2018 (11) TMI 1222 - AT - Service Tax

Validity of SCN - grounds raised in SCN not clear - Liability of service tax - Appellants were receiving and providing IUC services from Sri Lanka Telecom, a service provider situated outside India - reverse charge mechanism - Held that - The show cause notice has not specified the category of service falling under any of the sub-clause to Section 105 of the Finance Act, 1994 under which the demand of service tax has been proposed. It is well settled that lack of such clarity in the show cause notice and omission to indicate the specific category of service under which the tax is proposed to be demanded will vitiate the proceedings ab initio. The circulars dated 15.7.2011 and 19.12.2011 are very much applicable pari materia to IUC charges paid by the appellant to Sri Lanka Telecom, where it has been reiterated that when the service provider is located abroad, he is not covered under the definition under Section 65(105). Hence, the service provided by foreign vendors cannot be taxed under Telecommunication Service. Appeal allowed - decided in favor of appellant.

Summary

Issues:
- Service tax liability on Interconnectivity Usage Charges (IUC) services received from a foreign service provider.
- Clarity in the show cause notice regarding the specific category of service for tax demand.
- Applicability of circulars on taxability of services provided by foreign vendors.

Analysis:

1. Service tax liability on IUC services: The case involved the appellants providing Telecommunication Service and receiving IUC services from Sri Lanka Telecom. The Department contended that service tax was due on the charges collected for these services. The Commissioner upheld the demand, imposing penalties. The appellant argued that the show cause notice lacked clarity on the specific service category for tax liability under Section 65(105) of the Finance Act. The appellant referenced Circulars stating that services provided by foreign vendors, including IUC charges, were not taxable under Telecommunication Service. The Tribunal agreed with the appellant, emphasizing the importance of clarity in the notice and the overriding effect of subsequent circulars. Consequently, the impugned order was set aside, and the appeal was allowed.

2. Clarity in show cause notice: The Tribunal acknowledged the appellant's contention regarding the lack of specificity in the show cause notice regarding the category of service for tax demand. It was noted that such ambiguity could invalidate the proceedings from the beginning. This issue was crucial in determining the validity of the demand for service tax on the IUC services received by the appellants. The Tribunal's decision to set aside the order was influenced by this procedural flaw, highlighting the significance of clear and precise communication in tax-related matters.

3. Applicability of circulars: The arguments presented by both parties referenced various Circulars issued by the Board regarding the taxability of services provided by foreign vendors, particularly in the context of Telecommunication Service. The appellant relied on Circulars emphasizing that services from foreign providers were not subject to tax under certain circumstances. In contrast, the respondent highlighted Circulars incorporating IUC charges into the definition of telecommunication service. The Tribunal analyzed these Circulars and concluded that the ones supporting the appellant's position were more relevant and would override earlier advisory Circulars. This analysis played a crucial role in determining the tax liability on the IUC services received by the appellants, ultimately leading to the decision in favor of the appellant.