POPS Rules Cannot Extend Finance Act to J&K: CESTAT Quashes Service Tax Demand on Telecom Infrastructure Services [Read Order]
The Bench upheld the Undisputed Fact that Services and Input Services were both Provided and Consumed Within J&K
The Chandigarh Bench of the Customs, Excise and Service Tax Appellate Tribunal ( CESTAT ) has held that services rendered and consumed within the State of Jammu & Kashmir fall wholly outside the ambit of Chapter V of the Finance Act, 1994, and therefore no service tax can be levied by resorting to the Place of Provision of Services (POPS) Rules.
The Bench set aside the service tax demand, interest, and penalties confirmed against appellant, a telecom infrastructure company operating tower sites in J&K.
The appellant, Tower Vision India Pvt. Ltd., provides Passive Infrastructure Support Services to telecom operators, including through its Jammu & Kashmir branch. The Department alleged that the company was liable to pay service tax under multiple taxable categories such as Business Support Service, Management & Consultancy Service, and Manpower/Security Services.
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Relying on Rule 2, Rule 5, Rule 8 and Rule 14 of the POPS Rules, 2012, the Commissioner determined that since both the service provider and recipient held centralized registrations in taxable territory, the services were seemingly provided within taxable territory, making them liable to service tax.
On this basis, the adjudicating authority confirmed a substantial demand of service tax, Swachh Bharat Cess, Krishi Kalyan Cess, along with interest and penalties through Order-in-Original dated 20.01.2022.
Tower Vision argued that all services were rendered and consumed entirely within J&K and Section 64 of the Finance Act, 1994 expressly excludes J&K from the applicability of service tax. Section 65B(52) defines “taxable territory” to exclude J&K, and therefore, the appellant submitted that POPS Rules cannot be invoked to tax services beyond the statute’s territorial scope.
The appellant also presented multiple judicial precedents indicating that POPS Rules cannot override statutory provisions, including rulings of the Gujarat High Court and various CESTAT benches.
The Tribunal comprising S. S. Garg (Judicial Member) and P. Anjani Kumar (Technical Member) accepted the appellant’s position and held that it was an undisputed fact that the services and input services were both provided and consumed within J&K. The Bench observed that Chapter V of the Finance Act does not extend to J&K, therefore no service tax can be levied for activities occurring within the State.
It was further ruled that POPS Rules cannot expand the charging section or override Section 64 of the Finance Act. Since, the demand itself failed on merits, interest and penalties automatically fail.
To conclude, the CESTAT Bench held that the demand confirmed through Order-in-Original dated 20.01.2022 was unsustainable in law, and accordingly set aside the service tax demand, ultimately allowing the appeal of Tower Vision India Pvt. Ltd. with consequential relief.
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