Vodafone Essar East Limited Vs Commissioner of Service Tax (CESTAT Kolkata)
CESTAT Kolkata held that the charges paid for services rendered by the FTOs (i.e. Foreign Telecommunication Operators) cannot be taxed under head ‘telecommunication services’. Accordingly, demand set aside.
Facts- The Appellant, M/s. Vodafone Essar East Limited, are engaged in providing a comprehensive range of ‘Telecommunication Services’ in India. An investigation was initiated by the DGCEI, Kolkata Zonal Unit against the Appellant.
On the basis of the investigation, a Show cause Notice was issued to the Appellant demanding service tax of Rs. 2,87,23,940/- along with interest and penalty. The Notice was adjudicated by Commissioner vide Order-in-Original, wherein he confirmed the demand of Rs.2,04,56,485/- along with interest and dropped the remaining demands made in the Notice. He also imposed penalty equal to the duty confirmed u/s. 78 of the Finance Act, 1994.
Being aggrieved, both revenue and appellant has preferred the present appeal.
Conclusion- Held that during the relevant period only telecommunication services provided by a ‘Telegraph Authority’ to a person were taxable. In the instant case, FTOs located abroad providing the connectivity services would not fall within the ambit of ‘Telegraphy Authority’ as defined under Section 65(111) of the Finance Act, 1994 read with Section 3(6) of the India Telegraph Act, 1885. Accordingly, we observe that the charges paid for the services rendered by the FTOs cannot be taxed under head “telecommunication services” on the Appellant.
FULL TEXT OF THE CESTAT KOLKATA ORDER
M/s. Vodafone Essar East Limited (The “Appellant”) are engaged in providing a comprehensive range of ‘Telecommunication Services’ in India. An investigation was initiated by the DGCEI, Kolkata Zonal Unit against the Appellant on 08.04.2009 on the following aspects:
1. Whether the Appellant has discharged service tax on upfront/arrangement fees paid to foreign financial institution/banks for providing finance in nature of external commercial borrowing (ECB),
2. Whether the Appellant has discharged service tax on roaming charges paid to foreign telecom operators (FTO), and
3. Whether the Appellant had discharged service tax on various expenditures made in foreign currency.
2. On the basis of the investigation, a Show cause Notice dated 04.2011 was issued to the Appellant demanding service tax of Rs. 2,87,23,940/-along with interest and penalty. The Notice was adjudicated by Commissioner vide Order-in-Original dated 31.05.2012, wherein he confirmed the demand of Rs.2,04,56,485/- along with interest and dropped the remaining demands made in the Notice. He ordered appropriation of an amount of Rs.50,06,485/- paid by the Appellant towards duty and Rs.2,39,205/- paid towards interest. He also imposed penalty equal to the duty confirmed under Section 78 of the Finance Act, 1994. Aggrieved against the impugned order, the Appellant has filed the present appeal. The department has filed appeal against dropping of the demand.
3. In their submissions, the Appellant summarized the findings of the Commissioner in the impugned order as below:
