2008 (8) TMI 191 - AT - Service Tax

Contract with Govt. of Andhra Pradesh - appellants are to build, own and operate a Wide Area Network (WAN) according to technical requirements to provide voice, video and data communication services - WAN is only for the exclusive use of A.P. Government and this can only be treated as a private network service - fact that private network services form part of the telecommunication services indicate that they cannot be equated with online information database and access/retrieval service

Issues Involved:

1. Liability of the appellant to pay Service Tax under the category of 'Online Information and Database Access and/or Retrieval Service'.
2. Interpretation of the contract between the appellant and the Government of Andhra Pradesh.
3. Applicability of the extended period for demand and penalties under the Finance Act, 1994.

Issue-wise Detailed Analysis:

1. Liability of the appellant to pay Service Tax under the category of 'Online Information and Database Access and/or Retrieval Service':

The core issue is whether the appellant is liable to pay Service Tax under the category of 'Online Information and Database Access and/or Retrieval Service'. The Commissioner had concluded that the appellants provided services defined under Section 65(75) of the Finance Act, 1994, and therefore, were liable for Service Tax. Consequently, a demand of Rs. 88,66,501/- was confirmed for the period from 16.7.2001 to 30.3.2005, along with interest under Section 75 and penalties under Sections 76 and 77.

The appellants argued that they were only responsible for providing hardware and software for the network's proper functioning, connecting State and District centers for better administration. They contended that they did not control or own the data on APSWAN, which belonged to the Government of Andhra Pradesh. They further argued that setting up part of a computer network does not amount to providing online services and that their services were not analogous to those typically falling under 'online data access/retrieval services' like 'Tax India Online' or 'Bharat Matrimony'.

The respondents countered that the appellants provided a medium for accessing data, which fell under the said service category. They argued that providing access to information or data through a network is a service covered by 'Online Information and Database Access or Retrieval Service'.

2. Interpretation of the contract between the appellant and the Government of Andhra Pradesh:

The contract required the appellants to build, own, and operate a Wide Area Network (WAN) for voice, video, and data communication services. The appellants provided network interfaces like multi-service switches, routers, firewalls, and network management services, but the entire network was not provided by them. The Andhra Pradesh Government leased lines from BSNL, and the appellants were responsible only for the uptime of their equipment.

The Tribunal noted that the appellants' responsibility was limited to maintaining the uptime of the equipment they supplied. The data was generated and owned by the Andhra Pradesh Government, and the appellants did not provide or control the data. The Tribunal concluded that the appellants' role in maintaining network equipment did not equate to providing 'Online Information and Database Access or Retrieval Services'.

3. Applicability of the extended period for demand and penalties under the Finance Act, 1994:

The appellants argued that the issue involved interpretation of the statute, and there was no suppression of facts as the department regularly audited their books. They claimed a bona fide belief that their services were not taxable, thus contending that penalties were unjustified.

The respondents argued that the appellants did not make efforts to ascertain the taxability of their services for five years and that the bona fide belief was not acceptable. They justified the penalties under Sections 76, 77, and 78 of the Finance Act.

The Tribunal found that the appellants were not liable for Service Tax under the disputed category and, therefore, penalties were not warranted. The Tribunal allowed the appeal with consequential relief, emphasizing that the appellants' services did not fall within the ambit of 'Online Information and Database Access or Retrieval Service'.

Conclusion:

The Tribunal concluded that the appellants were not liable to pay Service Tax under the category of 'Online Information and Database Access and/or Retrieval Service'. The appellants' role was limited to providing and maintaining network equipment, and they did not control or provide the data. The Tribunal allowed the appeal, setting aside the demand and penalties, and granted consequential relief to the appellants.

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