By TIOL News Service

CHENNAI, APRIL 19, 2018: BSNL is registered with the service tax department as providers of Telecommunication Services. The assessee provides telecommunication service to the subscribers / customers who have obtained telephone connection and to public customers / callers by an arrangement of Public Call Office (PCO).

The PCOs are maintained by persons called PCO operators appointed by BSNL for this purpose. Prior to 1.6.2008, the call from PCOs was charged uniformly at the rate of Re.1 per Metered Call Unit (MCU) i.e per minute with a 60 seconds pulse.

The charge of Re.1 per MCU consisted of three components viz. Revenue share for the BSNL, commission for the PCO operators and service tax to the Government. Out of Re.1 charged for a call, Re.0.11 was the service tax payable and the remaining Re.0.89 was for both revenue share of BSNL and the commission payable to the PCO operators.

The service tax payable was thus worked out by BSNL by taking the call charge of Re.1 as cum tax value, as no service tax is separately charged and collected from the customers. Thus BSNL had paid service tax on gross call charges inclusive of the commission paid to the PCO operators.

W.e.f. 1.6.2008, BSNL revised their policy and restructured the tariff of PCO business. BSNL charged the PCO operators at the defined rates on the basis of volume of metered calls (slab basis) along with service tax and cess payable thereon, irrespective of the actual amount charged by the PCO operators from the users / callers of telecommunication services. BSNL raised bills on the PCO operators indicating gross calls, discount, net amount and service tax payable.

The Department was of the view that non-inclusion of amount of discount given to PCO operators resulted in short payment of service tax by the BSNL. The period involved is 01.06.2008 to 31.01.2011.

The demands were confirmed by the Commissioner along with imposition of penalty u/s 78 but proposal to impose penalty u/s 76 was dropped. The assessee is aggrieved against confirmation of demand and Revenue in the matter of non-imposition of penalty u/s 76. In respect of Tirunelveli unit, the order passed by original authority was appealed before Commissioner (Appeals) who dropped the demand, interest and penalties. Hence, department is in against the said order.

These are the submissions made by the appellant -

+ They referred to the definition of 'Telecommunication service' u/s 65 (105) (b) prior to 1.6.2007 and thereafter. Inasmuch as prior to 1.6.2007, the taxable service read as 'any service provided to a subscriber by the telegraph authority in relation to a telephone connection' and after 1.6.2007, the word 'to a subscriber' was substituted by the word 'to any person'.

+ Nonetheless, the main question is whether BSNL is liable to pay service tax on the entire amount realized by the PCO operators from their customers and this issue was decided in the case of Bharti Infotel Ltd. - 2005-TIOL-819-CESTAT-DEL which decision was followed by the Commissioner (Appeals) while setting aside the demand.

+ The contention of the department that the decision (supra) is not applicable for the period post 1.6.2007is without any merit as the amendment has nothing to do with the issue under consideration or the ratio laid down in the the decision.

+ Reference is made to the amendment made in Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 wherein an Explanation was inserted w.e.f. 1.3.2011 clarifying that for the services specified in sub-clause (zzzx) of clause (105) of Section 65 of the Finance Act, 1994, the value of the taxable service shall be the gross amount paid by the person to whom telecom service is provided by the telegraph authority.

+ Inasmuch as this clarification makes it clear that from 1.3.2011 the assessee namely BSNL is liable to pay service tax on the value of gross amounts paid by the person who makes the call; since the amendment by way of clarification increases the liability of the assessee, the same has only prospective application as laid in the decision of UOI Vs Martin Lottery Agencies Ltd. - 2009-TIOL-60-SC-ST .

The AR while reiterating the findings in the order confirming the demand submitted that the PCO operator is only a franchise of BSNL and telecommunication service is provided to the ultimate consumer / caller / user of the PCO and, therefore, the assessee-BSNL is liable to pay service tax on the entire amount that is collected from the user of the PCO; that the judgment in Bharti Infotel Ltd. (supra) is not applicable to as it related to the period prior to the amendment (01.06.2007).

The Bench extracted the definition of ‘Telecommunication service' u/s 65 (105) (b) as it stood before 1.6.2007 and noted that the decision in Bharti Infotel Ltd, (supra) that commission/discount cannot be included in the value for levy of service taxwas followed by Tribunal in BSNL, Bijapur, Karnataka reported in - 2014-TIOL-3033-CESTAT-BANG .

The Tribunal further observed that the argument of the AR that after the amendment to Sec.65 (105) (zzzx) the said decision will not apply is countered by the counsel for appellant by relying on Notification No.2/2011-ST.

After reproducing the Explanation inserted by Notification No.2/2011-ST dt.1.3.2011, the Bench held –

"…It is seen that w.e.f. 1.3.2011, the value of taxable services in sub-clause (zzzx) of clause 105 of Section 65 namely the telecommunication services, shall be the gross amount paid by the person / PCO user to whom the telecom service is provided by the telegraph authority. The said amendment makes it clear that w.e.f. 1.3.2011, the value of taxable service would include the total amount collected by the PCO operator. However, since it is specifically stated that the said notification shall be effective only from 1.3.2011, the period involved in the present case being prior to 1.3.2011, the demand of differential amount of service tax alleging that entire amount collected by the PCO operator is subject to levy of service tax cannot sustain…"

The assessee appeal was allowed and those by Revenue were dismissed.

(See 2018-TIOL-1266-CESTAT-MAD)