2023 (2) TMI 827 - AT - Service Tax

Recovery of Service tax alongwith interest and penalty - telecommunication service - demand dropped on the ground that telecommunication service is taxable only if it is provided to any person who has been granted a Licence under first proviso to section 4(1) of the Indian Telegraph Act, 1885 - HELD THAT - In the present case the service involved is telecom service, this service is chargeable to service tax only when service is provided by a person who has been granted a Licence under first proviso to section 4(1) of the Indian Telegraph Act, 1885. In the present case admittedly the appellant do not possess the Licence under first proviso to section 4(1) of the Indian Telegraph Act, 1885. Therefore, even though the service is a telecom service but not as per the statutory definition of the telecom service hence the same is not taxable. From the circular under F.No. 137/21/2011 -ST dated 15.07.2011, it is clear that the appellant being not holding Licence under Telegraph Act, 1885 is not liable to pay service tax. The judgments cited by the learned Chartered Accountant also directly on the issue and support the case of the appellant - reliance placed in the case of IDEA CELLULAR LTD. VERSUS COMMISSIONER OF SERVICE TAX MUMBAI IV 2021 (9) TMI 452 - CESTAT MUMBAI where it was held that 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. Appeal allowed.

Summary

Issues:
1. Liability to pay service tax on telecom and broadband services received from foreign-based companies.
2. Interpretation of the statutory definition of telecom service under the Indian Telegraph Act, 1885.
3. Applicability of reverse charge mechanism in service tax.
4. Impact of relevant board circulars and judgments on the case.

Analysis:
1. The issue in this case revolves around the liability of the appellant, a registered service provider, to pay service tax on telecom and broadband services received from foreign-based companies. The audit revealed a failure to pay service tax amounting to Rs 10,77,136, leading to a show cause notice proposing recovery of the tax along with interest and penalties. The Adjudicating Authority initially dropped the proceedings citing the requirement of a license under the Indian Telegraph Act, 1885 for taxing telecommunication services. However, the Commissioner (Appeal) reversed this decision, prompting the appellant to file the present appeal.

2. The interpretation of the statutory definition of telecom service under the Indian Telegraph Act, 1885 is crucial in determining the tax liability. The appellant argued that telecom services are taxable only when provided by a person holding a license under the Act. Since the appellant did not possess such a license, they contended that the service should not be taxable under the reverse charge mechanism. This argument was supported by relevant board circulars and judgments, emphasizing the necessity of a license for taxation under the telecom service category.

3. The application of the reverse charge mechanism in service tax further complicates the issue. The appellant, having received telecom services from abroad, would typically be liable to pay service tax under Section 66A read with relevant rules. However, the absence of a license under the Indian Telegraph Act, 1885 raised questions regarding the taxability of the services received. The board circular clarified that services provided by foreign vendors in such cases cannot be taxed under the telecom service category, reinforcing the appellant's position.

4. The impact of relevant board circulars and judgments played a significant role in the final decision. The circular dated 15.07.2011 explicitly stated that services provided by foreign vendors without a license under the Indian Telegraph Act, 1885 are not taxable under the telecom service category. This clarification, along with supporting judgments cited by the appellant's representative, directly supported the appellant's case. Ultimately, the Tribunal found in favor of the appellant, setting aside the impugned order and allowing the appeal based on the discussion and findings presented.

In conclusion, the detailed analysis of the issues surrounding the liability to pay service tax on telecom and broadband services, the interpretation of statutory definitions, the application of the reverse charge mechanism, and the impact of relevant circulars and judgments culminated in the Tribunal's decision to absolve the appellant of service tax liability in this case.