2016 (1) TMI 702 - AT - Service Tax

Interconnection service - Online Information Access and/or Database Retrieval Service - From April 2004 to April 2006 - appellant submitted that the demand which has been raised is for interconnection service which is not taxable as per the Boards Circular dated 09/07/2001. - Held that - the Board did not want to tax the amounts recovered by an ISP for interconnectivity services. Such a stated stand cannot be overlooked by the adjudicating authority who is functioning under the Board. Be that as it may, there is nothing on record to show that small time ISPs who had rendered the services to their clients by taking connection from the appellant had not discharged any service tax liability on the amounts collected by them from their clients/customers. It is settled law that the revenue cannot argue against their own Boards clarification. - Demand set aside - Decided in favor of assessee.

Summary

Issues:
Service tax liability for the period April 2004 to April 2006 under the category of Online Information Access and/or Database Retrieval Service for interconnection services provided by the appellant to small time ISPs.

Analysis:
The appeal challenged an Order-in-Original passed by the Commissioner of Service Tax - II, Mumbai, demanding service tax liability, interest, and penalties from the appellant for the period in question. The appellant argued that the demand was for interconnection service, which was not taxable as per a Circular issued by the Central Board of Excise and Customs. The appellant contended that the interconnectivity services provided by them to small time ISPs should not be subject to service tax. The Departmental Representative, however, argued that the charges recovered by the appellant from small time ISPs fell under the category of Online Information Access and/or Database Retrieval Service and were liable for service tax. The adjudicating authority confirmed the demands and penalties against the appellant.

The Tribunal examined the case records and submissions from both sides. It was established that the appellant, registered as an internet services provider under the relevant category, discharged service tax liability when providing services directly to customers. The key issue was whether the amounts received from small time ISPs for interconnectivity services should be subject to service tax. The Tribunal noted that the Circular issued by the Board clarified the liability of service tax under Online Information Access and/or Database Retrieval Service. The Circular explicitly stated that interconnection charges between ISPs were not taxable under this category.

The Tribunal emphasized that the Board's clarification regarding interconnectivity services should not be disregarded. It was observed that there was no evidence to show that the small time ISPs, who received services from the appellant, had not paid service tax on the amounts collected from their clients. The Tribunal held that the impugned order, which confirmed the service tax liability on interconnectivity charges, was unsustainable. Therefore, the Tribunal set aside the impugned order and allowed the appeal in favor of the appellant.