Tax Dispute: Service Classification, Peering Arrangements, Revenue Neutrality

The case involved issues related to the classification of services provided by MTNL through NIXI, the applicability of service tax on peering arrangements, consideration and settlement amounts in peering arrangements, revenue neutrality, identification of service provider and recipient, and the maintainability of reference to the Third Member. The Commissioner upheld the demand for service tax on MTNL for services provided through NIXI and on peering arrangements. However, the Member (Judicial) concluded that the demand for service tax on bills raised by MTNL on NIXI could not be sustained as NIXI was not a service provider or recipient. The matter was set for further submissions and a hearing to resolve the differences.

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Issues Involved:
1. Classification of services provided by MTNL through NIXI.
2. Applicability of service tax on peering arrangements.
3. Consideration and settlement amounts in peering arrangements.
4. Revenue neutrality and extended period of limitation.
5. Identification of service provider and service recipient.
6. Maintainability of reference to the Third Member.

Issue-wise Detailed Analysis:

1. Classification of Services Provided by MTNL through NIXI:
The Commissioner confirmed the demand of service tax on MTNL, holding that services provided through NIXI are classifiable under 'internet telecommunication service' as defined under section 65(57a) and taxable under section 65(105)(zzzu) of the Finance Act, 1994.

2. Applicability of Service Tax on Peering Arrangements:
Intelligence gathered indicated that MTNL entered into 'Peering Arrangements' with other ISPs for carrying internet traffic but did not discharge service tax on these services. The Commissioner held that the peering arrangement involves taxable services, and MTNL is liable to pay service tax on the gross value of these services.

3. Consideration and Settlement Amounts in Peering Arrangements:
The Commissioner noted that MTNL received settlement amounts calculated based on NIXI's Routing and Tariff Policy. Despite MTNL's claim of not receiving any consideration prior to 01.04.2011, the Commissioner ruled that the existence of consideration could not be denied, and service tax was payable on the deemed consideration.

4. Revenue Neutrality and Extended Period of Limitation:
The learned Member (Judicial) raised the issue of revenue neutrality and whether the extended period of limitation is attracted. The Member (Judicial) concluded that since NIXI is neither a service provider nor a service receiver, the demand for service tax on bills raised by MTNL on NIXI could not sustain.

5. Identification of Service Provider and Service Recipient:
The learned Member (Judicial) disagreed with the Member (Technical), noting that NIXI is only a facilitator and not a service provider or recipient. Therefore, the invoice raised by MTNL on NIXI was irrelevant for service tax purposes.

6. Maintainability of Reference to the Third Member:
A preliminary objection was raised regarding the maintainability of the reference to the Third Member. The learned authorized representative argued that the reference was not maintainable as the Member (Judicial) did not provide reasons for differing with the Member (Technical). However, it was held that the reference is maintainable as the points of difference were clearly set out.

Separate Judgments Delivered:
The Division Bench framed questions for determination by a Third Member due to the difference of opinion between the learned Member (Judicial) and the learned Member (Technical). The Member (Technical) held MTNL liable for service tax based on the invoice raised, while the Member (Judicial) found the demand misconceived as NIXI was not a service provider or recipient.

Conclusion:
The matter was listed for further submissions, and the preliminary objection regarding the maintainability of the reference was overruled. The appeal was set for hearing on October 07, 2022, to resolve the issues based on the points of difference identified by the Division Bench.

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