2022 (9) TMI 626 - AT - Service Tax

Maintainability of Reference to Third to member - Difference of opinion - Classification of services - internet telecommunication service or not - services provided by MTNL to customers through National Internet Exchange of India NIXI - extended period of limitation - HELD THAT - The findings recorded by the learned Member (Technical) are based primarily on the fact that MTNL had raised an invoice on the INXI on 09.10.2020 after initiation of the investigation by Directorate General of Central Excise Intelligence. Thus MTNL had, in a way, admitted service tax liability on the services provided to ISPs through NIXI in the form of peering arrangement. The learned Member (Technical) further held that it was not material whether any payment was received by MTNL against the invoice dated 09.10.2013 because service tax is payable from the date of invoice, in view of the provisions as they existed w.e.f. 01.04.2011, when the Point of Taxation Rules, 2011 came into effect. The questions framed by the Division Bench clearly relate to the aforesaid issues addressed by the learned Member (Technical) and the learned Member (Judicial) in their separate orders. According to the order, it has to be determined as to whether the learned Member (Judicial) was correct in holding that MTNL was not liable to pay service tax on the invoice raised by NIXI as NIXI was not a service provider and hence not liable to pay service tax or whether the learned Member (Technical) was correct in holding that MTNL is liable to pay service tax since it raised an invoice for the services provided. The decisions, on which reliance has been placed by learned authorized representative, would not come to the aid of the Department as it has been found as a fact in the present case that the learned Members have set out the point on which they differ and it is not that the entire matter has been referred to the Third Member. The appeal may now be listed on October 07, 2022 to enable the parties to make submissions.

Summary

Issues Involved:
1. Classification of services provided by MTNL through NIXI.
2. Applicability of service tax on peering arrangements.
3. Consideration and settlement amounts in peering arrangements.
4. Revenue neutrality and extended period of limitation.
5. Identification of service provider and service recipient.
6. Maintainability of reference to the Third Member.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by MTNL through NIXI:
The Commissioner confirmed the demand of service tax on MTNL, holding that services provided through NIXI are classifiable under 'internet telecommunication service' as defined under section 65(57a) and taxable under section 65(105)(zzzu) of the Finance Act, 1994.

2. Applicability of Service Tax on Peering Arrangements:
Intelligence gathered indicated that MTNL entered into 'Peering Arrangements' with other ISPs for carrying internet traffic but did not discharge service tax on these services. The Commissioner held that the peering arrangement involves taxable services, and MTNL is liable to pay service tax on the gross value of these services.

3. Consideration and Settlement Amounts in Peering Arrangements:
The Commissioner noted that MTNL received settlement amounts calculated based on NIXI's Routing and Tariff Policy. Despite MTNL's claim of not receiving any consideration prior to 01.04.2011, the Commissioner ruled that the existence of consideration could not be denied, and service tax was payable on the deemed consideration.

4. Revenue Neutrality and Extended Period of Limitation:
The learned Member (Judicial) raised the issue of revenue neutrality and whether the extended period of limitation is attracted. The Member (Judicial) concluded that since NIXI is neither a service provider nor a service receiver, the demand for service tax on bills raised by MTNL on NIXI could not sustain.

5. Identification of Service Provider and Service Recipient:
The learned Member (Judicial) disagreed with the Member (Technical), noting that NIXI is only a facilitator and not a service provider or recipient. Therefore, the invoice raised by MTNL on NIXI was irrelevant for service tax purposes.

6. Maintainability of Reference to the Third Member:
A preliminary objection was raised regarding the maintainability of the reference to the Third Member. The learned authorized representative argued that the reference was not maintainable as the Member (Judicial) did not provide reasons for differing with the Member (Technical). However, it was held that the reference is maintainable as the points of difference were clearly set out.

Separate Judgments Delivered:
The Division Bench framed questions for determination by a Third Member due to the difference of opinion between the learned Member (Judicial) and the learned Member (Technical). The Member (Technical) held MTNL liable for service tax based on the invoice raised, while the Member (Judicial) found the demand misconceived as NIXI was not a service provider or recipient.

Conclusion:
The matter was listed for further submissions, and the preliminary objection regarding the maintainability of the reference was overruled. The appeal was set for hearing on October 07, 2022, to resolve the issues based on the points of difference identified by the Division Bench.