The Delhi bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) has held that the service tax cannot be levied on the National Internet Exchange of India ( NIXI ) for collecting various charges from their accredited registrars.
M/s National Internet Exchange of India, is a non-profit company registered under the Companies Act, 1957 and is engaged in Domain Name Business in India i.e. for providing efficient interconnectivity of internet in India and for setting up of internet domain name operations and related activities as entrusted by the Department of Information and Technology under the Ministry of Communication and IT, Government of India. They are entrusted with the responsibility of setting up the registry for “.in” country got top-level domain name (TLD) and for operating as the registry for “.in” domain name in India.
The department alleged that the appellants while appointing registrars to register the domain names were collecting charges per domain name registered by the said accredited registrar per year as registration charges, transfer charges, renewal charges, etc. in lieu of services rendered to these registrars. The department demanded tax from the appellants by treating the said services as franchise services.
Before the Tribunal, the appellants claimed that the registry i.e. appellant and their accredited registrars are two different entities as is very much clear from the registry accreditation agreement entered into between the two. It is further submitted that a sum of Rs. 50,000/- as received by the appellant from its registrars is again under the mandate of policy framework of Government of India to receive the same as accreditation fee and therefore, no services in lieu of said amount are being provided by the appellant to the registrars.
The bench found that in the agreement, not even once the word “franchise” or “franchisor” has been used. As per the provisions of the agreement, the appellant and its registrars have their separately assigned roles. The registrar is accredited for discharging such particular functions of the appellant for which they are accredited by the appellant.
“Otherwise also, in today’s world of international connectivity, the database of all domain name is required to be maintained. There is a need to link a particular domain name with the particular computer and the internet protocol. What is also apparent from the above-discussed agreement is that the registrars are the entities which contract with the registered name holders and the registry and collects registration data about registry name holders and submit the same to the registry for entering in the database maintained by the registry. It becomes abundantly clear that both registry and registrars are independent entities operating on the principle-to principle basis. Thus, the conditions of the above-discussed definitions are not fully satisfied in the present case,” the bench said.
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