2012 (6) TMI 142 - AT - Service Tax

Demand of service tax in respect of telephone service provided through leased line - Held that - In view of the fact that the leased lines provided through ACSR/copper wire provided voice communication, said leased circuits have been rightly held to be covered under the existing entry for telephone service even prior to the period 16.07.01. - To that extent the tax demand is justified. The leased line provided through iron wire which is capable of only data communication cannot be brought under the ambit of the entry for telephone service prior to 16.07.01. Matter remanded back to the original authority for verifying as to whether the service tax amount has been separately paid by service recipient and for allowing cum tax benefit in such of those cases where no service tax has been separately paid. He will also segregate the amounts relating to leased lines based on iron wire meant for only data circuit and if the demand has been made for such circuits, to reduce the demand to that extent.

Issues:
- Applicability of service tax on telephone service provided through leased line
- Collection of service tax by the appellant from the service recipient
- Applicability of extended period for demand
- Imposition of interest and penalty on a public sector unit
- Taxability of leased circuits provided to canal authorities
- Verification of service tax payments by the service recipient

Analysis:

1. Applicability of Service Tax on Telephone Service Provided Through Leased Line:
The department raised a demand of service tax against the appellant for providing telephone service through leased lines. The appellant argued that the service became taxable only after specific amendments were notified. However, the Tribunal found that telephone service was chargeable to service tax even before the specified date. The leased lines provided voice communication through ACSR/copper wire, justifying the tax demand. The lines using iron wire for data communication were not taxable as telephone service before the specified date.

2. Collection of Service Tax by the Appellant:
The appellant contended that the service tax amount collected from the service recipient was not deposited with the department. The Tribunal noted that if the service tax was not paid separately by the recipient, the appellant could be entitled to a reduced demand amount, subject to verification by the appellant.

3. Applicability of Extended Period for Demand:
The appellant argued that the demand was time-barred as the Show Cause Notice did not mention the applicability of the extended period. However, the Tribunal rejected this argument, stating that suppression with intent to evade service tax was alleged, justifying the demand made under section 73 of the Finance Act, 1994.

4. Imposition of Interest and Penalty on a Public Sector Unit:
The appellant, being a public sector organization, argued against the imposition of interest and penalty, citing decisions of the Tribunal. However, the Tribunal held that the service tax law applies equally to public and private sector entities. The Tribunal set aside the argument that interest cannot be charged on a public sector unit, remanding the matter for re-quantification of the demand, interest, and penalty amounts.

5. Taxability of Leased Circuits Provided to Canal Authorities:
The appellant claimed that the leased circuits provided to canal authorities were iron wire-based and used only for data transmission, not voice communication. The Tribunal noted the lack of evidence supporting this claim and stated that this submission required verification.

6. Verification of Service Tax Payments by the Service Recipient:
The Tribunal directed the original authority to verify whether the service tax amount had been separately paid by the service recipient. In cases where no separate payment was made, the appellant could be entitled to a reduced demand amount, subject to verification.

7. Conclusion:
The Tribunal partly allowed the appeal by remanding the matter to the original authority for verification, re-quantification of the demand, and re-determination of interest and penalty amounts based on the revised tax amount.

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