2014 (11) TMI 310 - AT - Service Tax

Nature of Virtual Private Network (VPN) services - import of services - Information access/retrieval or Online information and database access or retrieval service - Receipt of service from foreign service provider - Held that - data centre is located abroad to which the foreign offices have access for data and its retrieval. The ownership of data is quite clearly with the SBI foreign offices. Equant have not provided any data for access/retrieval. They have simply enabled the connectivity. They have provided connectivity which enables the FOs to access/retrieve data online. The responsibility of Equant is to ensure that network VPN functions properly. The Commissioner has totally misread the meaning of Services provided in relation to online information and database access or retrieval . Clearly the service provided has to relate to information access/retrieval. And EQuant has not provided information and database. The ownership of data is with the FOs. This is a vital fact. The Commissioner s finding that it is not necessary that the original data should emerge or originate from the provider of VPN network is an incorrect reading of section 65(75) and 65(105)(zh). The service provided by Equant will more aptly fall under telecommunication service if provider is licensed under Indian Telegraph Act. Reliance is placed on the case of United Telecom Ltd. (2008 (8) TMI 191 - CESTAT, BANGALORE). SBI India have not received Online information and database access or retrieval service from foreign service providers. Therefore, demand of service tax, interest, fees and penalty is not sustainable. - Decided in favour of assessee.

Summary

Issues:
Appeal against service tax duty demand, interpretation of taxable service under Finance Act, 1994, applicability of section 66A on reverse charge basis, dispute regarding service provided by Equant, determination of online information and database access or retrieval service.

Analysis:
1. The appellant contested an order confirming service tax duty demand of Rs. 2,61,06,556 with interest and penalties under sections 76, 77, and 78 of the Finance Act, 1994. The case revolved around a contract between State Bank of India (SBI) and EquantPte. Ltd. for Virtual Private Network (VPN) services enabling data retrieval from overseas data centers. The Revenue alleged Equant provided taxable services under section 65(105)(zh) of the Finance Act, 1994, from April 2005 to March 2010, triggering service tax under section 66A on reverse charge basis. The appellant argued the services were for SBI's foreign offices, not SBI in India, and Equant's provision was only for bandwidth, not online information access. The adjudicating authority upheld the demand post-18.04.2006, dismissing the appellant's contentions.

2. The appellant's counsel highlighted SBI's separate domestic and foreign office IT verticals using different core banking solutions, with Equant and another provider offering bandwidth to foreign offices outside India. They argued the service did not involve online information access or data retrieval, citing the Tribunal's decision in United Telecom Ltd. 2009(18) STT 495. The Special Counsel reiterated the Commissioner's findings, asserting SBI received data from foreign offices and suppressed facts regarding connectivity provision.

3. The Tribunal observed crucial facts uncontroverted by the Revenue: the service provider and recipient were abroad, services rendered outside India, and payments made abroad. It agreed with the appellant that the service did not fall under section 66A read with rule 3(iii) of Taxation of Services (Provided from Outside India and Received in India) Rules, 2006. Examining section 65(105)(zh), the Tribunal found Equant's service did not provide online information access or retrieval, emphasizing Equant's role in enabling connectivity, not data provision.

4. The Tribunal rejected the Revenue's stance that Equant's service constituted online information access or retrieval, noting Equant's location abroad, lack of data provision, and foreign offices' data ownership. It clarified that Equant facilitated connectivity, not data access, and misinterpreted the service description. Referring to telecommunication services under section 65(109)(A), the Tribunal concluded SBI did not receive online information and database access service, rendering the demand unsustainable. The impugned order was set aside, and the appeal allowed.