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].
- 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.
- 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.
- 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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