Sub: SERVICE TAX- M/s. Express Network Private Ltd., No.29, Second Main Road, Ambattur Industrial Estate, Chennai- 600058.
Recovery of service Tax N ot paid - Reg.
M/s. Express Network Private Ltd., No.29, Second Main Road, Ambattur Industrial Estate, Chennai- 600058(Here after referred as Service Provider or ENP for short)are registered with Service tax department and their STC No. AAACE6586AST001 Dated 10.07.2008 They are registered for provision of Advertising Agency, Online Information and database access or retrieval services and sale of Space or Time for advertisement service.
2.The ENP is also having their own website Indiavarta.com which is used for e-commerce business. Various products are displayed on this website for sale. After sale of these products the Service Provider gets commission from the vendors for which service tax is paid. The Service Provider is also selling / providing space in their websites to advertisement agencies or direct clients for which they are paying service tax on the income earned through sale of space or time for advertisement service.
3.0During the course of Audit of accounts of the ENP it was noticed that for the website viz., Indiavarta.com the assessee paid overseas vendors for the Web Hosting service provided from abroad. It was noticed that they have not discharged the service tax liability on the above activity of Online Information and database access or retrieval services imported from abroad on payment of Rs.1,41,97,718/- under Section 66A of the Finance Act 1994 reverse charge mechanism. The tax liability works out to Rs.14,10,816/- for the period 2007-08 to 2011-12 as per the Annexure enclosed.
3.1.The service provider from abroad is providing dedicated servers along with necessary software for security and hosting of the Service Provider’s websites, web applications and database which are taxable service for which the service receiver have to pay service tax in terms of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 read with Section 66A of Finance Act,1994. SECTION 66A of Finance Act1994 reads as below.
“Charge of service tax on services received from outside India. — (1) Where any service specified in clause (105) of section 65 is, — (a) provided or to be provided by a person who has established a business or has a fixed establishment from which the service is provided or to be provided or has his permanent address or usual place of residence, in a country other than India, and (b) received by a person (hereinafter referred to as the recipient) who has his place of business, fixed establishment, permanent address or usual place of residence, in India, such service shall, for the purposes of this section, be taxable service, and such taxable service shall be treated as if the recipient had himself provided the service in India, and accordingly all the provisions of this Chapter shall apply: 3.2.The amount of service tax payable for imported services for the period 07-08 to 11-12 is Rs 14,10,816/-
4.0While verifying the Balance Sheet it was noticed that the Service Provider has reported income of Rs.4,83,68,646/- under various heads like SMS Income, Commission, Income from maintenance of library and clipping research services for the period 2007-08 to 2011-12. It is noticed that the assessee has not discharged the Service Tax liability on the above income during the period from 2007-08 to 2011-12. 4.1The assessee earned income through SMS services by providing data to mobile subscriber which is used to send News SMS to the Mobile users. The Service Provider has to pay service tax under Online Information and database access or retrieval services. 4.2The Service Provider has received Commission during 2008-09 & 2010-11 for which service tax has to be paid under Bussiness Auxiliary Service. 4. 3The Service Provider is maintaining and running...