2015 (10) TMI 2363 - AT - Service Tax

Liability of Service Tax - Online Information Access and/or Database Retrieval Service Whether the amounts recovered by Appellant from small time internet service provider who took connection from appellant for rendering services to their clients would be liable to service tax? Held that - Board, through Circular No. B.11/1/2001-TRU, did not want to tax the amounts recovered by an ISP for interconnectivity services - Nothing found on record to show that small time ISPs had not discharged any service tax liability on the amounts collected by them from their clients - Revenue cannot argue against their own Board s clarification Decided against the Revenue.

Summary

Issues:
Service tax liability on interconnection services provided by an internet service provider (ISP) to small-time ISPs for the period April 2004 to April 2006.

Analysis:
The appeal challenged Order-in-Original No: 27/ST-II/RS/2014 dated 26/03/2014 passed by the Commissioner of Service Tax - II, Mumbai, which demanded service tax liability, interest, and penalties from the appellant for not discharging service tax for the mentioned period under the category of "Online Information Access and/or Database Retrieval Service." The appellant contested the show cause notice, arguing that interconnection services were not taxable based on a Board's Circular dated 09/07/2001. The adjudicating authority disagreed, confirmed the demands, and imposed penalties.

The appellant, represented by counsel, explained that as an ISP, they provided interconnection services to small ISPs who, in turn, served customers. They argued that the service tax liability for the period in question was incorrect based on the Board's circular and subsequent changes in service tax regulations. They cited a judgment from the Hon'ble High Court of Bombay to support their position.

The Departmental Representative contended that the charges for interconnection services provided by the appellant to small ISPs fell under the taxable category of "Online Information Access and/or Database Retrieval Service." They argued that the consideration for services provided indicated tax liability, emphasizing the nature of transactions between ISPs as part of the taxable service.

The Tribunal examined the case records and the arguments presented. They noted that the appellant was registered as an ISP under the relevant category and discharged service tax liability when providing services directly to customers. The key issue was whether the amounts recovered from small ISPs for interconnection services were subject to service tax.

Referring to a Circular issued by the Central Board of Excise and Customs in 2001, the Tribunal highlighted that the Board clarified that interconnection charges between ISPs were not taxable under the category of "Online Information Access and/or Database Retrieval Service." They emphasized that the revenue cannot argue against the Board's clarification and found the impugned order unsustainable. Consequently, the Tribunal set aside the order and allowed the appeal.

In conclusion, the Tribunal ruled in favor of the appellant, holding that the service tax liability on interconnection services provided to small ISPs during the specified period was incorrect based on the Board's circular and established principles.