As a relief to Mahanagar Telephone Nigam Limited (MTNL),the Delhi High Court set aside the demand for service tax of Rs. 56.61 crores since the surrender of any right to use the spectrum before 14.05.2016 would not be chargeable to service tax.
Mahanagar Telecom Nigam Ltd. (‘MTNL’) – a Government of India enterprise engaged in the business of providing telecom services to subscribers in Delhi and Mumbai. The Department of Telecommunication (the DoT) granted a license to MTNL to provide telecommunication services with effect from 01.04.1986 for an annual payment of ₹101/-. On 10.10.1997, the Ministry of Telecommunication, Government of India amended the conditions of the license granted to MTNL and enabled it to provide Cellular Mobile Services.
The petitioner challenged the Notification dated 10.02.2015 conferring jurisdiction on the Principal Director General, Directorate General of Central Excise Intelligence to assign show cause notices to Principal Commissioners Service Tax, Commissioners Service Tax, Principal Commissioners, and Commissioners of Central Excise to adjudicate the show cause notices issued by the Directorate General of Central Excise Intelligence.
A show cause notice issued by respondent no.3 (Additional Director General, Director General of GST Intelligence) proposed to demand service tax amounting to ₹56,61,37,440/- inclusive of cess, along with interest under Section 73(1) of the Act.
The question before the Court is whether MTNL is liable to pay service tax on the compensation of ₹458.04 crores received by it from the Government of India on the surrender of the spectrum – 800 MHz CDMA. The impugned show cause notice proceeds on the basis that the surrender of the spectrum against compensation is a “declared service” under Section 66E(e) of the Act and is thus chargeable to service tax.
It was contended that the show cause notice has been issued beyond the period stipulated under Section 73(1) of the Act and the extended period of limitation in terms of the proviso to Section 73(1) of the Act is unavailable as it has not made any willful misstatement or suppressed any material fact to evade service tax.
Further argued that the compensation received for the surrender of frequency is not a taxable service under Section 66E(e) of the Act. The transactions regarding the assignment to use radio frequency spectrum and subsequent transfers were specifically included as a declared service by insertion of Clause (j) in Section 66E of the Act by Finance Act, 2016 with effect from 14.05.2016. MTNL claims that the insertion of a specific clause covering the service establishes that it was not a declared service before the enactment of the Finance Act, of 2016.
Justice Vibhu Bakhru and Justice Amit Mahajan observed that MTNL had received the compensation during the financial year 2015-16, which was before14.05.2016 – the date on which the Finance Act, 2016 came into force and Clause (j) was introduced in Section 66E of the Act. The surrender of any right to use the spectrum by MTNL before the said date would not be chargeable to service tax.
The Court set aside the impugned show cause notice and allowed the petition.
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