By TIOL News Service

CHENNAI, MAR 25, 2019: THE present appeal has been filed by M/s Vodafone Cellular Limited, which is a leading telecommunication service provider.

During the relevant period, the appellant entered into International GSM Roaming Agreements with Foreign Telecommunication Operator Companies (FTOs) for which consideration is paid by the FTOs to the appellant in convertible foreign exchange. The appellant executed International GSM Roaming Agreements with the FTOs overseas, for providing their subscribers with roaming facilities during the subscribers' stay in India. Under International Roaming Facility, a subscriber to a Telecom operator in a country, commonly referred to as Home Network operator ('HNO') obtains access to network of another operator in the countries they visit, commonly referred to as the Visited Mobile Telephone Operator (VMTO). The roaming agreements enable reciprocal arrangements for provision of telecom services, whereby persons subscribing to VCL's network in India are able to use the contracting telecom operators' services in the foreign country, and an Inbound Roamer is able to use the appellant's network services in India.

The appellant is the HNO for its subscribers in India, and is a VMTO for subscribers of FTOs (Inbound Roamers) with whom a roaming agreement has been executed. Inbound Roamers would have access to appellant's network under the International In-bound Roaming Facility. In such arrangements, the VMTO keeps track of the calls and messages logged for the duration of the International travel and logs the corresponding charges. The VMTO raises invoices on the HNO for services provided to them. It may be noted that the services are provided by the VMTO to HNO and not to the subscribers. The consideration for the telecom services are received in convertible foreign exchange.

The Department opined that such services would attract service tax under telecommunication service. SCNs were issued for four different periods, raising duty demand with interest & imposing penalties. On adjudication, the original authority confirmed the duty demand with interest & imposed equivalent penalty as well as penalty u/s 77(2) of the Finance Act 1994.

Thereafter, the Tribunal noted that -

"...5.1. It is not in dispute that the appellant had received consideration from the foreign telecom company for providing such international roaming. In other words, department does not have a case that consideration as received by the appellant from the person who was on visit in India and was receiving services from appellant as a subscriber of foreign telecom company. The international inbound roamer is not a subscriber of the appellants. The department has proceeded with the view that the actual beneficiary of the service is the inbound roamers and the appellant being a service provider for such international roaming facility, the service would fall within the levy of service tax. In fact, even though the actual beneficiary of the service is inbound roamer, there is no agreement by the appellant to provide service to the actual inbound roamer. The agreement to provide service is between the appellant and the foreign telecommunication company. Thus, for the appellant, the service recipient can only be the foreign telecommunication company and not the international inbound roamer. In case of any difficulty faced by the international inbound roamer he would call the customer care of the foreign telecom company to which he is a subscriber. Thus, as per the agreement, the appellant agrees to provide service to the foreign telecom company and therefore such foreign telecom company is the service recipient..."

The Tribunal also noted that as the service recipient is located outside India, then as per Rule 3(iii) of Export of Service Rules such services would amount to export of service for the period prior to 1.7.2012. For the period after 1.7.2012, the Place of Provision of Services Rules, 2012 was introduced and as per Rule 3 of such Rules, the location of the service recipient has to be taken into account for deciding as to where the services have been provided. Thus, the Tribunal observed that for the entire period of dispute, since the service recipient is outside India, the same amounted to export of services. It also held that -

"...5.6. After 1.4.2011, appellant stopped paying the service tax for which show cause notices have been issued. It is clear from the order of Revisionary authority that when the appellant had paid service tax and filed refund claims on the very same services, the department has granted refund holding the services as export of services. The department has granted refund upto the period 31.3.2011. The department therefore cannot contend that the services are not export of services for the period from 1.4.2011 to 30.6.2012 and 1.10.2013 to 30.9.2014 which is the disputed periods in these appeals..."

Thus, the Tribunal held that the services in question would not attract service tax, being export of service.

(See 2019-TIOL-842-CESTAT-MAD)