School Society - 2013-TIOL-1282-CESTAT-DEL] and the apex court decision dated 22.08.2017 in UOI vs. BCCI and MoI&B, GOI &Ors. vs. Cricket Association of Bengal &Ors. [1995 2 SCC 161] and observed thus -

On Merits:

++ It is quite evident that appellants are not only responsible for organizing the cricket matches but also to educate, promote, popularize, inform and entertain the viewers. For the said purpose, appellants allow entry into the stadium for viewing the match and also ensure the telecast of the match for the purpose of those who cannot visit the stadium for viewing the said matches. For taking the live telecast of the matches to the home of viewers, Appellant grant media rights to selected party on exclusive basis. The party granted such media rights represents the BCCI, and is designated in terms of the agreement as "Official Broadcaster".

Noting that there are "striking similarities" in the 'terms' of the agreement as considered by the tribunal in case of Delhi Public School Society (supra), the Member (T) writing for the Bench reproduced the findings of the adjudicating authority, paragraphs 15, 16 & 17 and concluded that the services as provided by the Appellants to M/s MSM, Singapore and M/s WSG are squarely covered by the definition of 'franchise services' as defined by the Section 65(47), 65(48) & 65 (105) (zze) of the Finance Act, 1994.

It is further observed -

"6.9…, the phrase representational right would not mean, extinguishing the identity of the franchisee, but is only to grant representational right in respect of the transaction in relation to the services that is being provided by the franchiser. In terms of para 2.14 of the agreement, appellant have authorized the licensee to refer themselves as "Official Broadcasters of the IPL". Thus the activity of the telecast or broadcast of the IPL matches which as noted by the Apex Court, in decisions referred earlier, has been assigned for a consideration to the licensee, and they have been permitted in terms of the agreement as "official broadcasters of the IPL". Thus it is quite evident that the appellants have granted representational rights to the licensee, in relation to the telecast/broadcast of the IPL matches. "

The decisions relied upon by the appellant were distinguished by placing reliance on the decision in Godfrey Phillips India Ltd - 2017-TIOL-4488-CESTAT-MUM and by following the same, the Bench concluded thus -

"6.12 Since we are holding that the services provided by the appellant in terms of media rights agreement to the licensee to fall within the category of Franchise Services, we do not examine the claim for classification under the category of "Commercial Use or Exploitation of Event." In our view, the category of "Commercial Use or Exploitation of Event" refers to the services being in relation to the Commercial Use or Exploitation of the Event for one time and is not in relation to grant of representational rights to perform a particular function over period of time."

Insofar as the contention of the appellant that the services provided would qualify as export of service, the CESTAT adverted to the provisions of Export of Services Rules, 2005 and inter alia observed -

"7.3 …, it is undisputedly admitted that appellants have provided the program feed to the M/s MSM Singapore at the venue of match which is in India and not outside. The programme feed, as provided by the appellant, is encrypted and then up linked by the said M/s MSM/WSG to the designated transponder in designated satellite. The satellite beams back the uplinked signal, for transmission through cable or network of TV Channels to the individual viewers. In the entire process at no stage the feed, provided by the appellant is routed through any place outside India. Thus service provided by the appellants are provided in India and used in India. The service provided by the appellant is in form of the feed for the live broadcast of match, and not for transfer of media right. The recipient of service carries the said feed to the individual viewers. Transfer of media right is only to exclusively authorize the M/s MSM Singapore or M/s WSG to broadcast the said feed as Official Broadcaster for the IPL. Thus we are not convinced by the argument advanced by the appellant that in paraC.8 that location of the person to whom the media rights have been transferred will determine the place where the service has been provided, and since in the present case the person to whom the media rights have been transferred is located in Singapore, the service should be treated as export of service."

The reliance placed by the appellant on the decision in Balaji Telefilms Ltd. - 2016-TIOL-685-CESTAT-MUM was distinguished on the ground that in the said case the programmes were exported to Hong Kong and uplinked from there for beaming back to viewers in India.

Accordingly in the matter of claim of export of services, the Bench held -

"7.5 Since prior to amendments made in Rule 3, with effect from 27.02.2010, the requirement of "providing the services from India for use outside India was mandatory and is not satisfied in the present case, we hold that benefit of Export of Services Rules, 2005 will not be available to the appellants."

7.7 In the present case the grant of media rights is not the service but the delivery of the feed to the person to whom the media rights have been granted for telecast is the service provided. Since this service feed has been provided by the appellant to the person holding media rights in India the service has been provided in India and all the activities in relation to the consumption of the said feed for broadcast of the match have been performed in India, the claim for the appellants in respect of the said feed as export of Service cannot be agreed to. The same view has been expressed by Bombay High Court in case of Tech Mahindra - 2014-TIOL-1608-HC-MUM-CX…"

7.8 With effect from 27.02.2010, when the condition relating to receipt place of provision and use have been omitted, the situation changes. Since the service provided falls within category (iii) service the location of the service recipient, determines whether the service can be treated as export of service, subject to the requirement that the consideration for the said services are received in convertible foreign exchange. In the show cause notice for the period post 27.02.2010, the benefit of export of service has been allowed to the extent of payment received in convertible foreign exchange from M/s MSM Singapore. It is uncontroverted fact that entire consideration in respect of media rights agreement was not received in convertible foreign exchange…

7.9 From the para 7 of show cause notice dated 13.03.2013 it is quite evident in respect of the payments received from M/s MSM Singapore demand has been made in respect of those amounts which are not in convertible foreign exchange and cannot be treated as export of service…

7.10 Thus in view of the discussions as above and the decisions referred we are of the view that benefit under Export of Services Rules, 2005 could not have been extended to the appellant, for the period prior to 27.02.2010. For the period after 27.02.2010, the said benefit has been extended to the appellant, to the extent they have shown that the payment against the said services was received in convertible foreign exchange."

Limitation:

Tribunal's observations -

"8.3 It is fact that appellants had not been declaring the income from media right agreements in the ST-3 return filed by them. Further appellants have not in any case brought out any reason for entertaining the bonafide belief to effect that the services rendered by them will not be classifiable under the category of "franchise service"."

The extended period of limitation is held to be rightly invoked.

Penalty & Interest:

The penalties imposed u/ss 76, 77 and 78 were accordingly upheld along with interest.

CENVAT credit : The benefit of CENVAT credit on input services was held admissible.

Cum-tax benefit: Held as rightly allowed in view of the Tribunal decision in Advantage Media Consultant - 2008-TIOL-548-CESTAT-KOL maintained by the apex court. Revenue appeal, therefore, dismissed.

Conclusion: Except for allowing the CENVAT Credit in respect of input services used for providing the output services, the appeals were dismissed.

(See 2019-TIOL-49-CESTAT-MUM)