Effective Teleservice P Ltd VERSUS C.C.E. & S.T.-Ahmedabad-iii

Service Tax Appeal No. 636 of 2011

(Arising out of OIA-120/2011/AHD-III/DSINGH/COMMR-A-/AHD dated 11/08/2011 passed

by Commissioner of Central Excise-AHMEDABAD-III)

 

Effective Teleservice P Ltd

VERSUS

C.C.E. & S.T.-Ahmedabad-iii

 

APPEARANCE:

Shri Vipul Khandhar, Chartered Accountant appeared for the Applicant

Shri G. Kirupanandan, Superintendent (AR) for the Respondent

CORAM: HON’BLE MEMBER (JUDICIAL), MR. RAMESH NAIR

HON’BLE MEMBER (TECHNICAL), MR. RAJU

Final Order No. A/ 10209 /2023

DATE OF HEARING: 06.10.2022

DATE OF DECISION: 03.02.2023

RAMESH NAIR

The appellants are registered service provider under the category of

business auxiliary service as well as renting of immovable property service.

During audit of the appellant’s record it was noticed that they had failed to

pay the service tax amounting to Rs 10,77,136/- on telecom and broadband

services received by them from a foreign based company M/s. Verizon and

Quest through M/s. Etch Inc USA, during 2008 -09. A show cause notice

dated 29.09.2010 was issued to the appellant proposing recovery of service

tax amounting to Rs. 10,77,136/- under first proviso to section 73 (1) of FA,

1994 along with interest under section 75 of the Finance Act, 1994. The

show cause notice also proposed penalty to be imposed under section 76, 77

& 78 of the Finance Act, 1994. The Adjudicating Authority dropped the

proceeding of the show cause notice on the ground that telecommunication

service is taxable only if it is provided to any person who has been granted a

Licence under first proviso to section 4(1) of the Indian Telegraph Act, 1885.

Being aggrieved by the Order-In-Original the revenue filed appeal before the

Commissioner (Appeal) who allowed the appeal filed by the Revenue.

Therefore, the present appeal filed by the appellant.

Shri Vipul Khandhar, Learned Chartered Accountant appearing on

behalf of the Appellant submits that the appellant have undisputedly

received telecom service from foreign based service providers. In case of

telecom service it can be taxable only when the service recipient has been

granted a Licence under first proviso to section 4(1) of the Indian Telegraph

Act, 1885. In the present case the appellant has no such licence therefore;

the activity deemed to have been provided by the appellant under the

reverse charge mechanism is not liable to service tax under telecom service.

In support of his submission he placed reliance on the following board

circular and judgments:

 Vodafone Essar Mobile – 2017 (6) GSTL 67 (Tri. Del).

 TCS E- Serve Ltd – 2014 (33) STR 641 (Tri. Mumbai)

 Idea Cellular Ltd – 2021 (55) GSTL 326 (Tri.- Mumbai)

 Boar Circular F. No. 137/21/2011 – S.T., dated 15.07.2011

Shri G. Kirupanandan, Superintendent (AR) appearing on behalf of the

Revenue reiterated the finding of the impugned order.

We have carefully considered the submission made by both sides and

perused the records. In the present case, the fact is not under dispute that

the appellant have received telecom service from abroad. In normal course

assessee who received the service from abroad is liable to pay the service

tax in terms of Section 66 A read with Rule 2 (1) (d)(iv) of Service Tax

Rules, 1994. In the present case the service involved is telecom service, this

service is chargeable to service tax only when service is provided by a

person who has been granted a Licence under first proviso to section 4(1) of

the Indian Telegraph Act, 1885. In the present case admittedly the appellant

do not possess the Licence under first proviso to section 4(1) of the Indian

Telegraph Act, 1885. Therefore, even though the service is a telecom

service but not as per the statutory definition of the telecom service hence

the same is not taxable. This has been clarified by the board under F.No.

137/21/2011 -ST dated 15.07.2011 which is reproduced below:-

“International Private Leased Circuit (IPCL) — Taxability

Instruction F.No. 137/21/2011-S.T., dated 15-7-2011

Government of India

Ministry of Finance (Department of Revenue)

Central Board of Excise & Customs, New Delhi

Subject :

Taxability in respect of International Private Leased

Circuit (IPCL) charges and amendment in the definition of Telegraph

Authority u/s 65(111) of the Finance Act, 1994 – Regarding.

Representations have been received seeking clarification regarding

taxability of IPCL charges incurred in foreign currency by BPO/MNCs

against receipt of services from the service provider situated outside

India/group companies under reverse charge mechanism [Section 66A

of the Finance Act, 1994 read with Rule 2(1)(d)(iv) of the Service Tax

Rules, 1994].

  1. The matter has been examined. The activities are in the nature of

Leased Circuit services presently covered under Telecommunication

service. However, for getting classified under Telecommunication

service, Section 65(105)(zzzx) of the Finance Act, 1994 provides that

the service should be provided by a Telegraph authority.

Telecommunication service as defined under Section 65(109a) covers

services which are provided by a person who has been granted a

licence under the first proviso to sub-section (I) of section 4 of the

Indian Telegraph Act, 1885. In this situation in the instant case since

the service provider is located abroad, he is not covered under the

definition given in Section 65(109a). Thus the service provided by

foreign vendors cannot be taxed under Telecommunication service.

  1. Section 65(105)(zzzq) read with Section 65(104c) of the Finance

Act, 1994, defines Business Support Service as services provided in

relation to business or commerce and includes evaluation of

prospective customers, telemarketing, processing of purchase orders

and fulfilment services, information and tracking of delivery schedules,

managing distribution and logistics, customer relationship

management services, accounting and processing of transactions,

operational assistance for marketing, formulation of customer service

and pricing policies, infrastructural support services and other

transaction processing.

Explanation. – For the purposes of this clause, the expression

“infrastructural support services” includes providing office along with

office utilities, lounge, reception with competent personnel to handle

messages, secretarial services, internet and telecom facilities, pantry

and security.

  1. It is clarified that the above activity of receiving IPCL service from

abroad is chargeable to Service Tax under Business Support Service

[Section 65(105)(zzzq) ibid] at the hands of recipients situated in

India in terms of Section 66A of the Finance Act, 1994, read with Rule

2(1)(d)(iv) of the Service Tax Rules, 1994 and provisions of Taxation

of Services (Provided) From Outside India and Received in India Rules,

2006 apply.

All pending issues may be decided accordingly.”

From the above circular it is clear that the appellant being not holding

Licence under Telegraph Act, 1885 is not liable to pay service tax. The

judgments cited by the learned Chartered Accountant also directly on the

issue and support the case of the appellant.

In view of our above discussion and finding the appellant is not liable

to service tax. Accordingly, the impugned order is set aside. Appeal is

allowed.

(Pronounced in the open court on 03.02.2023)

RAMESH NAIR

MEMBER (JUDICIAL)

RAJU

MEMBER (TECHNICAL)

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