2017 (11) TMI 536 - AT - Service Tax

Telephone services - retention of part of deposit made, when the connection was discontinued prematurely - Held that - There is nothing on record to suggest that the portion of the deposit retained by was towards provision of telephone service. The expenditure under Section 67 providing for adjustments made form any deposit to be considered as part of assessable value was given in a different context. In respect of schemes such as Own Your Telephone (OYT wing) a part of charges for telephone service was recovered by debiting of security deposit - In the facts of the present case, the retention of the portion of deposit towards capital expenditure incurred and not for provision of telephone service - demand set aside - appeal allowed - decided in favor of appellant.

Summary

Issues:
- Whether the amount retained under the 'Tatkal Scheme' by the appellant is liable for service tax.
- Interpretation of Section 65(105)(b) of the Finance Act, 1994 regarding consideration for providing telephone services.
- Application of Section 67 of the Finance Act, 1994 in determining assessable value.
- Determining if the amount retained was towards capital expenditure or part of the value of the services provided.

Analysis:
The appellant, a telephone service provider, had a scheme called the 'Tatkal Scheme' where subscribers paid an extra deposit for urgent connection. The Revenue claimed that the amount retained by the appellant after premature disconnection should be part of the service value, leading to a demand for service tax. The appellant argued that the retained amount was for capital expenditure, not for providing telephone service, as charges under the scheme were similar to other services. The Revenue contended that the service tax should apply to the gross value from the service recipient, citing Section 67 of the Finance Act, 1994.

The Tribunal considered both arguments, focusing on whether the retained amount was for providing telephone services. The appellant claimed it was for capital expenditure, not part of the service value. They highlighted that charges under the 'Tatkal Scheme' were comparable to other services. The Tribunal agreed with the appellant, noting that there was no evidence to suggest the retained amount was for the service provided. The Tribunal differentiated this case from others where adjustments from deposits were part of the assessable value. They concluded that the retained amount was for capital expenditure, not for the service, and thus, the demand for service tax was unjustified.

Therefore, the Tribunal set aside the impugned order, allowing the appeal in favor of the appellant. The judgment emphasized that service tax should only apply to consideration received for providing telephone services under Section 65(105)(b) of the Finance Act, 1994, and in this case, the retained amount was not part of the service value but towards capital expenditure.