In the case of Vodafone Essar East Limited, the Kolkata bench of the Customs, Excise & Service Tax Appellate Tribunal(CESTAT) has held that charges paid for service rendered by FTOs cannot be taxed under head business auxiliary service and set aside the demand of service tax. The Tribunal observed that the Appellant made the payment of roaming charges to FTOs for providing connectivity services to their subscribers when they are abroad and the service is rightly classifiable under ‘Telecommunication Service’.
Shri Rahul Tangri & Mr. Shovit Betal, both Advocates appeared for the Appellant and Shri J. Chattopadhyay, Authorized Representative appeared for the Respondent.
The Appellant, M/s. Vodafone Essar East Limited is engaged in providing a comprehensive range of telecommunication services in eastern India. The Appellant had entered into international roaming agreements with various foreign telecom operators (FTOs) for providing international roaming facilities to the subscribers of the appellant travelling to foreign countries. As per the agreement, a subscriber visiting a country where an agreement exists with a specified FTO can automatically make and receive calls, send and receive data, or access other services including home data services while travelling outside the geographical coverage area of the home network, by means of using a visited network. For providing these services, the FTO charges the Appellant at a rate as agreed between the parties as per the terms of the agreement. The Appellants pay the foreign telecom operators (FTOs) in foreign currency.
A Show Cause Notice (SCN)was issued to the Appellant demanding service tax amounting to Rs. 61,69,700/- under the category “business auxiliary services” as defined under Section 65(19) of the Finance Act, 1994 along with interest under Section 75 and penalty under Section 78 of the Finance Act, 1994. The SCN alleged that the services received by the appellants have been received in India because such services involve routing the call through the Appellant’s network in India and the Appellant is the recipient of such services. Thus, the Appellant was liable to pay service tax on reverse charge mechanism as the recipient of services under Section 66A of the Finance Act, 1994 and The Taxation of Services (Provided from Outside India and Received in India) Rules, 2006 read with Rule 2(1)(d)(iv) of the Service Tax Rules, 1994. The Commissioner adjudicated the Notice wherein he confirmed the entire demand of service tax proposed in the SCN along with interest and penalty.
In respect of service tax demand confirmed under the head ‘Business Auxiliary Service’, the Appellant contended that the services received by them from the FTOs would be rightly classifiable under the category of “Telecommunication services”. Regarding the roaming charges paid to FTOs, the Appellant submitted that demand of service tax amounting to Rs. Rs.61,69,700/- has been confirmed in the impugned order on roaming charges paid to Foreign Telecommunication Operators (FTOs). They made the payment of roaming charges to FTOs for providing connectivity services to their subscribers when they were abroad. Thus, the services are rightly classifiable as ‘Telecommunication Service’. It is submitted that during the relevant period, only telecommunication services provided by a ‘Telegraph Authority’ to a person were taxable. In the instant case, FTOs by no means of construction can be brought within the ambit of ‘Telegraphy Authority’ as defined under Section 65(111) of the Finance Act, 1994 read with Section 3(6) of the India Telegraph Act, 1885, hence, under no circumstances roaming charges can be taxed under the head “Business Auxiliary Service”.
A two-member bench comprising of Mr R Muralidhar, Member (Judicial) and Mr K Anpazhakan Member (Technical) observed that the payment of roaming charges was made by the Appellant to FTOs for providing connectivity services to their subscribers when they are abroad. It was viewed that the services are appropriately classifiable as ‘Telecommunication Service’. During the relevant period, only telecommunication services provided by a ‘Telegraph Authority’ to a person were taxable.
The Tribunal held that the demand confirmed in the impugned order under the category of ‘Business Auxiliary Service’ on the Appellant is not sustainable and set aside the demand of interest and penalty.
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