In Service Tax Appeal No. 42183 of 2013-CESTAT- CESTAT (Chennai) rules revenue's demand unsustainable, citing contradiction with Supreme Court's ruling in Union of India v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd.
Members P. Dinesha (Judicial) & Vasa Seshagiri Rao (Technical) [26-04-2023]

Read Order: Universal Power Systems Private Limited v. The Commissioner of Service Tax

LE Correspondent

New3 Delhi, May 8, 2023: The Chennai bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has ruled that the Revenue could not have proposed and confirmed the demand under Section 67 of the Finance Act, 1994 read with Rule 5 of the Service Tax (Determination of Value) Rules, 2006, since it is by virtue of the mode of computation provided that the differential tax was arrived at and demanded and this runs counter to the ratio decidendi of the Hon'ble Supreme Court in the case of Union of India v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. [LQ/SC/2018/306], and therefore, the demand made by the Revenue was not sustainable.

The Revenue had argued that the appellant was responsible for creating and supplying ringtones from mobile platforms and servers, and therefore, the royalty charges paid to music directors/companies should be considered as part of taxable services. The Revenue contended that service tax should have been paid on the gross amount, including the payment of royalty charges and further the appellant did not satisfy the conditions specified in Rule 5(2) of the Service Tax (Determination of Value) Rules, 2006, read with Explanation 1 to the said Rule. Consequently, the services provided by the appellant were considered by the Revenue to fall under the category of 'business support service' from 01.05.2006 to 31.05.2007, and under 'development and supply of content service' from 01.06.2007 onwards.

The Tribunal opined that effect of the decision of the Hon’ble Apex Court in Union of India v. M/s. Intercontinental Consultants and Technocrats Pvt. Ltd. [LQ/SC/2018/306] was that the ruling of the Delhi High Court in the case of M/s. Intercontinental Consultants & Technocrats Pvt. Ltd. v. Union of India [LQ/DelHC/2012/5597], had been affirmed, wherein the High Court had struck down the provisions of Rule 5 of the Service Tax (Determination of Value) Rules, 2006, as going beyond the charging provisions.