Relief to BSNL: CESTAT Quashes Demand of Service Tax on Telecom Services on Ground of Non-Inclusion of Explanation u/r 5(1) of Service Tax Rules [Read Order]

The Chennai bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT) quashed the demand for service tax on telecom services on the ground of non-inclusion of explanation under rule 5(1) of the Service Tax Rules, 2006. 

Bharat Sanchar Nigam Limited (BSNL), the appellant assessee holds service tax registration under the category of ‘telecom service’ and provides the telecom service to the subscribers/customers who had obtained telephone connection from them.

Also, provide service to the public customers/callers by an arrangement of a Public Call Office (PCO) and the PCOs are maintained by a person called PCO operators appointed by BSNL for this purpose. 

The assessee appealed against the order passed by the Commissioner for confirming the demand for service tax on telecom services which was provided by the assessee. 

G. Vardini Karthik, the counsel for the assessee contended that the amendment brought forth in Rule 5 (1) of the Service Tax (Determination of Value) Rules and an explanation was inserted from 01.03.2011 and the explanation clarified that for the services specified in sub-clause (xx) of clause (105) of Section 6 of the Finance Ac, 1994, the value of the taxable service shall be the gross amount paid by the person to whom telecom service was provided by the telegraph authority. 

Further submitted that Since the explanation added takes effect only on 1.3.2011 the demand for the period before 01.03.2011 cannot sustain and the decision made by the Commissioner was not as per the law and liable to be deleted. 

N. Sathya Narayanan, the counsel for the department relied on the decisions made by the lower authorities and contended that the assessee was liable to pay service tax on the entire amount collected from the customers and the adjudicating authority had rightly confirmed the demand interest and impose penalties. 

The Bench observed that the assessee is liable to pay service tax on the entire amount collected from the customer would be applicable only with effect from the date of 01.03.2011 as the explanation was added to the Rules only on such date. 

The two-member bench comprising Sulekha Beevi C.S (Judicial) and Vasa Seshagiri Rao (Technical) held that the demand cannot sustain and quashed the demand for service tax while allowing the appeal filed by the assessee. 

To Read the full text of the Order CLICK HERE

Support our journalism by subscribing to Taxscan premium. Follow us on Telegram for quick updates