Downlinking of signals from the satellite is not covered by definition of broadcasting and not leviable to service tax
CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
The Relevant Text of the Order as follows :
63. Learned Authorized Representative of the Department has laid much emphasis on the Revised Carrier Plan to contend that since the rate of transmission of data signal has been specified as 4095.8 Kilobytes per second and the minimum downlink signal strength as 15.6 decibel watts, it means that the speed and strength of transmission of data/signal are two crucial aspects of the Agreement in addition to frequency bandwidth.
64. As noticed above, what is important to note is that the fixed charges are purely based on assignment of space segment capacity of a transponder and are not linked to speed and strength of transmission of data/signal. Even under the Revised Carrier Plan dated July 7, 2015, the monthly charges remain at US$ 40,000 per month. A carrier plan is an estimated calculation based on various technical aspects in order to obtain optimum quality of video. It specifies parameters for the desired carrier in a particular space segment on the satellite transponder. A Revised Carrier Plan is drawn when a broadcaster desires to add an additional channel within the located bandwidth. This has to be approved by the Wireless Planning Commission and the concerned Ministry and may result in change of the parameters drawn up in the earlier Carrier Plan. Thus, parameters are arrived at for the optimum utilization of the space segment and to ensure that the transmit power levels will not cause any interference to adjacent carriers and will also not pose any damage threat to the transponders on the satellite. Therefore, the parameters mentioned under the Carrier Plan have no linkage to the fixed monthly charges for the allocation of 8 MHz bandwidth. The mere fact that the assignment of space segment capacity of transponder is fixed at USD 40,000 per month, for contracted 8 MHz bandwidth, whether used or not, would conclusively prove that the said charges are not towards transmission of signals, otherwise the same would have been variable every month, as per the quantum/speed of frequencies transmitted. It is, therefore, not possible to accept the submission of learned Authorized Representative of the Department.
65. Learned Authorized Representative of the Department also laid emphasis on Clause 3.3 of Attachment 2 dealing with the right reserved by Intelsat to assign and/or reassign Customer‘s space segment allocation within the service transponder or to other transponders and to the contents of Attachment 1(a) and 1(b) to demonstrate that there is no fixed transponder or fixed frequency bandwidth that is hired by the Appellant since both the transponders and the frequency of bandwidth can change.
66. This submission is based on a misreading of Clause 3.3 of Attachment 2 and the provisions of Attachment 1(a) and 1(b). A reading of Clause 3.3 of Attachment 2 makes it clear that the assignment and/or reassignment of the space segment allocation of the Appellant and space segment allocation of other customers within the service transponder or to other transponders within the applicable uplink and/or downlink beam of the satellite is to minimize mutual interference between the adjacent satellites in order to ensure compliance with applicable coordination agreements with other networks, and/or to permit efficient loading of the satellite. This is a step to ensure non-interference of signals with corresponding transponders so that the lease segment capacity of the transponder is effectively utilized by the broadcaster or broadcasting agencies or organizations.
67. It has also been submitted by the learned Authorized Representative of the Department that certain terrestrial facilities have also been provided under Clause 2.2 of the Agreement with space segment allocation.
68. It is not possible to accept this submission. Clause 2.2 of the Agreement provides that Intelsat shall provide its service using satellite and/or terrestrial facilities owned and/or operated by Intelsat and/or third parties under contract with Intelsat. This simply means that Service would be provided to the Appellant using a satellite and/or terrestrial facilities. The term ‗terrestrial‘ means ‗of or related to the earth or its inhabitance‘. It does not mean that Intelsat is providing certain terrestrial facilities with the space segment allocation.
69. Learned Authorized Representative also submitted that the Appellant does not have a non-exclusive right to use the Service since the same transponder and the same satellite is also simultaneously used by other customers of Intelsat.
70. This submission is based on Clause 2.1 of the Agreement which provides that all Services are offered on a non- exclusive basis. This only means that the satellite including its transponders is not used for providing Service on an exclusive basis to a particular user. A space segment capacity of a transponder in a satellite can be leased out to several/multiple users. It does not mean that the same space segment of a transponder can be used by multiple customers with the Appellant at the same time. A satellite has a number of transponders and each transponder has a certain amount of bandwidth. A customer may not take on lease the entire bandwidth of a particular transponder. In the instant case, the Appellant has taken lease of only 8 MHz bandwidth out of the 54 MHz bandwidth of the transponder. This 8 MHz bandwidth allocated to the Appellant is for exclusive use of the Appellant and cannot be allocated to any other user. It is only the remaining bandwidth of the transponder that can be allocated to any other user. It cannot also be denied that Intelsat may be providing Services to many users from its various transponders. It is a particular space segment of a particular transponder that has been taken on lease by the Appellant.
71. Much emphasis has been laid by learned Authorized Representative of the Department on Clause 6 of the Agreement dealing with ‗Interruption of Service‘ and it has been contended that the term ‗Interruption of Service‘ refers specifically to transmission of signals because a bandwidth or frequency once allocated cannot be interrupted.
72. This submission is based on a misreading of Clause 6 of the Agreement. Clause 6 of the Agreement has to be read with Clause 2 of the Agreement relating to ‗Provision of Services‘ as also Clause 1.0 of the Service Order. Under Clause 2.3 of the Agreement, Intelsat reserves to itself the right to assign and/or reassign space segment allocation provided to the Appellant within the satellite identified in the Service Order or to move the Service to a different satellite provided that any such change does not result in a failure of the Service to meet the Service Specifications. Clause 1.0 of Attachment 2 to the Service Order fixes the space segment. Thus, the Service agreed to be provided to the Appellant comprises of bandwidth which is the space segment capacity. Any interruption of service will necessarily refer to the space segment capacity and not transmission of signals. ‗Interruption of Service‘, therefore, would refer to non-functioning of the transponder, as a result of which there would be no transmission of signals. A transponder may not function for various reasons including loss of power. It is in such a situation that a right has been conferred on the Appellant to seek remedies regarding ‗outage‘ credit in accordance with Clause 5.3 of the Agreement.
73. It has also been contended by learned Authorized Representative of the Department that the test of ‗intention of the parties behind the transaction should be examined‘, as was observed by the Supreme Court in Bharat Sanchar Nigam Ltd. According to the learned Authorized Representative, it is clear that the intention of the Appellant is to get its TV programmes in the form of radio waves transmitted from one part of the earth to another part and it is not the intention of the Appellant to hire frequency bandwidth. In fact, what is of prime importance to the Appellant is the transmission of TV programmes at a particular speed and at a particular power of signal, so that the quality of TV programmes remains unaffected during the transmission.
74. This aspect has already been considered at length. It is clear that the intention of the Appellant is to secure a dedicated bandwidth for its use for uplinking and downlinking the programme signals. A dedicated use of bandwidth of the transponder of the satellite ensures that the Appellant is able to broadcast its programme signals and it is, therefore, incorrect to suggest that the transmission of signal is the predominant intention of the parties. A satellite operator leases the space segment capacities of the transponder of the satellite and though it is correct that the lease of the space segment capacity of the transponder is utilized for uplinking and downlinking the programme, but it cannot be said the Intelsat has contracted to broadcast/transmit the programme signals. In case the space segment capacity of a transponder is not leased, a broadcaster would not be in a position to uplink and downlink the programme signals. Intelsat has, it is clear, leased space segment capacity of the transponder and transmission of signals is ancillary to such leasing activity. It also needs to be appreciated that whether or not the Appellant uses the space segment capacity of the transponder for uplinking and downlinking of signals, it has to pay the monthly charge of US$ 40,000 to Intelsat.
75. Learned Authorized Representative of the Department laid much emphasis on section 65A of the Finance Act to contend that since the Agreement contains features relating to both allocations of bandwidth and transmission of signals, the activity which gives such a transaction its essential character, has to be determined in accordance with sub-section (2)(b).
76. It would, therefore, be necessary to reproduce section 65A of the Finance Act. It is as follows :
“65A. Classification of taxable service –
(1) For the purposes of this Chapter, classification of taxable services shall be determined according to the terms of the sub- clauses of clause (105) of section 65.
(2) When for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, classification shall be effected as follows:—
(a) the sub-clause which provides the most specific description shall be preferred to sub-clauses providing a more general description;
(b) composite services consisting of a combination of different services which cannot be classified in the manner specified in clause (a), shall be classified as if they consisted of a service which gives them their essential character, insofar as this criterion is applicable;
(c) when a service cannot be classified in the manner specified in clause (a) or clause (b), it shall be classified under the sub-clause which occurs first among the sub-clauses which equally merit consideration.
77. A bare perusal of section 65A(1) shows that classification of ‗taxable services‘ shall be determined according to the terms of the sub-clauses of clause (105) of section 105. Sub-section (2) of section 65A stipulates that when for any reason, a taxable service is, prima facie, classifiable under two or more sub-clauses of clause (105) of section 65, then the classification shall be effected either under (a) or (b) or (c). Thus, for section 65A(2)(b) to apply, there has to be a classification dispute between two or more taxable services. In the present case, the lease of space segment capacity of the transponder is not taxable as it is subjected to State VAT, being akin to ―transfer of right to use goods‖. Even if the transmission of signals, as per the impugned order and as per the submissions of the learned Authorized Representative of the Department, is covered under ‗broadcasting service‘, then too the rule of classification contained in section 65A of the Finance Act cannot be applied since it involves only one taxable service and one non- taxable service. Thus, the essential character test cannot be applied in the present case.
78. The inevitable conclusion, therefore, that follows is that the contention of the Department that the down linking of the signals from the satellite is transmission of signals covered by the definition of ‗broadcasting‘ and, therefore, leviable to service tax on the Appellant under a reverse charge mechanism cannot be accepted. The Commissioner, therefore, committed an error in holding that Intelsat has provided ‗broadcasting‘ service to the Appellant and so the Appellant has to pay service tax on a reverse charge mechanism.
79. Thus, for all the reasons stated above, it is not possible to sustain the impugned order dated November 30, 2015 passed by the Commissioner. It is, accordingly, set aside and the appeal is allowed.
(Pronounced in the open Court on 08 July, 2020)
Tags: Judgement, Appellant Tribunal
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