2005 (7) TMI 3 - AT - Service Tax

Tribunal Overturns Service Tax Order; Valuation Based on Telegraph Authority's Receipts, Not PCO Operator Charges.

Bharti Infotel Limited Versus CCE, Bhopal

The Tribunal set aside the impugned order demanding additional service tax based on the amount charged by the PCO operator from the customer, deeming it ... Valuation of taxable service in the case of PCOs - Price charged by the PCO operator from the PCO user (customer) - HELD THAT:- According to the SDR this definition of subscriber takes in customer also. Learned SDR also contends that PCO operator is only an agent of the appellant. It is being submitted that this position is clear from the fact that the appellant fixed the rate at which the PCO operator (the agent) will be charging the customers. She also points out that there are other conditions in the agreement requiring the display of appellant's logo, fixing of working hours of the PCO, service to Airtel customer etc. She has also emphasized that the Commissioner has held that the relationship between the PCO operator and the appellant is one of agent and principal. In regard to a public telephone, there are three entities - (i) telegraphic service provider (ii) subscriber and (iii) customer/user. It is clear from the definitions in the Act that customers/users of phone are not recognized in the scheme of the levy. The tax is in regard to a telegraphic service provided to the subscriber. Valuation is also based on the 'gross total amount' received by the provider from the subscriber (the receiver of the service). The amendment in 2001 referred to by the ld. SDR did not make any difference to this scheme. It only recognizes services like facsimile as telephone service. Thus, the amount charged by the PCO operator from the customer has no relevance for valuation. Valuation of service provided by the appellant to the subscriber cannot be based on amount charged by the PCO operator from the customer. In the present proceeding, the additional service tax is demanded on this basis. It is clearly contrary to the scheme of valuation provided in the Act. The impugned order is therefore, set aside and the appeals are allowed with consequential relief, if any, to the appellant. Issues: Valuation of taxable service in the case of PCOsIn this judgment, the main issue revolves around the valuation of taxable service concerning Public Call Offices (PCOs) operated by a specific company. The dispute is centered on whether the value of the service should be based on the amount charged by the PCO operator from the customer or the amount paid by the PCO operator to the company.Analysis:1. The definition of 'taxable service' in relation to telegraphic service is crucial, as it is defined under Serial No. 41(b) of the Finance Act, 1994. The value of taxable service is defined in Section 67(b) as the gross total amount received by the telegraph authority from the subscribers. The contention arises regarding whether this value should be based on the service provided to the subscriber or the customer.2. The appellant argues that the valuation should be based on the service provided to the subscriber, not the customer. The definition of 'subscriber' becomes significant, especially after an amendment, which includes a person to whom any service of a telephone connection has been provided by the telegraph authority. This definition is crucial in determining the party to whom the service is being provided.3. The relationship between the company and the PCO operator is analyzed to establish whether the operator acts as an agent of the company. The terms and conditions of the agreement between the company and the PCO operator are examined to determine the nature of their relationship. The Commissioner's finding that the relationship is that of an agent and principal is considered in this context.4. The judgment emphasizes that the valuation of the service provided by the company to the subscriber cannot be based on the amount charged by the PCO operator from the customer. It is highlighted that the tax is in regard to the service provided to the subscriber, and the valuation should be based on the gross total amount received from the subscriber. The amendment in 2001 did not alter this valuation scheme, and the amount charged by the PCO operator from the customer is deemed irrelevant for valuation purposes.5. Ultimately, the impugned order demanding additional service tax based on the amount charged by the PCO operator from the customer is deemed contrary to the valuation scheme provided in the Act. As a result, the order is set aside, and the appeals are allowed in favor of the appellant, with consequential relief if applicable.