Service tax on interconnectivity usage charges was unsustainable where the Board circular and Tribunal rulings excluded such treatment.

Service tax on interconnectivity usage charges was held unsustainable because the Revenue ed the governing Board circular and prior Tribunal rulings treated such charges as outside leased circuit services. On that basis, the demand could not be enforced and the assessee succeeded on the tax issue. Penalty also could not be maintained once the underlying demand failed, so it was held not leviable in the circumstances. The impugned order was set aside and consequential relief followed.

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Issues: (i) Whether service tax demand on interconnectivity usage charges was sustainable in view of the Board circular and the Tribunal rulings; (ii) Whether penalty could be sustained in the circumstances.

Issue (i): Whether service tax demand on interconnectivity usage charges was sustainable in view of the Board circular and the Tribunal rulings.

Analysis: The Revenue accepted the Board's Circular No. 91/2/2007-ST dated 12-3-2007 and conceded that the impugned demand lacked legality and could not be enforced. The issue was also stated to be covered by prior Tribunal decisions holding that interconnectivity usage charges could not be treated as charges for leased circuit services.

Conclusion: The demand of service tax on interconnectivity usage charges was not sustainable and the assessee succeeded on this issue.

Issue (ii): Whether penalty could be sustained in the circumstances.

Analysis: The record showed no contest from the Revenue on the demand itself, and the cited authorities were relied on to support the proposition that penalty was not leviable in such circumstances.

Conclusion: Penalty was not leviable and the assessee succeeded on this issue as well.

Final Conclusion: The impugned order was set aside and the appeal was allowed with consequential relief.

Ratio Decidendi: Where the Revenue accepts the governing Board circular and concedes that the impugned demand cannot be enforced, the service tax demand cannot be sustained; allied penalty cannot survive when the underlying demand fails.

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