MUMBAI: There are those in the industry who say this was a case that Star India and Zee Telefilms were bound to lose and so it panned out finally.

In a rare case of working for the same cause, both media companies had taken their legal battle to the Central Excise and Service Tax Appellate Tribunal (Cestat), Delhi after they were held liable to pay service tax in a ruling of the Commissioner of Central Excise (Appeals) Mumbai, dated 18 November, 2002.

In its final ruling given recently, Cestat rejected the appeals against the orders passed by the Commissioner of Central Excise in Mumbai. Both Zee and Star had argued that they were in fact operating as collection agents for their holding companies based abroad and therefore were not liable to pay service tax as far as ad revenues earned out of India were concerned.

The argument put forth by a high-profile battery of lawyers separately representing Zee and Star was that they worked on a commission basis and therefore their activities could not be termed as 'taxable service' as defined under section 65(72).

The argument put forth by Zee Telefilms was that it was only a representative of Asia Today Ltd. (ATL) and Expand Fast Holdings Ltd (Expand), Mauritius selling advertising space in India for its network channels. Star India's contention was on similar lines as far as its relationship to Satellite Television Region Limited (Star) Hong Kong was concerned.

The final ruling by the Central Tribunal closes the lid on what has been a lengthy appeals process and is bound to be an issue where the Indian Broadcasting Foundation will play a part as regards the service tax component that has to be billed into advertising that the channels book.

This is expected to become an even bigger bone of contention this year because the expectations are that in the next budget, the service tax charge will be hiked to 12 per cent from the current 8 per cent. It in fact went up from 5 per cent in 2002 to 8 per cent in last year's budget announcement.

When contacted for an official response, a senior Zee Telefilms executive had this to say: "The order does not put any liability on the company as we had been paying the service tax under protest for the period between 1999 and 2001 along with the other industry players."

The executive clarified that Zee was exploring the possibility of going in appeal against the Tribunal order. He, however added, "A final call on this would depend on the stand the IBF takes because it is an issue that affects everyone in the industry."

An official reaction from Star could not be elicited at the time this report was filed.