2007 (1) TMI 51 - AT - Service Tax

Lease Circuit Services One telegraph authority can not be held as subscriber of another for providing intercommunication link IUC charges collected from another telegraph authority can not be held as lease circuit service

Summary

Issues:
Interpretation of interconnect usage charges (IUC) as leased circuit service for service tax liability.

Analysis:
The appeal involved a dispute regarding the treatment of interconnect usage charges (IUC) collected by a telegraph authority from other telecom operators. The Commissioner had considered these charges as payments for "leased circuit service" and imposed a substantial duty of Rs. 15,89,86,209 along with penalties. The appellant argued that the IUC charges were for services rendered in terminating calls, not for leasing circuits. They highlighted that the charges were irrespective of the link provider and that the total investment in such circuits was insignificant compared to the overall network investment. The appellant also emphasized that telecom authorities should not be considered subscribers of each other.

The department contended that the interconnection agreements between the appellant and other operators involved dedicated links essential for call transmission. They argued that the definition of "leased circuit" encompassed not only physical wires but also supporting systems, and the appellant had admitted to dedicated links in their network. The department asserted that without these circuits, calls between subscribers of different telecom authorities would not be possible, thus justifying the leased circuit classification for IUC charges.

The Tribunal analyzed the nature of interconnection between telecom networks and the role of dedicated links in facilitating calls between subscribers of different operators. It noted that the charges collected were not solely for using connecting circuits but included other services provided during call transmission. The Tribunal emphasized that telecom authorities were distinct from subscribers, and the IUC charges could not be considered payments for leased circuit services. Citing a High Court decision, the Tribunal concluded that telecom authorities did not act as subscribers to each other, further supporting the appellant's position.

Ultimately, the Tribunal allowed the appeal, rejecting the Commissioner's classification of IUC charges as leased circuit services. The judgment clarified that the charges were not related to dedicated links but encompassed various services provided during call transmission. The decision underscored the distinction between telecom authorities and subscribers, emphasizing that the charges collected were not for leasing circuits.