Special Effects & 3D Conversion Services Are Not ‘Video-Tape Production’ Services Under S. 65(120) Of Finance Act, 1994: Supreme Court

The Supreme Court has upheld the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) that the 3D conversion services provided by the assessee, including services such as ‘imparting special effects’, ‘post production service’, ‘digital asset management and content service’ and ‘digital restoration service’, will not fall under the ambit of ‘video-tape production’ under Section 65(120) of the Finance Act, 1994.

While adjudicating the service tax demand raised on the assessee, the CESTAT found that there was no evidence that the material received by the respondent/ assessee, M/s Prime Focus Ltd, from its clients was recorded in video or that the assessee had, at any time, handled video as media. The Tribunal had thus held that the assessee was entitled for exemption as exports as it had exported services in accordance with Export of Service Rules, 2005 and Rule 6A of Service Tax Rules, 1994.

Upholding the order of the CESTAT, and after referring to the definitions of ‘Video Production Agency’ and ‘Video-Tape Production’ under the Finance Act, 1994, the bench comprising Justices B.V. Nagarathna and Ujjal Bhuyan remarked that services such as editing, cutting, colouring, etc. can be said to be done only after recording is done of any programme, event or function on a magnetic tape or any other media or device.

The assessee, M/s Prime Focus Ltd, is a pioneer in ‘visual effects’ and 3D technologies. It was the case of the assessee that it is engaged in activities such as conversion from ‘2D to 3D’, ‘imparting special effects’, ‘post production service’, ‘digital restoration service’, etc. which it claimed were ‘business support service/information technology software service’. Thus, it contended that the activity was entitled for exemption as ‘exports’ under Rule 3 of the Export of Service Rules, 2005.

Per contra, in the show cause notice issued to the assessee, the Revenue Department claimed that the activities conformed to Section 65(105)(zi) of Finance Act, 1994 owing to the provider/ assessee being a ‘video production agency’ under Section 65(119) in relation to ‘video-tape production’, as defined in Section 65(120) of Finance Act, 1994. The Department opined that the same would not be ‘exports’ unless the whole, or part, of the performance is undertaken outside India for the period prior to 1^st July 2012. The show cause notice thus raised a demand for service tax for the relevant assessment years on the assessee.

The Adjudicating Authority upheld the findings of the Revenue and concluded that the activities would fall within the ambit of ‘recording of any programme’ in Section 65(120) of the Act, which defines ‘video-tape production’, and that the noticee/ assessee was a provider of the related service for the period prior to 1^st July 2012. However, with respect to the period from 1st July 2012, it came to the conclusion that the service so rendered was not within the country and, hence, not taxable.

In appeal, the CESTAT held that the classification of the service adopted by the Adjudicating Authority, concurring with the proposal in the show cause notice, was not in consonance with the intent of Section 66 of the Finance Act, 1994, which deals with charge of service tax. The Tribunal concluded that the activity would not fall under the ambit of ‘video-tape production’ under Section 65(120) of the Finance Act.

The CESTAT observed that the inclusive leg of the definition in Section 65(120), pertained to the post-recording activity on video or transfer to another media by the provider of service to qualify as ‘video-tape production’. However, there was no evidence that the material received by the assessee was recorded in video or that the assessee had, at any time, handled video as media.

The Tribunal found that enumeration of ‘taxable services’ enumerated in Section 65(105) of Finance Act, 1994, prior to 1^st July 2012, implicitly recognized segregation from other services. The Tribunal ruled that without any overlap whatsoever, the enumerated ‘taxable services’ permitted staged incorporation of several components of ‘end-to-end’ activity in a specific sector at different times.

The Tribunal thus held that the assessee had exported services in accordance with Export of Service Rules, 2005 and Rule 6A of Service Tax Rules, 1994 for the relevant periods; thus, the assessee was entitled for exemption as exports.

In the appeal filed before the Supreme Court, the Revenue Department argued that the analysis of the definition of ‘Video Production Agency’ in Section 65(119) and ‘Video-Tape Production’ in Section 65(120) of the Finance Act, 1994, as made by the Tribunal, was incorrect.

Per contra, the assessee argued that in the definition of ‘Video-Tape Production’, ‘the process of any recording of any programme, event or function on any device and services relating thereto’ is of significance. Thus, it claimed that if the process of such recording is absent, then merely rendering any services would not arise as such.

Upholding the decision of the Tribunal, the court held, “On a conjoint reading of the definitions of the ‘Video Production Agency’ and ‘Video-Tape Production’, we find that the services such as editing, cutting, coloring etc. is only after recording is done of any programme, event or function on a magnetic tape or any other media or device. This is clear from the use of the words “services relating thereto” and such a Video-Tape Production when done by any professional videographer or any commercial concern engaged in the business of rendering such services is a ‘Video Production Agency’.”

Referring to the Notification No. 4/2001-ST, dated 9.7.2001, the bench said, “Having regard to the expressed words “services relating thereto” and the circular dated 09.07.2001, paragraph ‘2’, we find that the Tribunal has rightly interpreted the said sections.” It added, “It is needless to observe that the aforesaid definitions are relevant only till 01.07.2000.”

Case Title: Commissioner of Service Tax-IV vs Prime Focus Ltd.

Citation : 2023 LiveLaw (SC) 561

Counsel for the Appellant: Mr. Balbir Singh, A.S.G. Mr. Mukesh Kumar Maroria, AOR Ms. Rekha Pandey, Adv. Ms. Monica Benjamin, Adv. Mr. Pratyush Srivastava, Adv. Mr. Pushpinder Singh, Adv.

Counsel for the Respondent: Mr. Vipin Jain, Adv. Mr. Vishal Agarwal, Adv. Mr. Rupesh Kumar, AOR Ms. Pankhuri Shrivastava, Adv. Ms. Tuhina Sinha, Adv. Ms. Shilpa Baloni, Adv. Mr. Girish Raman, Adv.

Finance Act, 1994: Sections 65(105) (zi), 65(119), 65(120), 66; Export of Service Rules, 2005; Service Tax Rules, 1994

The Supreme Court has upheld the order of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) that the 3D conversion services provided by the assessee, including services such as ‘imparting special effects’, ‘post production service’, ‘digital asset management and content service’ and ‘digital restoration service’, will not fall under the ambit of ‘video-tape production’ under Section 65(120) of Finance Act, 1994.

While adjudicating the service tax demand raised on the assessee, the CESTAT found that there was no evidence that the material received by the respondent/ assessee, M/s Prime Focus Ltd, from its clients was recorded in video or that the assessee had, at any time, handled video as media. The Tribunal had thus held that the assessee was entitled for exemption as exports as it had exported services in accordance with Export of Service Rules, 2005 and Rule 6A of Service Tax Rules, 1994.

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