Mumbai: A recent service tax audit conducted by the service tax department in Mumbai has found that Nimbus Communications Ltd, a production and broadcasting company that operates channels such as Neo Sports and Neo Cricket, owes the government Rs173 crore in unpaid taxes for five years between 2004-05 and 2008-09.
Mint has reviewed the audit report prepared by the agency, which was approved on 24 February by Atul Saxena, additional commissioner of service tax, Mumbai.
The department of service tax is part of the department of revenue in the Union ministry of finance.
According to the report, Nimbus entered into an agreement with Board of Control for Cricket in India (BCCI), which organizes domestic and international cricket matches, for a part of the intellectual property or IP rights held by BCCI.
Nimbus Communications later shared these rights with Neo Sports Broadcast Pte Ltd and Nimbus Sports International Pvt. Ltd, Singapore, for exploiting domestic and global media rights.
Under this agreement, Nimbus allowed Nimbus Sports International to retain 10% of the revenue generated through the process and paid Neo Sports separately.
The service tax department alleges in its report that Nimbus Communications has not paid service tax of Rs148.9 crore on intellectual property rights (IPRs) obtained by it from BCCI. The department has not sent any letter to Nimbus Communications as yet but is expected to do so this week.
“Under the pretext of (the rights transferred being) copyrights, the assessee (Nimbus Communications) is not paying service tax. The audit is of the view that the transaction between exploiter i.e. Nimbus Sports International and the assessee predominantly falls under IPR and that cannot be classified as copyright,” says the report.
In an email response to Mint’s query, NEO Sports Broadcast’s official spokeswoman sent an email quoting an unnamed senior finance official of the company that “the company has not received any demand or show cause notice from the service tax department on the matter that you have mentioned in your email. The company has complied with all regulations and tax laws.”
Service tax is an indirect tax, currently charged at 10.2%, on services such as broadcasting, banking, advertising and intellectual property services except copyright. A copyright gives the creator the sole right to publish and sell that work. All service providers based in India must pay service tax.
Tax experts are divided on what services fall under service tax norms.
“The acquisition of right to broadcast a movie or a sports event is till date not liable to service tax,” said Supriya Oberoi Jain, senior manager (indirect tax), KPMG India Pvt Ltd. However, broadcasting companies are required to pay service tax on any service rendered by them such as sale of airtime, she added.
Suresh Rohira, associate director, PricewaterhouseCoopers, however says that distribution rights (of a particular film) comes under the IPR (intellectual property rights) bracket, and are taxable. “On sports events, whether a company will pay service tax on IPR, or whether it escapes it because it holds copyright or whether it falls in the clutches of VAT (value added tax)...it purely depends on the phrasing of the contract,” said Rohira.
According to the service tax department’s report, none of the three firms—Nimbus Communications, Nimbus Sports International and Neo Sports—had exclusive copyrights for the match coverage.
“What springs out from the transaction of BCCI is a license to do some activities within the framework of the agreement. What passes from the basket of BCCI, a holder of exclusive copyright, in itself is a bunch of various intellectual properties, is some IPR which is defined by its holder. The contractual agreement merely takes away some IPR temporarily,” the report adds.
The audit report also finds Nimbus Communications in default of service tax of Rs61.92 lakh for IP and distribution rights of 2007 film Naqaab produced by Tips India Ltd; service tax of Rs5.63 crore for airtime sales service in 2005-06; and wrongful claims of central value-added tax (cenvat) credit of Rs4.59 crore on input service without permission for centralized registration under service tax.
Such registration allows a firm to offset duties paid on services offered and capital goods against excise duty on the final product or service.
The report says Nimbus has not paid service tax of an additional Rs1.06 crore for sports service “under the pretext that the said service is being provided to Nimbus Sports International Pte Ltd, which is in the nature of consultancy service.”
Nimbus Communications has also not paid service tax on a commission of Rs1 crore it has received during financial years 2005-06 and 2007-08 from state-run telecaster Doordarshan, it alleges.