The Bangalore bench of Customs, Excise & Service Tax Appellate Tribunal ( CESTAT ) has held that service by Foreign Service Provider is not Telecommunication Service and not liable service tax.
The appellant, Honey Well Technology Solutions Lab Private Limited is a wholly-owned subsidiary of Honeywell International Inc. (HII). The appellant is engaged in the business of development and export of Software and Information Technology enabled support services and other auxiliary and support services to HII in the field of Aerospace, Automation and Control Solutions, New Product Development, IT Service, and Solutions in terms of an Assignment Agreement.
The appellant in terms of an agreement had received leased circuit service from M/s. AT & T and Genysis through a data link. This data link/leased circuit of M/s. AT & T and Genysis allowed the appellants to access the servers located abroad for which a specific amount was paid by the appellant periodically based on invoices issued. On this service, the demand was confirmed under the head of Telecommunication Service for the period from April 2007 to March 2011. Therefore, the appellant filed an appeal before the Tribunal.
The counsel for the appellant submitted that on an identical activity, this Tribunal in the case of TCS E-Serve Ltd. Vs. Commissioner of Service Tax, Mumbai: 2014 (33) STR 641 (Tri.- Mumbai) held that since the service provider is not a ‘Telegraph Authority’s defined in Section 65(105)(zzzx) of the Finance Act, 1994 as clarified by CBEC’s Circular, service tax is not payable where service is provided by a foreign vendor. He furthersubmits that the entire demand is time barred as there is no fraud, collusion, wilful mis-statement, suppression of facts, or contravention ofprovisions with an intention to evade tax on the part of the appellant.
The Tribunal observed that the service provider is located outside India. In respect of service received from M/s. AT & T and Genysis through data link / leased circuit, the definition of Telecommunication Service in Section 65(105)(zzzx) of the Finance Act, 1994, the taxable service means any service provided or to be provided to any person by the Telegraph Authority in relation to ‘Telecommunication Service’, In the present case, the service provider is located outside India. He cannot be treated as Telegraph Authority, a Telegraph Authority has to be recognized by authority of law prevailing in India, therefore, the service providers cannot be treated as Telegraph Authority. Accordingly, the condition of the definition is not satisfied. The service provided by a foreign entity will not fall under the definition of ‘Telecommunication Service’. Therefore, the appellant is not liable to pay service under Reverse Charge Mechanism. This identical issue has been considered by the Tribunal in the case of TCS E-Serve.
The Coram of Sri Ramesh Nair, Judicial Member, and Sri P Anjani Kumar, Technical Member, has held that “we find that the issue is absolutely identical and the Tribunal held that the Foreign Service Provider being not covered under the term ‘Telegraph Authority’, the service provided by them will not fall under the definition of ‘Telecommunication Service. Accordingly, respectfully following the above decision, we are also of the view that in the present case since the service provider is not a Telegraph Authority and the appellant is a service recipient cannot be fastened with service tax demand under Telecommunication Service. Accordingly, the demand for Telecommunication Service is also not sustainable and the same is set aside”.
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