Cellular telephone service — Clarification - Service Tax - 23/03/97

This Circular has been rescinded by Circular No. 93/4/2007-ST, Dated: May 10, 2007 Service Tax Cellular telephone service Clarification Service Tax Circular No. 23/3/97-S.T. Dated 13-10-1997 I. Issue: Whether rent and accesscharges for providing junctions for mobile operation to cellular telephone operators by DOT will be subject to service tax. Cellular telephone services operates between two subscribers holding cellular phone and also with persons holding local telephone. While the Company charges home network/air time charges on their subscribers using their network cellular phone facility, additionally they collected land line charges when the subscribers calls other than Cellular Phone numbers which are routed through the DOT network for which they are provided with junctions. Cellular telephone operators are required to pay to DOT rent charges on junctions in addition to DOT charges collected at specific rate per unit from their customers. Decision: Cellular phone operators are realizingrent and access charges from their subscribers and as such when cellular companies pay service tax on the amounts received by them from their subscribers it includes rent and access charges and as such to charge again service tax on their charges by DOT will amount to double taxation. Board is of the view that no service tax is again chargeable on rent and access charges paid to DOT by cellular phone operators. II. Issue: Whether the cost of Sim Card has to be excluded from activation charges to be collected from subscribers for the purposes of levy of service tax. Decision: The value of taxable services in relation to telephone connection provided to subscribers is the gross total amount received by the telegraph authority from the subscriber. The Sim Card is essentially an activation device necessary for operating the cellular phone. The Sim Card as such does not have any significant intrinsic value unlike a telephone instrument. Moreover, the Sim Card unlike the telephone instrument cannot be purchased by the customer from elsewhere. The charges towards the Sim Card can essentially be viewed as processing charges for activating the cellular phone and as such gross total amount should necessarily include the value of the Sim Card. The amount received by the cellular telephone company from subscribers towards Sim Card will form part of the taxable value for levy of service tax. III. Issue: Whether cellular companies are correct in adjusting the tax paid earlier without filing any refund claim with the Department. Cellular companies have adjusted service tax paid in excess earlier, in subsequent payments of service tax required to be made by them, without following the procedure of filing a refund claim in respect of excess payments made earlier. Decision: There is no provision in the Finance Act, 1994 to adjust service tax against tax already paid. The assessee has to file a refund claim under Section 11B as made applicable to service tax and cannot make adjustment while raising the bills. IV. Issue: Whether the companies are right in not paying service tax on the free telephone provided to their employees and friendly users from whom they do not recover any charges, but pay service tax only on line laying charges which represents value of calls made through the network other than cellular phone. Cellular telephone operators provides services to a category called "friendly users" which is mainly provided to its sister concerns and to their employees from whom they do not recover any air time charges and only recover "land line charges" which represents the value of the calls made through the network other than cellular phones (DOT Number). Decision: The value of taxable services in relation to telephone connection provided to subscribers is the gross total amount received by the telegraph authority from the subscriber. In case the service is provided free and no amount is received by the telegraph authority, the question of service tax liability does not arise. Only land line charges will be liable for tax. V. Issue: Whether the company can allow discount on their air time charges and in such cases are eligible to pay tax only on reduced amount. Cellular Companies gives discount to its customers on air time charges and also at times give other allowances to the customers. Decision: The value of taxable services in relation to telephone connection provided to subscribers is the gross total amount received by the telegraph authority. In case where the telegraph authority has extended services at a discounted price, the service tax liability is only in respect of the discounted price so received. 2. Trade field formation may be advised accordingly.