The Hyderabad Bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that mere registration as an NBFC is not enough under the provision of service tax to levy.
The Appellant is a subsidiary of Qualcomm Inc. USA which entered into a Master Service Agreement with a group entity ‘Verizon Inc’ located outside India for providing telecom bandwidth and telephone-related services for all its affiliated entities across the globe.
The Appellant being one of the group entities of Qualcomm Inc USA, avails telecom bandwidth and telephone services from Verizon Inc, as per the terms of the agreement. Verizon Inc raises invoice directly on the Appellant every month. The said services received by the Appellant are used by them in the provision of their taxable output services. The Adjudicating Authority confirmed service tax demand along with interest, and penalties including mandatory penalty vide Order-in-Original dated 28.03.2012.
It was submitted that the SCN proposes to levy service tax under the category of ‘Internet Communication Service’. The said services were brought into the service tax ambit only with effect from 16.05.2008. Therefore, the present demand to the extent it covers the period from 01.10.2006 till 15.05.2008, will not be liable to service tax.
Under section 65(57a) of the Finance Act, 1994, “Internet telecommunication service” includes, — (i) Internet backbone services, including carrier services of internet traffic by one Internet Service Provider to another Internet Service Provider, (ii) Internet access services, including the provision of a direct connection to the internet and space for the customer’s web page, (iii) Provision of telecommunication services, including fax, telephony, audio conferencing and video conferencing, over the Internet.
The term leased circuit under Section 65(60) of the Finance Act, 1994 on the other hand means a dedicated link provided between two fixed locations for the exclusive use of the subscriber and includes a speech circuit, a data circuit, or a telegraph circuit.
The services availed by the Appellant from Verizon Inc USA, being a private dedicated bandwidth, are more specifically covered as a Leased Circuit and thereafter as a Telecommunication service. As per the statutory definition, the service provider needs to be a telegraph authority. The ‘Telegraph authority’ has been defined inter alia, to include a person who is granted a license under the Indian Telegraph Act, of 1885. Verizon Inc has not been granted such a license and therefore, it would not qualify to be a telegraph authority any services provided by them will not be liable to service tax.
The two-member bench of Anil Choudhary (Judicial Member) and P. V. Subba Rao (Technical Member) has observed that the Appellant being a 100% Export Oriented Software Technology Park Unit, would be entitled to a refund of any such unutilized service tax paid on its input services.
Further observed that since there exists a direct case of revenue neutrality the invocation of an extended period and levy of penalties including mandatory penalty is not justified. The Tribunal set aside the impugned order and allowed the appeal.
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