Service tax on bandwidth, equipment rentals, fibre leases and domain-name sales fails where transactions fall outside taxable service definitions.

Service tax could not be sustained on bandwidth remittances to foreign internet service providers because the leased circuit charge applied only where the service provider answered the statutory description of a telegraph authority. Rental receipts for wireless routers and radio equipment were treated as transfer of the right to use goods, with possession and control passing to customers and VAT having been paid, so they were not taxable services. Lease charges for optical fibre cables and consideration from domain-name sales were likewise held outside leased circuit, telecommunication, computer network, and online information or database access services. The demand and penalties were set aside on merits.

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Issues: (i) Whether service tax was payable on monthly rentals remitted to foreign internet service providers for procuring bandwidth on reverse charge basis; (ii) Whether rental charges for wireless routers or radio equipment given to customers were taxable as leased circuit or telecommunication service; (iii) Whether lease charges for optical fibre cables given to other internet service providers were liable to service tax; (iv) Whether consideration received on sale of domain names was taxable as computer network service or online information and database access or retrieval service.

Issue (i): Whether service tax was payable on monthly rentals remitted to foreign internet service providers for procuring bandwidth on reverse charge basis.

Analysis: Taxability under leased circuit service depended on the service being rendered by a telegraph authority. The foreign service providers did not answer that description under the Indian Telegraph Act, so the statutory condition for levy under the reverse charge mechanism was not satisfied.

Conclusion: No service tax was payable on the bandwidth remittances, and the issue was decided in favour of the assessee.

Issue (ii): Whether rental charges for wireless routers or radio equipment given to customers were taxable as leased circuit or telecommunication service.

Analysis: The arrangement showed delivery of the equipment with effective possession and control passing to the customer, while the transaction was treated as transfer of the right to use goods and VAT had been paid. The receipt was therefore in the nature of deemed sale rather than a taxable service.

Conclusion: No service tax was payable on router or radio rentals, and the issue was decided in favour of the assessee.

Issue (iii): Whether lease charges for optical fibre cables given to other internet service providers were liable to service tax.

Analysis: The receipt represented interconnectivity charges between service providers and not service by a telegraph authority to a subscriber. The levy under leased circuit or telecommunication service was therefore not attracted, consistent with the departmental clarification and the cited tribunal view.

Conclusion: The fibre-cable lease charges were not taxable, and the issue was decided in favour of the assessee.

Issue (iv): Whether consideration received on sale of domain names was taxable as computer network service or online information and database access or retrieval service.

Analysis: A domain name was treated as property and its transaction as sale of goods rather than provision of information or data access services. On that footing, the receipt did not fall within the taxable service alleged in the notices.

Conclusion: No service tax was payable on domain-name sales, and the issue was decided in favour of the assessee.

Final Conclusion: The impugned service tax demand and the associated penalties were set aside on merits across all substantive issues, while the question of limitation was not finally determined.

Ratio Decidendi: A levy under leased circuit or telecommunication service cannot be sustained unless the statutory character of the service provider and the transaction squarely satisfies the charging definition, and a transaction amounting to transfer of the right to use goods or sale of goods is outside service tax.

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