Interconnectivity usage charges were held outside telephone service tax, making the demand unsustainable for the relevant period.

Interconnectivity usage charges received for interconnection between telegraph authorities were treated as outside the taxable category of telephone or telecommunication service for the relevant period. The Board's circular stated that no direct telephone connection service was provided to a subscriber in such transactions, so the charges did not fall within the then existing taxable services. Service tax was therefore not leviable on IUC for that period, and the demand was unsustainable; the assessment was set aside with consequential relief.

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Issues: Whether service tax was leviable on interconnectivity usage charges for the relevant period.

Analysis: The dispute concerned charges received for interconnection usage and whether such receipt fell within the taxable category of telephone or telecommunication service. The Board's circular clarified that interconnection usage service is rendered by one telegraph authority to another and, since no service of telephone connection is provided directly to a subscriber, such charges do not fall within the existing taxable service. The circular also recorded the view that IUC was not taxable under the then existing taxable services for the relevant period.

Conclusion: Service tax was not leviable on interconnectivity usage charges for the period in question, and the demand was unsustainable.

Final Conclusion: The assessment of service tax on IUC was set aside and the appellant obtained consequential relief.

Ratio Decidendi: Interconnectivity usage charges are not taxable as service tax when the service is not provided directly to a subscriber within the applicable definition of telephone or telecommunication service.

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