MSO Liable To Pay Service Tax For Providing Cable Operator Services To LCO: CESTAT

The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that Multi System Operators (MSOs) are liable to pay service tax for providing cable operator services to Local Cable Operators (LCOs).

The two-member bench of Ajay Sharma (Judicial Member) and P.V. Subba Rao (Accountant Member) has observed that owing to the business model of the cable operator industry, the MSO is providing cable operator services to LCOs and not to ultimate consumers, and hence the MSO would be liable to pay service tax only on the amount received from LCOs. The LCOs will be separately liable for discharging service tax on the gross amount received from the ultimate customers for the service provided by the LCO to them.

The issue raised was whether an MSO was required to pay service tax on the gross amount collected from the subscribers or only on the gross amount received from the LCOs who are providing the content and maintenance services to the subscriber/ultimate customer.

The respondent/assessee is in the business of providing cable operator services. The respondent is MSO and providing services to LCO only, and the LCO, through its own network, is distributing that content or services to the ultimate customer. The responsibility for maintenance of the network and complaints regarding the reception of content lies entirely with LCO. Therefore, it is the LCO who is providing the content, maintenance, and collection services to the ultimate subscriber.

The department revealed that the respondents had evaded service tax by suppressing the value of taxable services provided as they had not paid service tax on the gross amount of subscriptions collected from ultimate consumers.

The commissioner has held that the actual functionality of MSOs and LCOs differs from the analogue period to Digital Addressable Systems (DAS) period. During the (DAS) period, the signals purchased by MSO were encrypted, whereas in the analogue period they were not, and for viewing encrypted signals, installation of set-top boxes at the subscriber's end was a must in the (DAS) period, and subscribers' records in the SMS server were also maintained with MSO.

The respondent submits that, as per the business module, they supplied signals to LCO and it was the responsibility of LCOs to transmit television signals to subscribers utilising their own cable network. The respondent rendered services to LCO who in turn transmitted signals to subscribers. Therefore, the respondent was liable to pay service tax only on the portion recovered by them from LCOs as per section 67 of the Finance Act, 1994.

Section 67 of the Finance Act, 1994 stipulates that the value of taxable services shall be the gross amount charged by the service provider for providing "such service", when the service is provided for a consideration in money.

The department contended that under DAS/CAS, the customers are subscribers of MSO. The MSO is the service provider and section 67 of the Finance Act, 1994, prescribes the payment of service tax on the gross amount charged by the service provider for the service provided.

The CESTAT held that the LCOs were utilising their own infrastructure for transmitting signals to the ultimate subscribers. Although access to broadcast through set top boxes was provided by the respondent, the interface between ultimate consumers and cable signals remained with LCOs only.

"We have no hesitation in deciding this issue in favour of the respondent and against the revenue-appellant by holding that the respondent is liable to pay service tax only on the gross amount received by them from LCOs," the CESTAT said.

Case Title: Commissioner of Central Excise And Central Goods And Service Tax Versus M/s Hathway Sukhamrit Cable & Datacom Pvt. Ltd.

Citation: Service Tax Appeal No. 60027 of 2021

Date: 12.10.2022

Counsel For Appellant: Special Counsel Sourabh Goel

Counsel For Respondent: Advocate Sudhir Malhotra

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