2014 (11) TMI 833 - AT - Service Tax

Waiver of predeposit of service tax - Telecom service - Held that - The adjudicating authority has demanded service tax on BSNL Cellular Division on the Inter-connect usage charges for BSNL Landline Division. BSNL is a PSU entity who has taken separate registration for each Division/Zone for the purpose of discharging service tax liability. There is no dispute on the fact that BSNL has one single PAN number and one Profit and Loss/Balance Sheet. The definition to any person defined in the Section 105 (zzzx) of Finance Act, 1994 refers to a separate legal entity . The citation relied upon by the appellant in the case of Precot Mills Ltd. Vs CCE Tirupati (2006 (2) TMI 25 - Appellate Tribunal, Bangalore) and IOCL (2007 (5) TMI 135 - CESTAT, KOLKATA) is squarely applicable to the facts of this case. Following the ratio of the aforesaid decisions, prima facie the appellant has made out a case for waiver of predeposit. Accordingly, we waive the requirement of predeposit of entire service tax along with interest and penalties and stay its recovery till disposal of the appeal - Stay granted.

Summary

Issues:
Waiver of predeposit of service tax on interconnection service provided by a PSU entity to its own landline division, interpretation of legal entity under Finance Act, 1994, applicability of case laws in determining service tax liability.

Analysis:
The case involved an application for waiver of predeposit of a substantial amount of service tax, interest, and penalties related to interconnection services provided by a PSU to its own landline division. The Commissioner confirmed the demand for service tax on Interconnect Usage Charge (IUC) along with penalties. The key contention from the appellant was that the BSNL Cellular and BSNL Landline divisions are considered one entity with a single PAN number and financial statements, and any income transfer between these divisions is for internal profitability assessment only, not for rendering services to external parties.

The appellant relied on specific case laws to support their argument, emphasizing that no service was actually rendered to any external person, hence no service tax should be levied. On the other hand, the respondent argued that each BSNL division operates as a separate legal entity under the Finance Act, 1994, with distinct registrations for service tax purposes. The respondent also highlighted the Telecommunication Interconnection Usage Charges Regulation, 2003, which defined terms related to interconnectivity services.

After hearing both sides, the Tribunal considered the legal definitions of "person" and "legal entity" under the Finance Act, 1994. The Tribunal noted that BSNL, despite having a single PAN number and financial statements, had separate registrations for each division for service tax compliance. However, the Tribunal found merit in the appellant's argument, citing relevant case laws like Precot Mills Ltd. and IOCL, which supported the view that no service tax liability arises when services are not provided to external entities. Consequently, the Tribunal granted the waiver of predeposit, staying the recovery of the entire service tax amount, interest, and penalties until the appeal's final disposal.

In conclusion, the judgment addressed the complex issue of determining service tax liability within a single entity providing interconnection services internally. By analyzing the legal entity concept and applying relevant case laws, the Tribunal granted relief to the appellant by waiving the predeposit requirement and staying the recovery process, pending the appeal's outcome.