By Puloma Dalal, Jayesh Gogri, Chartered Accountants
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Whether service tax is payable under reverse charge on the amount paid for using international private leased circuit provided from abroad?
Facts:
Appellant provided call centre services, computerised data processing services etc. to customers in India and abroad and accordingly was registered under Business Auxiliary Services and Business Support Services. Appellant used international private leased circuit service provided by a Singapore company and as such paid charges to the foreign company. The dispute related to whether service tax was payable u/s. 66A for availing the said lease circuit/telecommunication service from abroad. The Appellant contested the levy on the ground that the service provider was not a “telegraph authority” as per definition of the term contained in section 65(111) and thus did not provide taxable service for the provisions relating to telecommunication service. Further, CBEC vide its circular 137/21/2011 dated 15-07-2011 clarified to the effect that foreign vendors being not licensed under Indian Telegraph Act were not covered by section 65(109a). Appellant placed reliance on Karvy Consultants Ltd. 2006 (1) STR 7 (AP) which dealt with a similar situation in the context of banking and other financial service. It was contended that under GST Act of Singapore, telecommunication service including international leased circuit line or network, if provided from a place in Singapore to a place outside Singapore, was treated as a taxable supply but qualified for zero rating. Hence, the same could not be subjected to tax in India. The revenue strongly contended that the service in question was specified in section 65(105) and the provider of service was licensed to provide such service under the Singapore Telecommunication Act. Further, section 66A created a deeming fiction and thus, the foreign service provider not being a telegraph authority should not come in the way of enforcing the said section. The circular/letter referred above being internal correspondence between the Board and the field formation would not have any binding force and reliance was placed by the revenue on Unitech Ltd. 2008 (12) STR 752 wherein on architect’s service received from a commercial concern abroad, reverse charge applicability was upheld.
Held:
Service tax was leviable u/s. 66 of the Act on taxable services referred to in section 65(105). Consequently, service tax was leviable u/s. 66A only in case of taxable services as covered by section 65(105). Thus, if a service was not covered by section 65(105), it could neither be liable u/s. 66 nor u/s. 66A. Thus for a leased circuit service to be taxable as per section 65(105) read with 65(111), the foreign service provider who was not a telegraph authority as defined under the law was not liable u/s. 66 or u/s. 66A. This legal position was evident from the Board’s clarification vide its above cited letter of 15-07-2011. The Bench also relied on the ratio of Andhra Pradesh High Court in Karvy Consultants Ltd. (supra) wherein it was held that in order that NBFC would be covered under net of service tax as banking and financial service provider, mere registration as NBFC was not enough but its principal business should be of receiving deposits/ lending. Further, the facts obtained in the case of Unitech Ltd. (supra), were also distinguished and the appeal was allowed on merits.
