Mere NBFC Registration Not Enough Under Provision Of Service Tax For Levy: CESTAT

The Hyderabad Bench of the Customs, Excise, and Service Tax Appellate Tribunal (CESTAT) has held that mere registration as an NBFC is not enough under the provision of service tax to levy.

The two-member bench of Anil Choudhary (judicial member) and P. V. Subba Rao (technical member) has observed that the service provider should be both a company and have the principle business of receiving deposits and lending.

The appellant/assessee is a subsidiary of Qualcomm Inc., USA. Qualcomm Inc. in the USA has entered into a master service agreement with a group entity called "Verizon Inc." located outside India for the purpose of providing telecom bandwidth and telephone-related services for all its affiliated entities across the globe. The appellant, being one of the group entities of Qualcomm Inc. USA, avails of telecom bandwidth and telephone services from Verizon Inc. as per the terms of the agreement. Verizon Inc. raises an invoice directly to the appellant on a monthly basis. The services received by the appellant were used by them in the provision of their taxable output services.

For the period under dispute, October 2006 to July 2009, the department was of the view that the services availed by the Appellant from Verizon Inc., USA, merited classification under "Internet Telecommunication Service" and demanded service tax.

The appellant contended that the services availed of by them from Verizon Inc are not of the nature of internet telecommunications services. It will be classified as "leased circuit service" until May 31, 2007, and from June 1, 2007, such services would at best merit classification as "telecommunication service'. However, under both categories, there is a requirement under the law that the service provider should qualify as a "telegraph authority," i.e., the person licenced under the Indian Telegraph Act, 1885. Since Verizon Inc., USA, did not have a licence granted under the Indian Telegraph Act, 1885, the services it provided would not be subject to service tax.

The adjudicating authority confirmed the service tax demand along with interest and penalties, including the mandatory penalty.

The assessee submitted that the SCN proposes to levy service tax under the category of ‘Internet Communication Service'. The services were brought into the service tax ambit only with effect from May 16, 2008. As a result, the demand would not be subject to service tax to the extent that it covers the time frame from 01.10.2006 to 15.05.2008.

The issue raised was whether the services availed of by the appellant from Verizon Inc. (located outside India) are subject to service tax as ‘Internet Telecommunication Service’ or are classifiable as ‘Leased Circuit Service’ (up to May 31, 2007).

The Tribunal held that it is not enough that the service provider provides lease services; it should also be a ‘Telegraph Authority'. A service tax levy is not attracted unless both conditions are met cumulatively.

Case Title: M/s Qualcomm India Pvt ltd Versus Commissioner of Customs & Central Excise, Hyderabad-IV

Citation: Service Tax Appeal No. 1939 of 2012

Date: 01.03.2023

Counsel For Appellant: Prasad Paranjpe

Counsel For Respondent: A. Rangadham

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