2011 (23) S.T.R. 400 (Tri. - Del.

)
IN THE CESTAT, PRINCIPAL BENCH, NEW DELHI
S/Shri Ashok Jindal, Member (J) and Mathew John, Member (T)
ESPN SOFTWARE (I) (P) LTD.
Versus
COMMISSIONER OF SERVICE TAX, DELHI
Stay Order No. ST/269/2011(PB), dated 4-5-2011 in Application No. ST/Stay/3089/2010 in Appeal No. ST/880/2010

Stay/Dispensation of pre-deposit - Business Auxiliary Services -

Broadcasting service - Distribution of TV Channels in India and Nepal - Assessee
retaining 35% of revenue as income earned and bear all costs incurred in
distribution - Demand under BAS - Assessee’s submission that they covered under
Broadcasting Services w.e.f. 16-6-2005 and hence not liable under any other
service before, not sufficient reason for non-liability under BAS as Boards
clarification explained that Service “specifically” covered under Broadcasting
service from 16-6-2005 - Signals delivered and delivery part of marketing and
hence other aspects be examined - Situation similar to theatre owner screening
movie - Contract for revenue sharing, no service provided and assessee working
for furtherance of own business - Strong prima facie case in favour of assessee
and limitation issue not to be gone into at present - Pre-deposit waived - Section
65(19), 65(16) of Finance Act, 1994 - Section 35F of Central Excise Act, 1944 as
applicable to Service tax vide Section 83 of Finance Act, 1994. [paras 16.4, 17, 18.3,
19]

Stay granted
CASES CITED
Aditya College of Competitive Examinations v. Commissioner — 2009 (16) S.T.R. 154 (Tribunal) — Referred.......................................................................
Cambay Organics Pvt. Ltd. v. Commissioner — 2007 (217) E.L.T. 586 (Tribunal) — Referred.................................................................................................
Dalhousie Institute v. Assistant Commissioner — 2006 (3) S.T.R. 311 (Cal.) = 2005 (180) E.L.T. 18 (Cal.) — Referred.........................................................
Euro RSCG Advertising Ltd. v. Commissioner — 2007 (7) S.T.R. 277 (Tribunal) — Referred...................................................................................................
Glaxo Smithkline Pharmaceuticals Ltd. v. Commissioner — 2006 (3) S.T.R. 711 (Tribunal) = 2005 (188) E.L.T. 171 (Tribunal) —
Noted...........................................................................................................................................................................................................................
Pratap Singh and Sons v. Commissioner — 2007 (5) S.T.R. 389 (Tribunal) — Referred..........................................................................................................
Precot Mills Ltd. v. Commissioner — 2006 (2) S.T.R. 495 (Tribunal) — Distinguished............................................................................................................
Rolls Royce Industrial Power (I) Ltd. v. Commissioner — 2006 (3) S.T.R. 292 (Tribunal) = 2004 (171) E.L.T. 189 (Tribunal) —
Distinguished..............................................................................................................................................................................................................
Saturday Club Ltd. v. Assistant Commissioner — 2006 (3) S.T.R. 305 (Cal.) = 2005 (180) E.L.T. 437 (Cal.) — Referred.......................................................
Vikram Ispat v. Commissioner — 2007 (8) S.T.R. 559 (Tribunal) — Referred............................................................................................................................
Zee Telefilms Ltd. v. Commissioner — 2006 (4) S.T.R. 349 (Tribunal) — Distinguished.........................................................................................................

DEPARTMENTAL CLARIFICATIONS CITED

C.B.E. & C. Circular No. B-1/6/2005-TRU, dated 27-2-2005.......................................................................................................................................................
C.B.E. & C. Circular No. 109/3/2009/STR, dated 23-2-2009.......................................................................................................................................................

REPRESENTED BY : Shri S. Ganesh, Advocate, for the Appellant.

Shri Sumit Kumar, SDR, for the Respondent.

[Order per : Mathew John, Member (T)]. - The appellant M/s. ESPN Software India (P) Ltd. have filed this
appeal against order in original No. 01/Commr./2009 dated 19-8-2009 issued by the learned Commissioner of Central
Excise and Service Tax, New Delhi. As per the order, the Commissioner has confirmed demand of serviced tax
amounting to Rs. 10,81,03,225/- under business auxiliary service against the appellant for the period 1-7-03 to 15-6-
05, under Section 68 of the Finance Act, 1994. Interest under Section 75 of the Act is also demanded. Further,
penalties are imposed under Sections 76, 77 and 78 of the said Act.
2. The Appellant is a wholly owned subsidiary company of M/s. ESPN (Mauritius) Ltd. The appellants had
entered into two agreements dated 1st April, 2002 with M/s. ESS Distribution (Mauritius) SNCET Compagnie
(hereinafter referred to as “ESS”). One of the agreements appointed the Appellant as a representative of ESS in India
to solicit television advertising on the Channels broadcast by ESS. It appears that appropriate service tax was paid
for services under this contract and the matter is not before this Tribunal in this proceeding. Another agreement is for
distribution of the ESPN Network Programming Service and the Star Sports Network Programming Service
(hereinafter referred to as “the channels”) in India and Nepal via Cable Television system, Satellite Master Antenna
Television System and Direct-to-Home via Satellite. The agreement also covers distribution to sub-distributors who
may make available to the customers. This is the impugned contract in this proceedings. The Appellant collects
subscription fees from the subscribers or from the sub-distributors for providing access to channels.
3. The main objective of the agreements is stated in the preamble of the agreement itself as the distribution
of the channels in India and Nepal. The Appellants submit that they were required to pay 65% of the total revenues,
after deduction of income-tax at source, collected by them from their customers, to M/s. ESS. The remaining 35% of
the revenue was retained by the Appellants, as income earned by them in the course of carrying out the activity of
distribution of channels. It is submitted by the Appellants that they do not receive any consideration from M/s. ESS
Other than their share of profit. Further, as per clause 4(b) of the agreement, the Appellant was required to bear all
costs incurred in the distribution including its own administrative infrastructure, maintenance of personnel and related
expenses, marketing and promotional cost etc.
4. The Revenue contests that the Appellant was providing to ESS, “business auxiliary service” within the
meaning of the expression assigned to it under Section 65(19) of Finance Act, 1994 particularly under item (ii) of the
definition which reads as :-
“(ii) Promotion or marketing of service provided by the client”
The demand is confirmed on the basis of such finding on the 35% of revenue collected by them from their customers
and which portion is retained by them.
5. The submissions made by the Appellant against the demands confirmed are basically four fold. Each of
the submissions are explained below.
6.1 The service provided by the Appellant is appropriately covered by the entry for “Broadcasting Services”
defined under Section 65(14) of the Finance Act, 1994 after its amendment as made by the Finance act, 2005. Their
contention is that prior to 16-6-05, when the entry for “broadcasting service” was amended by the Finance Act, 2005,
the service provided by them was neither covered by “broadcasting service” nor under “business auxiliary service” as
alleged in the show cause notice and found by the Commissioner in the impugned order in original. For the sake of
convenience, the definitions of broadcasting services prior to the amendment and after the amendment are
reproduced below :
Before Amendment of 2005
“Broadcasting’ has the meaning assigned to it in clause (c) of section 2 of the Prasar Bharati (Broadcasting
Corp. of India) Act, 1990 and also includes programme selection, scheduling of presentation of sound or visual
matter on a radio or a television channels that is intended for public listening or viewing, as the case may be; and in
the case of a broadcasting agency or organization, having its head office situated in any place outside India, includes
the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the
broadcasting charges on behalf of the said agency or organization, by its branch office or subsidiary or
representative in India or any agent appointed in India or by any person who acts on its behalf in any manner.”
After the Amendment of 2005
“Broadcasting’ has the meaning assigned to it in clause (c) of section 2 of the Prasar Bharati (Broadcasting
Corp. of India) Act, 1990 and also includes programme selection, scheduling of presentation of sound or visual
matter on a radio or a television channels that is intended for public listening or viewing, as the case may be; and in
the case of a broadcasting agency or origination, having its head office situated in any place outside India, includes
the activity of selling of time slots or obtaining sponsorships for broadcasting of any programme or collecting the
broadcasting charges or permitting the rights to receive any form of communication like sign, signal, writing, picture,
image and sounds of all kinds by transmission of electromagnetic waves through space or through cables, direct to
home signals or by any other means to cable operator including multi system operator or any other person on behalf
of the said agency or organization, by its branch office of subsidiary or. representative in India or any agent
appointed in India or by any person who acts on its behalf in any manner.”
(The underlined words included by the amendment of 2005)
6.2 The Appellant quotes Circular No. B-1/6/2005-TRU., dated 27-2-2005 issued by the Ministry of Finance
to support their arguments. The relevant part in the circular is reproduced below :-
“In the case of radio or TV broadcasting services, the services are subject to tax where the services are
effectively used and enjoyed. Multi System Operators (MSOs) are permitted to receive signals from the broadcasting
agencies on payment of prescribed amount. Cable operators transmit programmes to customers through cable
network after receiving signals from the MSOs. Prior to 16-6-2005, service tax was leviable on services provided by
cable operators to their customers and multi system operators to cable operators. In this year’s budget, the charges
recovered by the broadcasting agencies from the multi system operator for providing the signals have been
specifically made liable to service tax. This completes the service tax chain from the customer to the broadcaster.”
 6.3 The Appellant argues that once a service is brought into the scope of service tax, from a particular date
there is a presumption that prior to that date, no service tax was leviable on such service. They rely on the following
case laws in this matter :-
(a) Zee Telefilms v. CCE, 2006 (4) S.T.R. 349 (Tri. - Mumbai)
(b) Glaxo Smithkline Pharmaceuticals Ltd., 2005 (188) E.L.T. 171 (T) = 2006 (3) S.T.R. 711 (T)
7. The second submission of the Appellant is that since the agreement between the Appellant and M/s. ESS
is a Revenue sharing agreement, it cannot be considered that the Appellant was providing business auxiliary service
to M/s. ESS. They argue that whatever activity they were undertaking, was their own business activity and it was not
a service to ESS. They rely on Circular No. 109/03/2009/STR. dated 23-2-2009. The relevant extract of the circular is
reproduced below :-
“2.2 Another type of arrangement is where the contract between the theatre owner and the distributor is on
revenue sharing basis i.e. a fixed and pre-determined portion i.e. percentage of revenue earned from selling the
tickets goes to the theater owner and the balance goes to the distributor. In this case, the two contracting parties act
on principal to principal basis and one does not provide servile to another. Hence in such an arrangement the
activities are not covered under service tax.
-- -- -- --
2.5 The matter has been examined. By definition ‘Business Support Service’ is a generic service of
providing ‘support to the business or commerce of the service receiver’. In other words the principal activity is to be
undertaken by the client while assistance or support is provided by the taxable service provider. In the instant case
the theatre owner screens/exhibits a movie that has been provided by the distributor. Such an exhibition is not a
support or assistance activity but is an activity on its own accord. That being the case such an activity cannot fall
under ‘Business Support Service’.”
8. Their third submission is that the activities of a distributor cannot be considered as promotion or
marketing of services. They argue that ESS cannot be considered to be their “client” within the ordinary meaning of
the word. They also argue that the promotional and marketing activities done by them is for promoting their own
business of delivery of signals and not for any client. They rely on the following case laws in this regard.
(a) Euro RSCG Advertising Limited v. CCST - 2007 (7) S.T.R. 277 (T)
(b) Precot Mills Ltd. v. CCE, Tirupati - 2006 (2) S.T.R. 495
(c) Rolls Royce Power (I) Ltd. v. CCE - 2004 (171) E.L.T. 189 (T) = 2006 (3) S.T.R. 292 (T).
(d) Dalhousie Institute v. Asst. Commissioner Service Tax - 2005 (180) E.L.T. 18 = 2006 (3) S.T.R. 311
(Cal.).
(e) Saturday Club Ltd. v. Asst. Commissioner Service Tax - 2005 (180) E.L.T. 437 = 2006 (3) S.T.R. 305
(Cal.).
9. The Appellant further argues that the activity of a distributor cannot be considered as a service to the
principal. In this matter, they relied on the following case law, namely, -
Partap Singh & Sons v. CCE reported in 2007 (5) S.T.R. 389.
10. Their fourth argument is on the matter of limitation. The Appellant argues that this demand has been
issued consequent to an audit objection and in the matter of discrepancy in tax liability arising out of audit, extended
period of limitation cannot be invoked. They relied on the following case laws in this regard:-
(a) Aditya College of Competitive Examination v. CCE - 2009 (022) STT 0001 = 2009 (16) S.T.R. 154 (T)
(b) Vikram Ispat v. CCE - 2007 (8) S.T.R. 559
(c) Cambay Organics (P) Ltd. v. CCE - 2007 (217) E.L.T. 586
11. The learned DR on the other hand submits that the words “promotion” and “marketing” are not defined in
the Finance Act, 1994. So these terms are to be understood by its common meaning. He relies on the definition of
promotion in Wikipedia which is given as under :
“Promotion is one of the four elements of marketing mix (product, price, promotion, distribution).
It is the communication link between sellers and buyers for the purpose of influencing, informing or
persuading a potential buyer’s purchasing decision.
The specification of the elements creates a promotional mix or promotional plant These elements are
personal selling, advertising, sales promotion, direct marketing and publicity. A promotional mix specifies how much
attention to pay to each of the give sub-categories and how much money to budget of each. A promotional plan can
have a wide range of objective, including sales increased, new product acceptance, creation of broad equity,
positioning, competitive realizations or creation of a corporate image Fundamentally, however, there are three basic
objectives of promotion. These are (1) to present information to consumers as well as others (2) to increase demand
and (3) to differentiate a product”.
12. He further submits that for 4(a) and 4(b) of contract dated 1-4-2003 clearly says the nature of the
activities and the remuneration paid for the activity. These clauses are reproduced below :-
“4(a) Distributor shall pay 60% of its total gross revenues to ESS Distribution (after deduction of income
tax at source under the Income-tax Act, 1961) as consideration for granting of right to distribute the Star Sports
 Service in the area. For the purpose, gross revenues shall mean the amount due to the distributor from distributing
the Stat Sports Service in the area as recued by any taxes that are withheld in the area.
If pursuant to the applicable tax law, a withholding tax is imposed on Distributor’s payments to ESS
Distribution, distributor may deduct from such payments the appropriate amount of withholding taxes so imposed, on
the express condition that :-
(A) Contemporaneously with each payment under the Agreement, distributor furnishes ESS distribution with all
withholding tax receipts or other government certifications evidencing all taxes withheld from each payment;
(B) Distributor cooperates with ESS distribution and furnishes ESS distribution with any other information or
documentation reasonably requested by ESS distribution from time to time so as to enable ESS distribution to
adequately support any foreign tax credit claimed by ESS Distribution or any related entity that is attributable
to the taxes withheld by Distributor.
(C) In addition to any and all legal and equitable rights and remedies available to ESS distribution distributor
indemnifies ESS distribution for any disallowed foreign tax credits, including any interest and penalties
associated with such disallowed foreign tax credits, attributable to distributor’s failure to time provide the
documentation required herein and otherwise comply with the provisions of this sub-section;
and
(D) Distributor’s obligations under the provisions of this sub-section survive termination, cancellation or expiration
of this Agreement
4(b) Distributor shall undertake all steps necessary directly or through sub-distributors, in connection with
delivery of the Stat Sport Service and distribution of the Star Sports Service within the area including organizing its
own administration, infrastructure, maintenance, personal and related costs. Including within limitation, marketing
and promotional costs. All costs and expenses incurred in this connection shall be borne by distributor. Distributor
shall also expend such reasonable amounts as are agreed between the parties on promotion of the Star Sports
Service (including vents comprised therein) in the area.”
13. He contests that the terms of contract shows no objective other than promotion, marketing. Distribution
is only part of marketing. Therefore, he argues that the activities undertaken by the Appellants clearly amount to
services to ESS and they are being paid by way of 35% of the total revenue which they collect from the customers on
behalf of the ESS. He argues that the fact that the service was specifically covered by the amendments in
“Broadcasting Services” w.e.f. 16-6-2005 cannot mean that the services as detailed in their contract was not covered
by any other entry for the earlier period. He also argues that payment of service rendered can be in different ways
and retaining a part of the amount collected from the ultimate consumer is a proper payment. It is not like a case
where the goods are bought by a distributor and then sold to consumer.
14. He also argues that the party was not willing to produce copies of all the contracts executed by them but
only when considerable pressure was brought upon them to do so they produced the documents. He argues that this
fact clearly shows that there was a lack of bona fide. He also points out that for the initial period of one year, there
was no revenue sharing agreement and the revenue sharing agreement was executed later. He relies on their letters
dated 2-2-95 and 7-3-95 to prove that there was active suppression.
15. We have considered the arguments of both the sides.
16.1 The argument raised that the impugned service rendered by the Appellant is covered under the
broadcasting services from 16-6-2005 is not a sufficient reason to conclude that their activity was not covered under
business auxiliary services prior to that date. The Board’s clarification quoted by the Appellant explains that
broadcasting services would be “specifically” covered under the broadcasting services from 16-6-2005. If the intention
of Board was to clarify that the services was not subjected to tax earlier there is no reason for use of such expression.
At any rate, the scope of the entry has to be interpreted with reference to the words used in the definition of business
auxiliary services and the terms of the relevant contract and not entirely by reading in isolation a clarification issued
by the Board.
16.2 Marketing is defined by the American Marketing Association (AMA) as
“the activity, set of institutions, and processes for creating, communicating, delivering, and exchanging
offerings that have value for customers, clients, partners, and society at large. Marketing is a product or service
selling related overall activities. The term developed from an original meaning which referred literally to going to a
market to buy or sell goods or services. Seen from a systems point of view, sales process engineering marketing is
“a set of processes that are interconnected and interdependent with other functions whose methods can be
improved using a variety of relatively new approaches.”*
*Extracted from Wikipedia
16.3 There cannot be a dispute that the Appellants are in the business of delivery of the signals to the
consumers. Delivery is part of marketing as may be seen from the above definition.
16.4 The case of Zee Telefilms quoted by the Appellant as in para 6.3 above are not found to be a
conclusive ruling that if a particular service is covered under one entry from a particular date it could not have been
covered by any other entry for the previous period. The finding of that case is mainly a result of what was the wording
of the entry for the prior period, what was the nature of the activity and how similar services were treated during the
relevant period. In this case the service involved was sale of space or time in electronic media for display of
advertisement. From the very stage of introduction of the service of Advertising Agency in the tax net, the legal
position maintained was that the cost of space or time for carrying advertisements in print or electronic media was not
covered by the entry for service of Advertising Agency. In 2001 legislation was made to tax the cost of time slots for
advertising in electronic media under the services of Broadcasting Agency. In the circumstance the Tribunal ruled that
the impugned service was not covered under the tax net prior to 2001. This ruling can not be extrapolated to mean
that if a service is specifically covered under one entry from a specified date that service could not have been
covered by any other entry before the specified date. We are not able to agree with this argument without examining
the other aspects relevant as pointed out above.
16.5 However the opinion canvassed by the Appellant is seen to be expressed in para 3(e) of the case of
Glaxo Smithkline Pharmaceuticals Ltd.
17. The next argument is about revenue sharing. The Board’s circular dt. 23-2-2009, quoted was in the
matter of revenue sharing agreement relating to a situation wherein a theatre owner and a film producer enters into a
contract for exhibiting a film on the basis of a revenue sharing agreement. It is seen that the situation where this
Appellant delivers electronic signals owned by ESS to the Customers, is very similar to that of a theatre owner who
screens a movie before the public. We have gone through each of the clauses of the impugned contract to see
whether there is any clause which gives a character to this contract distinct from the relationship between the theatre
owner and the movie distributor in the matter relating to coverage under the entry for “business auxiliary service”.
While doing this we have taken note of the fact that the clarification given by the Board is with reference to “Business
Support Service” and not “Business Auxiliary Service”. We are not able to find any difference of consequence. The ld
DR is relying on clause 4(a) and 4(b) of the contract reproduced above. Clause 4(a) only gives the details of revenue
share arrangement and does not have any distinguishing feature. The ld DR has been quoting clause (b) of the
contract and especially the words to the effect that the Appellant shall incur expenses “including organizing its own
administration, infrastructure, maintenance, personal and related costs, including without limitation, marketing and
promotional costs”. This clause has been interpreted by the ld D.R., during his arguments, to mean that the Appellant
can spend money without limit on marketing and promotional costs. But actually the words “without limitation” is
meant as a rider to the expression “including” to make it clear that the meaning is not restricted to marketing and
promotional cost. As seen from the contract the Appellant does not get anything more than 35% of the share of the
revenues collected and whatever promotion the Appellant wants to do has to be done from his own share. There is
no separate re-imbursement of unlimited expenditure as contended by the ld DR. The Appellant has to meet all the
expenditure for setting up the infrastructure, pay for the salaries of their employees and also earn their profit, if any,
also from this 35%. The situation is very similar to the situation wherein the Board clarified in its circular dated 23-2-
2009 that neither the theatre owner nor the film distributor is doing a service to each other and each is working for
furtherance of its own business. It is to be noticed that a theatre owner also may advertise for promoting the film
being displayed in his theatre. But this promotional activity is not on behalf oh the film distributor. Thus our finding on
this second argument is in favour of the Appellant.
18.1 The next submission is that activities of a distributor cannot be considered as marketing of the product
of ESS and does not involve any service to ESS. The case of Precot Mills dealt with the situation where one office of
a company was raising a bill on another office of the same company for the purpose of internal accounting of the two
different profit centres within the sapne company. Here the appellants M/s. ESS are two separate distinct companies.
18.2 The case of Rolls Royce dealt with a situation where a company had taken upon itself the responsibly
to run a power plant of another company. It was decided in that case that the engineers of the former company was
not providing any consultancy services to the latter company.
18.3 In the case before us, once it is recognized that the Appellant is in his business, which is of delivery of
signals, and is promoting his own business by his promotional activities these rulings become applicable.
18.4 Since we find that the Appellants have made out a strong case in their favour it is not necessary to go
into the merits of the arguments regarding limitation at this stage.
19. Having regard to the above facts, we are prima facie of the view that the Appellant has made out a
strong case in their favour to be treated on par with other players like theatre owners who deliver visual media to the
consumers on the basis of a revenue share agreement. So we consider it proper to waive the requirement of pre-
deposit of the demands made by the impugned order for admission of Appeal. Appeals may be admitted accordingly.
20. Further we stay collection of demands made by the impugned order-in-original during the pendency of
the Appeal.
(pronounced in the open Court on 4-5-2011)
_______