2018 (3) TMI 1007 - AT - Service Tax

Valuation - inclusion of amount of discount given to PCO operators - whether the assessee has to discharge service tax on the entire amount collected by the PCO operator from the PCO user (customer)? - Held that - Prior to 1.6.2008, the appellant BSNL was discharging service tax on the basis of metered calls of the PCO recorded in the exchange. Thus PCO operators were allowed to charge Re.1 per MCU and this Re.1 comprised of Re.0.11 towards service tax and balance ₹ 0.89 towards commission payable to operators and revenue share of BSNL. After 1.6.2008, though Re.1 per MCU remained the same, the nature of payment to PCO operator was changed by providing a slab basis / defined rates. Thus for Re.1 collected by PCO operator, he retained Re.0.30 and Re.0.40 and paid Re.0.70 and Re.0.60 to BSNL upon which BSNL discharged the service tax. According to department, Re.0.30 and Re.0.40 in the nature of discount given to PCO operator should be included for levy of service tax. In Bharti Infotel Ltd. 2005 (7) TMI 3 - CESTAT, New Delhi , it was decided that such commission / discount cannot be included in the value for levy of service tax. N/N. 2/2011-ST dt.1.3.2011 has inserted an Explanation in Rule 5, clause (1) of Service Tax (Determination of Value) Rules, 2006, which says that W.e.f. 1.3.2011, the value of taxable services in sub-clause (zzzx) of clause 105 of Section 65 namely the telecommunication services, shall be the gross amount paid by the person / PCO user to whom the telecom service is provided by the telegraph authority. The said amendment makes it clear that w.e.f. 1.3.2011, the value of taxable service would include the total amount collected by the PCO operator - since it is specifically stated that the said notification shall be effective only from 1.3.2011, the period involved in the present case being prior to 1.3.2011, the demand of differential amount of service tax alleging that entire amount collected by the PCO operator is subject to levy of service tax cannot sustain. Appeal allowed - decided in favor of assessee.

Summary

Issues Involved:
The issue involves the liability of BSNL to pay service tax on the entire amount collected by the PCO operators from their customers, the applicability of relevant legal provisions and amendments, and the interpretation of definitions pre and post 1.6.2007.

Analysis:

Liability to Pay Service Tax:
The case revolved around whether BSNL was obligated to discharge service tax on the total amount collected by PCO operators from users. The Department argued that BSNL did not consider the discounts given to PCO operators when determining the taxable value for service tax, resulting in underpayment. The Department contended that service tax should be paid on the entire amount collected post-amendment. However, the appellant argued that the liability should be based on the gross amount paid by the person receiving the telecom service, as clarified by an Explanation in Rule 5 of the Service Tax (Determination of Value) Rules, 2006, effective from 1.3.2011.

Interpretation of Legal Provisions:
The Tribunal examined the definitions of taxable services pre and post 1.6.2007. Before the amendment, taxable service referred to services provided to a subscriber by the telegraph authority, while after the amendment, it was expanded to services provided to any person. The Tribunal analyzed the changes in the payment structure post-amendment, where PCO operators retained a portion of the collected amount. The Tribunal referred to previous decisions, such as Bharti Infotel Ltd., to determine the inclusion of discounts in the taxable value for service tax.

Applicability of Amendments:
The Tribunal considered Notification No.2/2011, which inserted an Explanation in Rule 5 of the Service Tax Rules, clarifying the taxable value for telecommunication services effective from 1.3.2011. The Tribunal concluded that since the demand was for a period before 1.3.2011, the service tax liability based on the total amount collected by PCO operators could not be sustained. Therefore, the Tribunal set aside the orders confirming the demand, allowing the appeal filed by the assessee and dismissing the appeals by the department.

This detailed analysis of the judgment highlights the key legal issues, arguments presented by both parties, the interpretation of relevant legal provisions, and the Tribunal's decision based on the applicability of amendments to the case.