WAN / PGN services are not Taxable under OIDAR Service: CESTAT [Read Order]

The Customs Excise & Services Tax Appellate Tribunal (CESTAT) held that wide area network/global network (WAN/PGN) services which in the nature of providing internet connection and communication is not taxable under “Online Information Database Access and Retrieval (OIDAR service)”.

The appellants, Philips Electronics India Ltd. are a 100% EOU (Software Technology Park Unit) are engaged in the developing and export of software. No part of the output services is rendered to any client in India. The appellants have entered into various agreements with their group companies in the Netherlands to avail of various services, inter alia, wide area network/global network (WAN/PGN) services which in the nature of providing internet connection and communication. Revenue alleges that this is a taxable service under “Online Information Database Access and Retrieval (OIDAR service)”. The appellants have also received Maintenance or Repair Services in respect of software/computers under AMC from Foreign Service providers, which were provided by service providers from outside India. The appellants also received some services which are in the nature of Commercial Training or Coaching. They have also availed Management Consultancy Services. Revenue has issued a show-cause notice dated 19/03/2009 demanding service tax of Rs. 6,71,95,540/-(Rupees Six Crore Seventy One Lakhs Ninety-Five Thousand Five Hundred and Forty only). The show-cause notice was adjudicated, vide order No. 82/2010 dated 22/11/2010, by Commissioner of Service Tax, Bangalore wherein an amount of Rs. 5,70,20,902/- (Rupees Five Crore Seventy Lakhs Twenty Thousand Nine Hundred and Two only) of service tax was confirmed for the period 01/01/2005 to 30/09/2008. He also imposed penalties under Section 76 & 77 of the Finance Act,1994.

Tribunal comprising of S.S Garg, Judicial Member and P. Anjani Kumar, Technical Member finds the contentions of the appellant, Philips Electronics India Ltd are stronger

In the light of the judgment in Indian National Shipowner’s Association Vs. Union of India –2009 (13) STR 235 (HC-Bom.) [(affirmed by Hon’ble Supreme Court 2010 (17) STR J57 (SC)] Judgment was rendered in favour of appellant and also learned Commissioner has not put forth any reasoning based on the facts of the case or the provisions under any contract.

Tribunal also observed that“The main take away from the definitions is that services provided should facilitate not only online information but also Database Access or Retrieval. From the facts on record, it appears to reason that the infrastructure services are nothing but a spider web group that connects Philips Netherlands to all its locations worldwide through the Wide Area Network (WAN) of the internet protocol. For such Philips Global Network Services, payment is made on the basis of invoices raised by Philips Netherlands towards maintenance of server/portal, license fees, server software maintenance cost, infrastructure for global platform, hiring of web space for storing data, management, and maintenance of web portal, license cost for access for wireless WAN environment, Directory services for listing, etc. Some of these services which can be availed by Philips locations and employees are of the nature of “Calendaring and Scheduling Directory, Philips e-mail, file backup, etc. In any case, all these infrastructure services are only in the nature of providing intra connectivity between Philips locations worldwide and the payments made are obviously than for sharing of the maintenance cost between the Philips’ units and not as fees for the supply of online information or retrieval of data from the portal.”