2008 (5) TMI 71 - AT - Service Tax

Service tax on Interconnectivity Usage Charges (IUC) received by the appellants, BSNL The interconnectivity usage charges are collected from another telephone service provider - It is not a service provided directly to a subscriber - While providing service of interconnection usage, no service of telephone connection is provided to recipient telegraph authority - hence interconnectivity usages charges would not be liable to service tax under telephone service

Summary

Issues:
Service tax on Interconnectivity Usage Charges (IUC) received by the appellants.

Analysis:
The appeal was filed against the Order-in-Original passed by the Commissioner of Central Excise, Thiruvananthapuram, regarding the non-payment of service tax on Interconnectivity Usage Charges of Rs. 18,82,75,501/- by the appellants. The Revenue alleged suppression of facts and confirmed the demand, including interest under Section 75 of the Finance Act, 1994, and penalties under Sections 76 and 78. The appellants contested the order, arguing that the charges were not taxable under Section 65 of the Finance Act, 1994.

The appellants relied on the definitions provided in the Finance Act, 1994, to support their case that the service provided by the telegraph authority to license holders of telephone connections is not taxable. They also referenced a Ministry of Finance letter clarifying that Interconnect Usage Charges (IUC) would not be subject to service tax as they are covered through call charges. The appellants contended that the Board's earlier Circular should be considered superseded in this matter.

After careful consideration, the Tribunal found no merit in the Revenue's demand for service tax on Interconnectivity Usage Charges. The Tribunal referred to a Board's Circular from March 12, 2007, which clarified that interconnection usage services provided by one telegraph authority to another are not taxable under the category of telephone service. The Tribunal emphasized that since the charges were collected from another telephone service provider and not directly from a subscriber, they would not be liable to service tax. Citing the opinion of the Law Ministry and Attorney General, it was concluded that IUC is not taxable under any existing taxable services. Consequently, the appeal was allowed with consequential relief.

In conclusion, the Tribunal ruled in favor of the appellants, holding that Interconnectivity Usage Charges were not subject to service tax based on the definitions in the Finance Act, 1994, and the clarifications provided by the Board and legal authorities. The decision highlighted that the charges collected were not directly from subscribers, making them exempt from service tax.