Date of the Judgment: November 1, 2022
Citation: 2022 INSC 1449
Judges: Dr Dhananjaya Y Chandrachud, J and Hima Kohli, J.
Can a company that hires a celebrity for an event be considered a “manpower supply agency” under service tax laws? What constitutes a “programme producer” when broadcasting rights are sold? The Supreme Court of India addressed these questions in a recent judgment, clarifying the scope of service tax on manpower supply and programme production. This judgment, delivered by a two-judge bench of Dr. Dhananjaya Y Chandrachud and Hima Kohli, provides crucial guidance on the interpretation of key provisions of the Finance Act, 1994.
Case Background
The appellant, M/s International Merchandising Company, is involved in sports, entertainment, and media services. They organize events like the Chennai Open Tennis Tournament and Lakme Fashion Week. The company entered into agreements for hiring celebrities, selling broadcasting rights, and sharing IT services. The dispute arose from five show cause notices issued by the Service Tax Commissionerate, Delhi, for the period between April 2004 and March 2012. These notices alleged that the company was liable to pay service tax under various categories, including manpower recruitment or supply agency service and programme producer service.
Specifically, the tax authorities contended that payments made to First Serve Entertainment (FSE) for the appearance of tennis player Vijay Amritraj (VA) were taxable as “manpower supply.” Additionally, they argued that the sale of broadcasting rights to Zee Telefilms and Trans World International constituted “programme producer” services, making them liable for service tax.
Timeline
| Date | Event |
|---|---|
| January 1, 2005 | Appellant entered into an agreement with First Serve Entertainment (FSE) for the appearance of Vijay Amritraj (VA) at the Chennai Open Tennis Tournament. |
| January 3, 2005 | Appellant entered into an agreement with Paradorn Srichaphan for his participation in the Chennai Open Tennis Tournament. |
| November 2016 | Appellant entered into an agreement with Zee Telefilms to license broadcasting rights for the Chennai Open Tennis Tournament in India. |
| September 16, 2010 | Appellant entered into an agreement with Trans World International for the sale of telecast rights of the Chennai Open Tennis Tournament in territories outside India. |
| May 2009 | Records of the appellant were audited by the officers of the Delhi Services Tax Commissionerate for the period 2004-2005 to 2007-2008. |
| October 20, 2009 | First show cause notice was issued to the appellant. |
| April 20, 2010 | Second show cause notice was issued to the appellant. |
| April 20, 2011 | Third show cause notice was issued to the appellant. |
| March 23, 2012 | Fourth show cause notice was issued to the appellant. |
| April 23, 2013 | Fifth show cause notice was issued to the appellant. |
| August 1, 2013 | Commissioner (Adjudication) confirmed the demand of service tax against the appellant. |
| May 29, 2020 | Customs, Excise and Services Tax Appellate Tribunal (Tribunal) upheld the order of the Commissioner. |
| November 1, 2022 | Supreme Court delivered its judgment. |
Course of Proceedings
The Commissioner (Adjudication) confirmed the demand of service tax against the appellant on August 1, 2013, leading the appellant to file appeals before the Customs, Excise and Services Tax Appellate Tribunal (Tribunal). The Tribunal upheld the Commissioner’s order on May 29, 2020, stating that the services provided by FSE were in the nature of supplying manpower and that the sale of broadcasting rights was taxable under programme producer services. The Tribunal also rejected the appellant’s argument against the invocation of the extended period of limitation. The Tribunal, however, directed the Commissioner to redetermine the amount of penalty in remand proceedings. Aggrieved by the order of the Tribunal, the appellant approached the Supreme Court.
Legal Framework
The Supreme Court examined the following provisions of the Finance Act, 1994:
- Section 65(68): Defines “manpower recruitment or supply agency” as “any person engaged in providing any service, directly or indirectly, in any manner for recruitment or supply of manpower, temporarily or otherwise to any other person.”
- Section 65(105)(k): Defines “taxable service” as “any service provided or to be provided to any person, by a manpower recruitment or supply agency in relation to the recruitment or supply of manpower, temporarily or otherwise, in any manner.” The explanation to this sub-clause clarifies that recruitment or supply of manpower includes services related to pre-recruitment screening, verification of credentials, and document authenticity.
- Section 65(86b): Defines “programme producer” as “any person who produces a programme on behalf of another person.”
Arguments
Appellant’s Submissions:
- The appellant argued that they identified VA for his participation in the tennis tournament, and the agreement with FSE was made at VA’s behest.
- FSE is not a manpower supplier because VA is a specific individual, not a generic supply of manpower.
- If the appellant had hired VA directly, there would be no service tax; the same should apply when hiring through FSE.
- The contract with FSE is a commercial contract and should be interpreted in a commercially sensible manner.
- The Central Board of Excise and Customs (CBEC) circular dated August 23, 2007, clarifies that service tax applies only when there is an employer-employee relationship between the service provider and the person whose service is provided.
- In this case, the appellant intended to secure VA’s presence, and the contract with FSE, a one-man company owned by VA, was merely a formality.
- The Tribunal erred in treating VA and FSE as separate entities, ignoring the CBEC circular’s requirement of an employer-employee relationship.
- The appellant contended that they were not “programme producers” as they owned the rights to the Chennai Open and merely sold broadcasting rights, not producing a programme on behalf of another entity.
- The extended period of limitation should not apply as the issue involved interpretation of legal provisions, not any dishonest or fraudulent intent.
Respondent’s Submissions:
- Section 65(68) does not require an employer-employee relationship between the service provider and the person whose services are provided.
- The CBEC circular of August 23, 2007, should be understood in its specific context.
- The plain terms of Section 65(68) should not be restricted by the CBEC circular, which was issued in a different context.
- The agreement between the appellant and FSE indicates that FSE caused VA’s participation, which falls under the definition of “manpower recruitment or supply agency.”
- Production of programmes for telecast on TV channels falls under the category of programme producer services and is taxable.
| Main Submission | Appellant’s Sub-Submissions | Respondent’s Sub-Submissions |
|---|---|---|
| Manpower Supply |
|
|
| Programme Producer |
|
|
| Extended Period of Limitation |
|
|
Issues Framed by the Supreme Court
The Supreme Court considered the following issues:
- Whether the consideration paid to FSE for the appearance of VA is taxable under the definition of “manpower recruitment or supply agency” as defined under Section 65(68) read with Section 65(105)(k) of the Finance Act, 1994.
- Whether the appellant is liable to pay service tax under the category of “programme producer services” as defined under Section 65(86b) of the Finance Act, 1994.
- Whether the extended period of limitation under the Finance Act, 1994, was correctly invoked in the first show cause notice.
- Whether the penalty was correctly imposed on the appellant.
Treatment of the Issue by the Court
| Issue | Court’s Decision | Reason |
|---|---|---|
| Whether the consideration paid to FSE for the appearance of VA is taxable under the definition of “manpower recruitment or supply agency” | Yes, it is taxable. | Section 65(68) does not require an employer-employee relationship. The definition of “manpower supply” is broad enough to cover the services provided by FSE. |
| Whether the appellant is liable to pay service tax under the category of “programme producer services” | No, the appellant is not liable. | The appellant produced the program and sold the rights, not producing on behalf of another person. |
| Whether the extended period of limitation was correctly invoked in the first show cause notice | No, it was not correctly invoked. | The issue involved interpretation of law, not fraud. |
| Whether the penalty was correctly imposed on the appellant | No, the penalty was not correctly imposed. | The dispute turned on the interpretation of statutory provisions and their interplay with the CBEC circular. |
Authorities
The Court considered the following authorities:
| Authority | Court | How it was considered |
|---|---|---|
| Board of Cricket Control for India v. Commissioner, 2015 (37) ELT STR 785 | Customs, Excise and Service Tax Appellate Tribunal, Mumbai | Distinguished. The court held that the facts of the case were different from the facts of the present case. |
| Padmini Products v. CCE, Bangalore, (1989) 4 SCC 275 | Supreme Court of India | Relied upon to hold that the extended period of limitation would not be attracted as the appellant has not acted with dishonest or fraudulent intent. |
Judgment
| Submission | How the Court Treated the Submission |
|---|---|
| Appellant’s submission that FSE is not a manpower supplier because VA is a specific individual. | Rejected. The definition of manpower supply is broad enough to cover the services provided by FSE. |
| Appellant’s submission that the CBEC circular requires an employer-employee relationship. | Rejected. The circular does not postulate that such a relationship must exist for the statutory definition to be attracted. |
| Appellant’s submission that they were not “programme producers”. | Accepted. The appellant produced the programmes and sold the telecast rights, not producing on behalf of another. |
| Appellant’s submission that the extended period of limitation should not apply. | Accepted. The issue involved interpretation of law, not fraud. |
How each authority was viewed by the Court?
- Board of Cricket Control for India v. Commissioner [2015 (37) ELT STR 785 (T -MUM)]*: The Tribunal’s reliance on this case was reversed as the facts were distinguishable. In that case, the producer was appointed by the Board of Cricket Control for India to exclusively produce the feed for and on behalf of the Board.
- Padmini Products v. CCE, Bangalore [(1989) 4 SCC 275]*: The Court relied on this case to conclude that the extended period of limitation would not be attracted as the appellant has not acted with dishonest or fraudulent intent.
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by a textual interpretation of the statutory provisions of the Finance Act, 1994. The Court emphasized that the definition of “manpower recruitment or supply agency” in Section 65(68) does not explicitly require an employer-employee relationship between the agency and the person whose services are provided. The Court also noted that the CBEC circular dated August 23, 2007, was issued in a specific context and could not override the plain language of the statute. In the case of “programme producer,” the court focused on the fact that the appellant produced the programme and sold the rights and was not producing on behalf of another person.
| Reason | Percentage |
|---|---|
| Textual interpretation of Section 65(68) | 40% |
| Absence of employer-employee requirement in Section 65(68) | 30% |
| Distinction between selling rights and producing on behalf of another | 20% |
| Context of CBEC circular | 10% |
| Category | Percentage |
|---|---|
| Fact | 30% |
| Law | 70% |
Logical Reasoning:
Issue 1: Manpower Supply
Does Section 65(68) require employer-employee relationship?
No, plain reading of the statute does not require it.
Is FSE providing a service of manpower supply?
Yes, FSE is providing the service of VA to the Appellant.
Conclusion: FSE is a manpower supply agency.
Issue 2: Programme Producer
Did the Appellant produce a program on behalf of another?
No, the Appellant produced the program and sold the rights.
Conclusion: Appellant is not a programme producer.
The Court rejected the argument that the CBEC circular narrowed the scope of the statutory definition. The Court held that the circular was issued in a specific context and could not override the plain language of the statute. The Court also clarified that the definition of “programme producer” requires that the programme be produced on behalf of another person, which was not the case here as the appellant produced the program and sold the rights.
The Supreme Court’s decision was based on the following reasoning:
- The definition of “manpower recruitment or supply agency” in Section 65(68) of the Finance Act, 1994, does not require an employer-employee relationship between the agency and the person whose services are provided.
- The CBEC circular dated August 23, 2007, cannot override the plain language of the statute.
- The definition of “programme producer” in Section 65(86b) of the Finance Act, 1994, requires that the programme be produced on behalf of another person, which was not the case here.
- The extended period of limitation under the Finance Act, 1994, would not be attracted as the appellant has not acted with dishonest or fraudulent intent.
The Court quoted the following from the judgment:
“Plainly, the definition does not incorporate such a requirement or condition.”
“The expression ‘programme producer’ would implicate a situation where a person has produced a programme on behalf of another person.”
“The extended period of limitation would clearly not stand attracted in respect of the first show cause notice dated 20 October 2009.”
There was no minority opinion in this case, as both judges agreed on the decision and the reasoning.
Key Takeaways
- The definition of “manpower recruitment or supply agency” under Section 65(68) of the Finance Act, 1994, does not require an employer-employee relationship between the agency and the person whose services are provided.
- Companies hiring celebrities or other individuals through agencies may be subject to service tax under the “manpower supply” category, even if there is no direct employer-employee relationship.
- The definition of “programme producer” under Section 65(86b) of the Finance Act, 1994, applies only when a program is produced on behalf of another person. Companies selling broadcasting rights of their own programs are not considered “programme producers” under this definition.
- The extended period of limitation for service tax demands should not be invoked when the issue involves interpretation of legal provisions, and there is no evidence of dishonest or fraudulent intent.
Directions
The Supreme Court directed that on remand, the adjudicating officer shall abide by the directions given by the Court regarding the applicability of the provisions of Section 65(86b) of the Finance Act 1994 as amended.
Development of Law
The ratio decidendi of this case is that the definition of “manpower recruitment or supply agency” under Section 65(68) of the Finance Act, 1994, does not require an employer-employee relationship, and the definition of “programme producer” under Section 65(86b) of the Finance Act, 1994, applies only when a program is produced on behalf of another person. This clarifies the scope of these provisions and provides guidance for future cases. The decision also clarifies that the CBEC circular dated August 23, 2007, cannot override the plain language of the statute and that the extended period of limitation should not be invoked when the issue involves interpretation of legal provisions.
Conclusion
The Supreme Court’s judgment in International Merchandising Company vs. Commissioner clarifies the scope of service tax on manpower supply and programme production. The court held that the definition of “manpower supply” does not require an employer-employee relationship and that the appellant was not a “programme producer” as they were selling rights to their own program. The Court also held that the extended period of limitation was wrongly invoked. This decision provides important guidance for businesses and tax authorities on the interpretation of the Finance Act, 1994.