Relief for BSNL: Gauhati HC excludes ‘Non-Taxable’ Services from the Gross Receipt of SSA [Read Judgment]

The Gauhati High Court has ordered the revenue department to issue fresh Show Cause notice raising demands for recovery of service tax from BSNL and exclude the “non-taxable” services from the services provided at the Secondary Switching Area (SSA).

The Finance Act, 1994 contains a provision for realizing service tax on some of the services provided by the Secondary Switching Area (SSA) under the BSNL was liable to be taxed @ 5% on gross receipt. On 28-03-2003, the Deputy Commissioner, Central Excise, Guwahati had issued a Show Cause notice addressed to the respondent Bharat Sanchar Nigam Limited (BSNL), Assam Circle, Guwahati and four of its SSAs demanding a sum of Rs. 3,47,49,000/- being the shortfall of service tax recoverable from the department in terms of Section 73(a) of the Finance Act, 1994 as well as for the realization of interest and penalty as per the provision of the said act. In the Show Cause notice dated 28-03-2003, it has been, inter alia, projected that the respective SSAs had failed to pay service tax on the “gross receipt” charged by the service providers. The substantial question of law raised by BSNL in subsequent appeals was whether service tax was leviable on the actual receipts and not on the gross receipts. The BSNL received a favorable judgment for the appellate authority but it was challenged the department before the high court.

Justice Suman Shyam and Justice Hitesh Kumar Sarma agreed with the findings of the appellate authority in this matter and held, “We, however, make it clear that notwithstanding this order, it will be open for the appellant to issue fresh Show Cause notice raising demands for recovery of service tax as may be permissible under the law. Such demand, if any, raised by the appellant, shall clearly specify and exclude the BSNL “non-taxable” services from the gross receipt and also indicate the period as well as the particulars of the SSA to which the same relates to. Upon receipt of such notice, it will be open to the respondent to avail all procedural safeguards as may be permissible under the law. We also make it clear that the order dated 28-08-2008 shall cease to have any effect on the matter.”