CESTAT Allahabad Grants Cable Services Provider Partial Relief Over Bona Fide Belief That Service Tax Was Not Payable

The Allahabad bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has partly allowed an appeal filed by a cable services provider after finding that it had acted under a bona fide belief that service tax was not applicable in its case.

The tribunal set aside the service tax demand and held that the extended limitation period could not be invoked in the circumstances.

The single-member tribunal of Judicial Member P. K. Choudhary observed,

"The Appellant has acted throughout in a bona fide manner and was under a bona fide belief that service tax was not applicable in the present case. Hence, the present issue relates to interpretation of complex legal provisions rather than intent to evade tax. Thus, the invocation of extended limitation period in the impugned order is unwarranted."

The cable services provider was engaged in providing cable operator services, works contract services, construction and maintenance services, and erection and installation services.

The tax department issued a show cause notice covering the period from 2013-14 to June 2017, alleging that the assessee had wrongly claimed the benefit of an exemption for cable operator services and failed to discharge service tax on works contract services. The adjudicating authority confirmed a service tax demand of over ₹10 lakh, along with interest and penalties. That order was later upheld by the appellate authority.

The tribunal observed that the extended limitation period could be invoked only where tax had not been paid because of fraud, wilful misstatement or suppression of facts. It found that the tax department had failed to prima facie establish any such conduct on the part of the assessee.

"Section 73 of the Act provides for an extended period of limitation to issue SCN in case of tax not paid/short paid by reason of fraud, willful misstatement or suppression of facts. The burden of prima facie proving such fraud or suppression is on the Respondent which has not been discharged in the present case", the tribunal held.

Examining the nature of the activities undertaken, the tribunal observed that the assessee functioned as an intermediary in the signal distribution chain rather than as a local cable TV operator transmitting signals directly to customers. It also noted that the assessee was not receiving satellite signals as a Multi-System Operator.

The tribunal observed, "The Appellant's role is as an intermediatory and apparently there could be a bona fide belief on their part regarding the tax liability under the said category."

It further observed that the Finance Act, 1994 adopts the definitions of "cable operator" and "cable service" from the Cable Television Network (Regulation) Act, 1995. Considering the scope of those definitions, the tribunal found that there was a possibility of a bona fide belief that no service tax liability arose.

The tribunal observed, "The Finance Act, 1994 borrows the definitions of Cable operator' and 'Cable service' from Cable Television Network (Regulation) Act, 1995. Considering scope of definition under Section 2(aa) of the said Act, there is a possibility of bona fide belief for non-tax liability."

The tribunal also noted that the tax department had failed to establish fraud, wilful misstatement or suppression of facts with an intent to evade tax. It therefore held that the demand for the period from 2013-14 to 2015-16 was barred by limitation and set it aside.

The demand for the period from April 1, 2016 to June 30, 2017 was sustained, while all penalties imposed on the assessee were set aside.

For Respondent: Prashant Kumar & Shri Abhishek Mukherjee, Authorized Representative