By TIOL News Service

MUMBAI, JAN 19, 2016: BASED on a study of the financial records of the appellant, the department alleged that the appellant had not discharged the service tax liability for the period April 2004 to April 2006 though registered under the category of Online Information Access and/or Database Retrieval Service.

A SCN dated 11/08/2009 came to be issued demanding service tax. Before the adjudicating authority the appellant submitted that the demand raised is for 'Interconnection service' and the same is not taxable as per the Board letter B-11/1/2001-TRU dated 09/07/2001.

The CST, Mumbai did not agree and confirmed the demand which lead to the appellant knocking the doors of the CESTAT.

The Tribunal granted a stay in the matter. We reported this order as 2015-TIOL-903-CESTAT-Mum, thus -

ST - Appellant is an internet provider and also rendering facilities to other ISPs for internet connection and gets consideration from such ISPs - Adjudicating authority deciding taxability under category of "Online Information and Database Access and/or Retrieval Services" on the ground the amounts which are received by them are charged on   "Per Mb basis"   consumed by the Customer of ISP - Appeal to CESTAT. Held: Appellant contends that said activity could be inter-connectivity services provided by one ISP to another ISP - As per Board's Circular No. B/II/I/2000-TRU, inter-connection charges paid by one ISP to another ISP are not liable to ST - Appellant took registration certificate under category of "BSS" and discharged ST liability on such amount received from ISP and in 2008 took registration under category of "Internet Telecommunication Services" -   Prima facie the appellant has made out a case for waiver of pre-deposit of the amount involved as the adjudicating authority could not have argued against the Board's Circular - Pre-deposit waived & Stay granted: CESTAT.

The appeal was heard recently.

Apart from reiterating their submissions made at the stay stage, the appellant added that w.e.f 01/07/2012, Internet telecommunication services were brought into service tax net and for the first time Internet access services were specifically mentioned and sought to be taxed. Inasmuch as in view of the Bombay High Court decision in Indian National Ship Owners' Association - 2008-TIOL-633-HC-MUM-ST if a new service is brought into the statute, it will be applicable from that date and, therefore, service tax liability which is sought to be confirmed for the period in question is incorrect and liable to be set aside.

The AR reiterated the findings of the adjudicating authority.

The Bench, after considering the submissions, observed that the issue involved is whether the amounts recovered by the appellant from small time internet service providers who took connection from the appellant for rendering services to their clients would be liable to service tax and added -

++ During the relevant period i.e. April 2004 to April 2006, appellant was registered as internet services provider under the category of Online Information Access and/or Database Retrieval Service. It is also undisputed that whenever the appellant provides services directly to the customers, service tax liability on the charges recovered from such customers are discharged. The issue involved in this case is whether the amounts recovered by the appellant from small time internet service providers who took connection from the appellant for rendering services to their clients would be liable to service tax.

++ We find that the learned Departmental Representative as well as the learned adjudicating authority are arguing against the departments stated stand that inter-connectivity charges between two ISPs are not taxable under the category of Online Information Access and/or Database Retrieval Service. We find that the Central Board of Excise and Customs vide Circular No. B.11/1/2001-TRU dated 09/07/2001 when the services were introduced has clarified comprehensively as to the liability of service tax under the head Online Information Access and/or Database Retrieval Service.

++ It can be seen … the Board did not want to tax the amounts recovered by an ISP for interconnectivity services. Such a stated stand cannot be overlooked by the adjudicating authority who is functioning under the Board. Be that as it may, there is It is settled law that the revenue cannot argue against their own Boards clarification nothing on record to show that small time ISPs who had rendered the services to their clients by taking connection from the appellant had not discharged any service tax liability on the amounts collected by them from their clients/customers.

Holding that the order, to the extent it is contested, is unsustainable, the CESTAT set aside the same and allowed the appeal.

(See 2016-TIOL-201-CESTAT-MUM)