Wednesday, December 15, 2010

EXCISE INTELLIGENCE WANTS 3TV COs TO PAY RS.325 CRORE SERVICE TAX

The directorate general central excise intelligence (DGCEI) has asked three electronic media companies to pay service tax worth Rs 325crore. DGCEI show-cause notice where issued on Oct 21 to Turner International India (TII), a Time Warner company which beams a banquet of channels like HBO, POGO, Cartoon Network CNN & WB , ESPN software India (ESI) & ZEE Turner Limited , a company jointly promoted by the promoter & ZEE Groups. The major issue against TII & ESI the Indian subsidiaries of foreign holding is over the companies procuring TV channels Programme distribution rights and selling advertising time slots on channels on behalf of their foreign parents. The programmes are broadcast by foreign broadcasters & signals is encrypted form are disseminated by them in electro magnetic waves by up linking to satellites. The encrypted signals on electro magnetic waves are then down linked, received and encrypted by the Indian subsidiary companies holding the distribution rights for India. The Tv channels received and encrypted by TII & ESI with the help of integrated receiver decoders commonly known as set top boxes. According to DGCEI receiving programmes by down linking of signals in INDIA by TII & ESI tantamount to import of broadcasting service & the money paid to their parent companies for import of tv channel signals is liable for service tax deduction under reverse charge mechanism as per the provisions of finance act 1994 & taxation of services (provided from services outside India & received in India) RULES, 2006. TII & ESI had not discharged their service tax liabilities towards the import of broadcasting services their by attracting DGCEI worth. TII has been asked to pay more than Rs 90 Crore & ESI Rs 225 Crore. TII was found evading service tax on several other issues including intellectual properties right service by undervaluing and wrongfully claiming exemption from service tax  on 98% value of services and paying service tax on only 2% value of services. It has also evaded service tax under the business auxiliary service category. ZEE turner limited was found to be engaged I undervaluation of business auxiliary service provided by it to various broadcasters while distributing their tv channel services. It was discovered that it collected certain amounts from broadcasters under the head
reimbursement of expenses and not including the amount of such reimbursement in its assessable value thereby evading service tax. Show-cause notice has also proposes to cover wrongly availed Cenvat credit of service tax from ZTL on services which were not input services for the company. Total service tax demand raised by DGCEI on ZTL is more than Rs 5 Crore. It subsequently cleared some Rs4crore by paying the amount to the service tax department. When contacted on ESPN Star Sports spokesperson said the company was studying the contents of the notice and would respond in due course. Executive VP(legal) of ZEE group MR A Mohan said, we will contest this legally so far as the status issue is concerned . If we have to pay more service tax that won't make a difference because will get Cenvat benefit.

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