Relief to Vodafone Essar: CESTAT rules charges paid for services rendered by FTOs not taxable under telecommunication services [Read Order]

In a major relief to M/s Vodafone Essar East Limited, the Kolkata Bench of the Customs, Excise and Service Tax Appellate Tribunal (CESTAT), ruled that charges paid for services rendered by the Foreign Telecommunication Operators (FTOs) not taxable under telecommunication services.

M/s. Vodafone Essar East Limited (The “Appellant”) are engaged in providing a comprehensive range of 'Telecommunication Services' in India. An investigation was initiated by the DGCEI, Kolkata Zonal Unit against the Appellant.

In respect of service tax demand confirmed under the head “Telecommunication services” on roaming charges paid to FTOs, the Appellant submitted that demand of service tax amounting to Rs. 1,54,50,000/- has been confirmed on roaming charges paid to Foreign Telecommunication Operators (FTOs). The payment of roaming charges was made by them to FTOs for providing connectivity services to their subscribers when they are abroad.

It was submitted that during the relevant period only telecommunication services provided by a 'Telegraph Authority' to a person was 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 r/w Section 3(6) of the India Telegraph Act, 1885, hence, under no circumstances roaming charges can be taxed under the head “telecommunication services”.

A Two-Member Bench comprising Ashok Jindal, Member (Judicial) and K. Anpazhakan, Member (Technical) observed that “Regarding the service tax demand of Rs. 1,54,50,000/- confirmed under the head “Telecommunication services” on roaming charges paid to Foreign Telecommunication Operators (FTOs), we observe that the payment of roaming charges was made by the Appellant to FTOs for providing connectivity services to their subscribers when they are abroad. We find that during the relevant period only telecommunication services provided by a ‘Telegraph Authority’ to a person were taxable.”

“In the instant case, FTOs located abroad providing the connectivity services would not fall 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. Accordingly, we observe that the charges paid for the services rendered by the FTOs cannot be taxed under head “telecommunication services” on the Appellant” the Bench concluded.

To Read the full text of the Order CLICK HERE

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