2020 (2) TMI 1070 - AT - Service Tax

Liability of service tax - peering arrangement - Department has entertained a view that the appellant have entered into a bilateral domestic private pearing arrangement with other internet service providers for carrying internet traffic on each others backbone. There has been a primary allegation of the Department that the appellant has not discharged service tax on the value of the service provided by them to other internet service providers for carrying their internet traffic on their own backbone - demand alongwith interest and penalty - difference of opinion. HELD THAT - In view of the separate orders recorded by both the Members, due to difference of opinion, the following questions arise for determination by the third member - As held by the Member Judicial that the appellant is not liable to pay service tax on their invoice raised on NIXI, as the NIXI is not the ISP and hence, neither the service provider nor the service receiver, hence not liable to pay service tax under the Finance Act, 1994. OR, As held by the Member Technical that the appellant is liable to pay service tax on the services provided to the other ISPs through NIXI, and they have raised invoice for such services provided, on NIXI, and have also admitted to pay service tax. Registry is directed to put up this matter before the Hon ble President for referring it to the ld. third Member for his opinion.

Issues Involved:
1. Whether the demand made under the facts and circumstances is revenue neutral.
2. If the situation is revenue neutral, whether the extended period of limitation is attracted.
3. Who is the service provider and who is the service receiver under the facts and circumstances.
4. Liability of payment of service tax amounting to ?70,93,529/- along with interest.
5. Imposition of penalty under Sections 77 and 78 of the Finance Act, 1994.

Detailed Analysis:

1. Revenue Neutrality and Extended Period of Limitation:
The appellant argued that the peering arrangement service for carrying internet traffic on each other's backbone by various ISPs is a continuous process. The Department alleged that the appellant did not discharge service tax on the value of the service provided to other ISPs. The Tribunal noted that the appellant, being a public sector undertaking, cannot be attributed with fraud, suppression, or willful misrepresentation with an intent to evade service tax. The appellant cited several cases to support their argument that the situation is revenue neutral, and hence, the extended period of limitation should not be invoked.

2. Service Provider and Service Receiver:
The Tribunal examined the relationship between the appellant and NIXI, noting that NIXI acts as a coordinating and intermediary agency on behalf of all service providers. The Tribunal found that the appellant had entered into a peering arrangement with other ISPs for carrying internet traffic, which falls under the definition of internet telecommunication service as per Section 65(57a) of the Finance Act, 1994. However, a separate judgment by the Judicial Member Anil Choudhary argued that NIXI is neither the service provider nor the service receiver, but merely a facilitator, making the demand for service tax on invoices raised on NIXI misconceived.

3. Liability of Payment of Service Tax:
The Tribunal found that the appellant issued an invoice on NIXI on 09.10.2013, which included the service tax element of ?70,93,529/-. The Tribunal held that the service tax liability arises from the date an invoice is raised, as per Rule 3 of the Point of Taxation Services, 2011. Therefore, the appellant is liable to pay service tax from the date of issue of the invoice.

4. Imposition of Penalty:
The Tribunal examined the imposition of penalties under Sections 77 and 78 of the Finance Act, 1994. It noted that the appellant is a Government of India undertaking and that the necessary elements for invoking Section 78, such as fraud, misrepresentation, or suppression of facts with an intent to evade service tax, were not present. The Tribunal relied on the decision in M/s. UP State Sugar & Cane Dev Corpn. Ltd. vs. CCE to conclude that the imposition of a penalty under Section 78 was not justified. Consequently, the penalty under Section 78 was set aside.

Conclusion:
- The Tribunal upheld the order-in-original regarding the confirmation of the service tax amounting to ?70,93,529/-.
- The penalty under Section 78 was set aside.
- The rest of the order-in-original was not interfered with.

Separate Judgment by Judicial Member (Anil Choudhary):
Anil Choudhary disagreed with the view of the Technical Member, arguing that NIXI is neither the service provider nor the service receiver, but a facilitator. He held that the demand for service tax on invoices raised on NIXI is misconceived, and the show cause notice is wholly misconceived. Therefore, he set aside the impugned order and allowed the appeal, entitling the appellant to consequential benefits in accordance with the law.

Referral to Third Member:
Due to the difference of opinion between the Judicial and Technical Members, the matter was referred to the Hon’ble President for determination by a third member. The key questions for the third member were whether the appellant is liable to pay service tax on invoices raised on NIXI and whether NIXI is the service provider or receiver.

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