2019 (7) TMI 521 - AT - Service Tax

Taxable service or not - interconnection usage for SMS provided by the Appellant to the said 6 telecom service providers - no consideration/ charges agreed upon between the Appellant and the said 6 Telecom operators - no agreement/contract arrived at and executed with the aforesaid 6 Telecom service providers with regard to charges for interconnection usage for SMS - no Invoices were raised by the Appellant on the said 6 Telecom service providers - demand of service tax with interest and penalty - extended period of limitation - period prior to November 2012, i.e. April 2011 to September 2012. HELD THAT - The settled legal position is that where a service is rendered free without charging any consideration, the same does not attract service tax - It must therefore follow that as admittedly during the period April 2011 to September 2012, no amount was charged and paid for providing Interconnection usage for SMS, there was no taxable service. The definition of service given in Section 65B (44) of the Finance Act 1994 requires that to constitute a service, the activity carried out by a person for another should be for consideration - In the present case, the telecom service providers in question declined to enter into agreements providing for charging of consideration for the interconnection usage for SMS and no amount was charged and paid for the interconnection usage for SMS. Issuance of invoice - Applicability of POT Rules - HELD THAT - The issuance of an Invoice pre-supposes and requires the existence of an agreement/ contract between the parties under which the parties have agreed upon a consideration/ charge/ price for a sale or service. An Invoice is a commercial document issued for debiting the recipient of goods/ service with the agreed price. This, in the first place, requires the existence of an agreed price. When there is no contract/ agreement, as in the present case and hence no price/ consideration is agreed upon, the question of issuing an Invoice for the same does not arise - Since there was no issue of Invoice, the point of taxation under Rule 3(a) of the Point of Taxation Rules, 2011, has not occurred - Since the point of taxation has not occurred under any of the clauses of the said Rule 3, the liability to pay service tax has not arisen. Extended period of limitation - HELD THAT - The SCN is also bad for invoking extended period of limitation as enquiry in the transaction under dispute had started in February, 2013 whereas the show cause notice was issued only on 31.03.2014 for the period under dispute April, 2011 to September, 2012. Appeal allowed - decided in favor of appellant.

Summary

Issues Involved:
1. Whether the absence of consideration for interconnection usage for SMS provided by the Appellant to six telecom service providers constitutes a taxable service.
2. Whether the point of taxation under the Point of Taxation Rules, 2011, has occurred.
3. Whether the extended period of limitation for issuing the show cause notice is applicable.

Detailed Analysis:

1. Absence of Consideration for Interconnection Usage for SMS:
The Appellant provided interconnection usage for SMS to six telecom service providers without any agreed consideration during the period April 2011 to September 2012. The Appellant argued that since no consideration was agreed upon or paid, the service did not qualify as a taxable service under Section 65B (44) of the Finance Act 1994, which defines service as an activity carried out by a person for another for consideration. The Tribunal concurred, citing precedents such as *Indus Motor Company v CCE* and *Apitco Ltd v CST*, which establish that services rendered free of charge do not attract service tax. Therefore, the absence of consideration meant no taxable service was rendered.

2. Point of Taxation under the Point of Taxation Rules, 2011:
The Appellant contended that the point of taxation did not occur as per Rule 3(a) of the Point of Taxation Rules, 2011, because no invoices were issued due to the lack of an agreed price. The Tribunal agreed, noting that an invoice presupposes an agreed price, which was absent in this case. The Tribunal further explained that under the Proviso to Rule 3(a), the point of taxation occurs on the completion of the service, which did not happen here due to the absence of a contract specifying periodical payments. Additionally, Rule 3(b) did not apply as no payments were received. Consequently, the Tribunal concluded that the point of taxation had not occurred, and thus, no service tax liability arose.

3. Extended Period of Limitation for Issuing the Show Cause Notice:
The show cause notice was issued on 31-3-2014, for the period April 2011 to September 2012, invoking the extended period of limitation. The Tribunal found this to be improper, noting that investigations had commenced in February 2013, and there was no justification for the delay in issuing the notice. The Tribunal emphasized that the settled legal position is that services rendered without consideration do not attract service tax, as upheld by the Supreme Court in *Apitco Limited v CST*. Therefore, the invocation of the extended period was deemed inappropriate.

Conclusion:
The Tribunal allowed the appeal, setting aside the impugned order. It held that in the absence of consideration, no taxable service was rendered, and the point of taxation had not occurred. Moreover, the extended period of limitation was improperly invoked. The Appellant was entitled to consequential benefits in accordance with the law.