Interconnection charges between internet service providers were not taxable as database retrieval service under the binding circular.

Interconnection charges recovered by one internet service provider from another were treated as a commercial and technical arrangement enabling data access, and were not liable to service tax under Online Information Access and/or Database Retrieval Service for the relevant period. The Board's circular was applied as binding, so the department could not argue contrary to that position. The record also did not establish any non-payment of tax by downstream ISPs on amounts collected from customers. On that basis, the demand was not sustainable and the charges were held not taxable.

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Issues: Whether interconnection charges recovered by one internet service provider from another were liable to service tax under the head of Online Information Access and/or Database Retrieval Service for the relevant period.

Analysis: The Board's circular clarified that interconnection of one ISP with another is a commercial and technical arrangement to enable customers to access data or information and that interconnection charges paid by one ISP to another are not liable to service tax. The decision also noted that the department could not contend contrary to its own binding circular and that the record did not show non-payment of tax by the downstream ISPs on amounts collected from their customers.

Conclusion: The interconnection charges were not taxable, and the demand could not be sustained.

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