2021 (9) TMI 452 - AT - Service Tax

Levy of penalty u/s 78 of FA - Demand of service tax on roaming charges - Failure to discharge tax dues - appellant herein was not even placed on notice for non discharge of tax - Period between 18th April 2006 and 16th May 2008 - HELD THAT - The licence enables entities like the appellant to offer services to its subscribers; the charges due from subscribers are also itemised in the bills raised for payment at pre-arranged intervals. No other operator is contractually competent to collect charges from the subscriber. At the same time, the constraints of territorial licencing whether within the country or outside it, though, in this dispute, the former does not concern us impede provision of service to subscribers who are physically, albeit temporarily, outside the licence territory and in facilitating communication of calling party subscriber in India with called party in another territory. Doubtlessly, the equipment of licencee outside the country is utilised but, nonetheless, are not placed at the disposal of the appellant; the subscriber is provided in entirety, or for continuity of service, directly by the overseas operator. The premise of the adjudicating authority that infrastructural facilities of the overseas operator are made use of by the appellant has no basis in facts. The billings for each such use are transmitted through the appellant to the subscriber as separately itemised charges which, though paid on demand to the overseas operator by the appellant, is to be recovered from the subscriber - It is not the case of the service tax authorities that the amount paid by the subscriber in relation to roaming charges or for international calls are subsumed in the revenues of the appellant. The separate and distinct itemisation in the billing forecloses such supposition. The appellant, as a licencee of the domestic telecommunication regulatory regime, is not conferred with empowerment to operate in a foreign territory and can neither, conceivably, offer such service independent of the overseas entity nor avail of the equipment of overseas operator for rendering telecommunication service to its subscribers. The activity, therefore, lies outside the ambit of support service of business or commerce which is the taxable service sought to be fastened on the appellant as deemed provider under section 66A of Finance Act, 1944. Consequently, the demand of tax on roaming charges and call termination charges in the impugned order fails. Tax liability of ₹ 12,74,60,204, ₹ 35,10,51,305 and ₹ 3,02,65,333 under section 73 of Finance Act, 1994, along with interest thereon under section 75 of Finance Act, 1994, penalties under section 76 and penalty under section 78 of Finance Act, 1994 are set aside - Appeal allowed.

Issues Involved:

1. Imposition of penalty under section 78 of the Finance Act, 1994 without notice.
2. Taxability of 'roaming charges,' 'cell termination charges,' and 'carrier charges' paid to overseas telecom operators.
3. Interpretation of 'infrastructural support service' under section 65(104c) of the Finance Act, 1994.
4. Application of section 66A of the Finance Act, 1994 regarding services procured from outside India.
5. Classification and identification of the recipient of the service under the special provisions of section 66A.
6. Taxability of services provided by overseas telecom operators to the appellant's subscribers.
7. Whether the services of the overseas entity can be considered as 'input service' for the appellant.

Detailed Analysis:

1. Imposition of Penalty under Section 78 of the Finance Act, 1994 without Notice:
The tribunal noted that the impugned order imposed a penalty under section 78 of the Finance Act, 1994 for failure to discharge tax dues in the subsequent period without placing the appellant on notice. This was found to be particularly glaring, and the tribunal intended to address this contradiction if necessary.

2. Taxability of 'Roaming Charges,' 'Cell Termination Charges,' and 'Carrier Charges' Paid to Overseas Telecom Operators:
The appellant, M/s Idea Cellular Ltd (now M/s Vodafone Idea Ltd), remitted substantial amounts towards 'roaming charges,' 'cell termination charges,' and 'carrier charges' to overseas telecom operators. The adjudicating authority had expanded the definition of 'support service of business or commerce' to include these charges, which the appellant contested as unwarranted.

3. Interpretation of 'Infrastructural Support Service' under Section 65(104c) of the Finance Act, 1994:
The appellant argued that the expression 'infrastructural support service' should not be expanded beyond its specific enumeration, relying on judicial precedents. The tribunal noted that this claim required consideration of whether the service provided by the appellant fell under a different 'taxable service.'

4. Application of Section 66A of the Finance Act, 1994 Regarding Services Procured from Outside India:
The tribunal highlighted that section 66A of the Finance Act, 1994, along with the Taxation of Service (Provided from Outside India and Received in India) Rules, 2006, shifted the tax liability to the recipient of the service. The adjudicating authority's failure to identify the appellant as the recipient of the service and the deemed provider of the service for tax liability was a critical oversight.

5. Classification and Identification of the Recipient of the Service under the Special Provisions of Section 66A:
The tribunal emphasized the necessity of identifying the recipient of the service in the context of the specific taxable service. The impugned order's failure to do so rendered it liable to be set aside.

6. Taxability of Services Provided by Overseas Telecom Operators to the Appellant's Subscribers:
The tribunal referred to the Vodafone Essar Mobile case, where it was held that services provided by foreign telecom companies, although covered by 'telecommunication service,' could not be taxed under a different entry like 'Business Auxiliary Service.' The principle established was that taxability arising only as a provider of 'telecommunication service' did not apply to an overseas entity.

7. Whether the Services of the Overseas Entity Can Be Considered as 'Input Service' for the Appellant:
The tribunal concluded that the services provided by the overseas entity could not be considered 'input service' for the appellant. The manner of billing and the stage at which the subscriber becomes dependent on the overseas entity contradicted this possibility. The appellant, as a domestic licensee, could not operate in a foreign territory independently of the overseas entity.

Conclusion:
The tribunal set aside the tax liability of ?12,74,60,204, ?35,10,51,305, and ?3,02,65,333 under section 73 of the Finance Act, 1994, along with interest and penalties under sections 75, 76, and 78 of the Finance Act, 1994, allowing the appeal to that extent. The order was pronounced in the open court on 07/09/2021.

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