V-SAT CONNECTIVITY CHARGES IS NOT TAXABLE AS LEASED CIRCUIT SERVICE.

[Mr. M. GOVINDARAJAN]

                        Leased circuit services provided by a telegraph authority was brought under the service tax net with effect from 16.07.2001.  With effect from 01.06.2007 leased circuit services are chargeable under the Telecommunications service.

                        Section 65(60) of the Finance Act, 1994 defines the term’ leased circuit’ as a dedicated link provided between two fixed locations for exclusive use of the subscriber and includes a speech circuit, a data circuit or a telegraph circuit.  Section 65 (105) (zd) of the Act defines the taxable service as any services provided or to be provided to a subscriber, by the telegraph authority, in relation to a leased circuit.  The term ‘telegraph authority’ is defined under Section 65(111) of the Act.  The Telegraph Authority has the meaning assigned to it in clause (6) of Section 3 of the Indian Telegraphs Act, 1885 and includes a person who has been granted a licence under the first proviso to Section 4(1) of the Indian Telegraph Act.    Sec. 3(6)of the Indian Telegraph Act provides that ‘telegraph authority’ means the Director General of Posts and Telegraphs and include any officer empowered by him to perform all or any of the functions of the telegraph authority under this Act.

                        V-SAT (Very Small Aperture Terminal) is an earthbound station used in satellite communications of data, voice and video signal, excluding broadcast television.   A VSAT consists of two parts, a transreceiver that is placed outdoors in direct line of sight to the satellite and a device that is placed indoors to interface the transreceiver with the end user’s communications device such as a personal computer.   The transreceiver receives or sends a signal to a satellite transponder in the sky.   The satellite sends and receives signals from a ground station computer that acts as a hub for the system.   Each end user is interconnected with the hub station via the satellite, forming a star topology.   The hub controls the entire operation of the network.   For one end user to communicate with another each transmission has to first go the hub station that then retransmits it via the satellite to the other end user’s VSAT.

                        The issue to be discussed in this article is whether the charges collected for the VSAT connection amounts to taxable service under the heading ‘leased circuit service’ with decided case law. 

                        In ‘JSEL Securities Limited V. Commissioner of Central Excise, Jaipur- I’ – 2012 (26) STR 464 (Tri – Del) the appellants are subsidiary of Jaipur Stock Exchange.   The appellants registered themselves with Bombay Stock Exchange as stock broker and also have service tax registration and paid service tax on the brokerage charges levied by them in connection with the sale and purchase of securities.   The audit wing of the Department during the audit of the records for the period from October 2002 to March 2007 of the appellants found that the appellants had received an amount of Rs.12,20,298/- from the sub broker as penalty charges in excess of the charges paid to the Bombay Stock Exchange.   The Department was of the view that the said amount should be treated as extra consideration for the taxable service provided by them and also liable for service tax.   The department demanded to pay Rs.1,29,763/- as service tax.  

                        The appellants have a V-SAT terminal and provided the same to their customers for which they are charging some amount.   For the disputed period the appellants collected a sum of Rs.68,96,316/-  The Department was of the view that the said amount should be treated as consideration for leased circuit services provided by them to their customers and the service tax to the tune of Rs.6,86,292/- would be payable by the appellants to the Department.

                        The  Additional Commissioner confirmed the demand of service tax on both cases along with interest and also imposed equal penalty under Section 78 of the Finance Act and also a penalty of Rs.100 per day up to 17.4.2006 and Rs.200/- per day from 18.4.2006 till the date of payment of service tax..   The appellant filed appeal against the order of the Additional Commissioner before the Commissioner of Central Excise (Appeals).  The Commissioner (Appeals) set aside the demand of Rs.1,29,763/- in respect of the excess amount recovered from the sub broker and upheld the service tax demand towards V-SAT charges along with interest and also upheld the penalty on the appellants. 

                        Against this order the appellants filed the present appeal before the Tribunal.   The appellants submitted the following arguments in favor of them before the Tribunal:

• The appellants are not providing leased circuit services which is a service provided to a subscriber by a telegraph authority in relation to a leased circuit;
• The appellant is not a telegraph authority and hence there is no question of leased circuit services being provided by them;
• The appellant is neither a telegraph authority nor a person granted licence under Section 4(1) of the Indian Telegraph act;
• V-SAT charges are charges for the leased circuit line provided by Mumbai Stock Exchange which are reimbursed back to it after realization of the same by the appellant from sub brokers and customers;
• Since the appellants are not providing the leased circuit services, there is no question of recovery of service tax on the charges for the same being realized from sub brokers and investors;

The Department contended that the appellants have to be treated as provider of leased circuit.  The Tribunal held that on going through the definition of  ‘leased circuit service’ as given in Section 65(105)(zd)  read with Section 65(111) of the Finance Act, it is clear that the leased circuit service is provided by telegraph authority or by a person licensed under Section 4(1) of the Indian Telegraph Act. There is no dispute that the appellant are not telegraph authority or a person licensed under Section 4(1) of the Indian Telegraph Act.  The Tribunal, therefore, is of the view that the V-SAT connectivity charges recovered by the appellants from their customers and sub brokers cannot be treated as charges for leased circuit services.