2014 (6) TMI 655 - AT - Service Tax

Tribunal rules no Service Tax liability for international leased circuit services

The Tribunal ruled in favor of the appellant, determining that no Service Tax liability arises under Section 66A of the Finance Act, 1994 for ... Import of service - Reverse charge - Leased Circuit / Telecommunication service received from Singapore - telegraph authority - clarification issued by the Board vide letter dated 15-7-2011 - Held that:- The clarification given by the Board squarely deals with the situation in the case before us. As per the said clarification, no Service Tax is payable under Section 66A if leased circuit service is received from a foreign vendor. The argument of the department that this clarification is only an internal correspondence and not a circular and hence not binding on the department is childish, to say the least. Only leased circuit services rendered by a telegraph authority is taxable and since the foreign vendor is not such an authority, the question of levy of Service Tax from the recipient of the service under reverse charge basis does not arise. - Decided in favour of assessee. Issues Involved:1. Liability of Service Tax under Section 66A of the Finance Act, 1994, for services received from a foreign service provider.2. Definition and applicability of 'telegraph authority' under the Indian Telegraph Act, 1885.3. Clarification and binding nature of internal communications from the Central Board of Excise & Customs (CBEC).4. Relevance of judicial precedents in determining Service Tax liability.Issue-wise Detailed Analysis:1. Liability of Service Tax under Section 66A of the Finance Act, 1994:The appellant, engaged in providing various services and registered under 'business auxiliary service' and 'business support service', received international private leased circuit services from a foreign service provider. The Revenue issued show cause notices demanding Service Tax under the reverse charge mechanism for the periods 1-4-2003 to 31-3-2008 and 1-4-2008 to 31-3-2009. The appellant contested the levy, arguing that the foreign service provider is not a 'telegraph authority' under the Indian Telegraph Act and thus not liable under Section 66A. The Tribunal examined Sections 66 and 66A, noting that Service Tax is leviable only on services specified in Section 65(105). Since the service provider is not a 'telegraph authority', the Tribunal held that no Service Tax liability arises under Section 66A for the leased circuit services received from abroad.2. Definition and applicability of 'telegraph authority':The Tribunal analyzed the definition of 'telegraph authority' as per Section 65(111) and Section 4(1) of the Indian Telegraph Act, 1885. The definition includes entities granted a license under the Indian Telegraph Act. The foreign service provider did not qualify as a 'telegraph authority'. Consequently, the leased circuit services provided by them could not be subjected to Service Tax under either Section 66 or Section 66A. The Tribunal emphasized that the primary condition for triggering Service Tax liability is that the service must be provided by a 'telegraph authority'.3. Clarification and binding nature of internal communications from CBEC:The appellant relied on a CBEC letter dated 15-7-2011, which clarified that services provided by foreign vendors are not covered under the definition of 'telecommunication service' and thus not taxable. The Revenue argued that such letters are internal communications and not binding. However, the Tribunal found the clarification relevant and applicable, dismissing the Revenue's argument as 'childish'. The Tribunal held that the clarification supported the appellant's position that no Service Tax is payable under Section 66A for leased circuit services received from a foreign vendor.4. Relevance of judicial precedents:The Tribunal referenced the decision of the Hon'ble High Court of Andhra Pradesh in Karvy Consultants Ltd., which held that for Service Tax to be levied, the service provider must meet specific statutory requirements. Applying this principle, the Tribunal concluded that it is not sufficient for the service provider to merely provide leased circuit services; they must also be a 'telegraph authority'. The Tribunal distinguished the case from Unitech Ltd., where the service provider's status as a commercial concern was sufficient for Service Tax liability. In the present case, the foreign vendor's lack of status as a 'telegraph authority' precluded Service Tax liability.Conclusion:The Tribunal set aside the impugned order, allowing the appeals on merits with consequential relief. The cross objections were also disposed of. The Tribunal's decision was based on the interpretation of statutory provisions and relevant judicial precedents, concluding that no Service Tax was payable under Section 66A for the services received from the foreign service provider.