2019 (12) TMI 556 - AT - Service Tax

Telephone service - public telephone operating only for local calls - Meaning and scope of Local Calls - nature of calls made to mobile service operators - Benefit of exemption notification 03/94 (ST) dt.30.06.1994 (Sl.No.12 13) - Whether the appellant is entitled to the benefit of exemption notification 03/94 (ST) dt.30.06.1994 (Sl.No.12 13) which is available to only telephones used for local calls, in respect of those telephones which were used for long distance calls as well as calls to mobile phones? - HELD THAT - There is an individual telephone exchange and a number of exchanges are grouped together as an exchange system. Calls can be made from within the exchange or to other exchanges within the exchange system or to lines connected to other exchange systems. It is not the case of the appellant that the entire Andhra Pradesh is a single exchange system. There were several exchange systems in the state and through the public telephones in question, a call can be made to any line in any of the exchange systems throughout the states. Clearly, in terms of the Indian Telephone Rules, 1951, this cannot be called a local call and a phone used for such calls cannot be called as telephone meant for local calls only. Further, mobile networks also do not form part of the exchange system in the aforesaid definition. Therefore, calls made to mobile networks also cannot be called as local calls. In the absence of any contrary definition of local calls anywhere, we have no choice but to hold that the appellant is not entitled to the benefit of exemption notification which was available for public telephones to be used for local calls - on merits the demand is sustainable. Extended period of limitation - HELD THAT - From the SCN, the intention to evade payment of service tax is not very evident. No doubt the appellant has wrongly availed exemption notification 03/94 (ST) in respect of these services and as the department dealing with the telephones, the appellant should have known better than anybody else what local calls are. They should also have known that they have enlarged the scope of the public telephones to make calls to mobiles and to the entire state of Andhra Pradesh - the revenue has not established the case to invoke extended period of limitation - extended period cannot be invoked. Penalties - HELD THAT - The appellant were extremely careless in not paying service tax on the disputed services but we are unable to accept that there is a positive effort to suppress the facts or an intention to evade payment of service tax - the penalty under Section 78 imposed upon the appellant is also not sustainable - however, Penalties under Section 76 77 are upheld and need to be recomputed as necessary. The demands are upheld on merits for the normal period of limitation along with interest - the penalties under Section 76 77 are upheld and may be recomputed as necessary - appeals are remanded to the original authority for the limited purpose of computation.

Summary

Issues:
1) Entitlement to exemption notification for telephones used for long-distance and mobile calls.
2) Sustainability of demand invoking extended period of limitation.
3) Imposition of penalties.

Entitlement to Exemption Notification:
The case involved appeals regarding the entitlement to exemption under notification 03/94 (ST) for public telephones used for long-distance and mobile calls. The notification specified exemption for telephones used for local calls only. The appellant argued that the National Telecom Policy aimed to extend telephone facilities, justifying the expanded use of the telephones in question. However, the tribunal held that the exemption was strictly for local calls, as per the notification and Indian Telephone Rules. The definition of "local call" from the rules did not encompass long-distance or mobile calls. Therefore, the appellant was not entitled to the exemption due to the expanded usage of the telephones beyond local calls.

Sustainability of Demand with Extended Period of Limitation:
Regarding the sustainability of the demand invoking extended period of limitation, the tribunal analyzed the provisions of Section 73(1) of the Finance Act, 1994. The revenue alleged suppression of facts by the appellant to evade service tax, justifying the extended period. However, the tribunal found that while the appellant was negligent in not paying service tax on the disputed services, there was no clear evidence of intentional suppression to evade tax. As a result, the tribunal set aside the demand for the extended period of limitation, along with the penalty under Section 78, as the intention to evade payment was not conclusively established.

Imposition of Penalties:
The tribunal upheld penalties under Sections 76 & 77 but set aside the penalty under Section 78. It was noted that penalties under Sections 76 & 77 needed to be recomputed accordingly. The tribunal remanded all appeals to the original authority for the limited purpose of computation of penalties and demands. The judgment emphasized the importance of strict interpretation of exemption notifications and the necessity for clear evidence to establish intent to evade payment of service tax for invoking extended periods of limitation.

This detailed analysis of the judgment from the Appellate Tribunal CESTAT Hyderabad highlights the issues, arguments, and conclusions reached by the tribunal on each aspect of the case, ensuring a comprehensive understanding of the legal proceedings and outcomes.