Mumbai CESTAT Holds Tata Communications' Transponder Bandwidth Services Are Telecommunication Services
The Mumbai Customs, Excise and Service Tax Appellate Tribunal (CESTAT) on 17 August held that transponder bandwidth services received by Tata Communications Limited from foreign satellite service providers constitute telecommunication services and cannot be classified as Business Support Services (BSS).
A Bench comprising Judicial Member S.K. Mohanty and Technical Member M.M. Parthiban dismissed the Revenue's appeal and upheld the Commissioner's order dropping service tax demands against the company. The Tribunal observed:
“Therefore, the view taken in the said letter that what otherwise constitutes a 'telecommunication service' would amount to 'business support service' is erroneous.”
Tata Communications provides international long distance, enterprise data and internet services. To provide connectivity to its customers, it leased transponder capacity in the form of frequency bandwidth from Foreign Satellite Service Providers (FSSPs).
The dispute concerned the period from 2006-07 to 2011-12 and involved service tax demands of about Rs. 22.85 crore. Tata Communications classified the services as telecommunication services, while the Department sought to classify them as Business Support Services, particularly infrastructural support services. The Revenue consequently contended that Tata Communications was liable to pay service tax under the reverse charge mechanism.
The Tribunal, however, found that Tata Communications had received only specified transponder bandwidth for providing long distance, enterprise data and internet services. It held that the service was essentially in the nature of telecommunication between two points and did not qualify as Business Support Service.
It referred to a clarification issued by the Central Board of Excise and Customs (CBEC), noting that foreign telecom service providers do not qualify as a “telegraph authority” under Indian law. It also noted that the Board had subsequently corrected its earlier view that a service which otherwise constitutes a telecommunication service could be treated as Business Support Service.
The Bench also relied on its earlier decisions in Vedic Broadcasting Limited and Bharti Teleport Limited, where it had considered the taxability of transponder services in the context of telecommunication services. In Bharti Teleport, the Tribunal had held that transponder services supplied by Intelsat were not taxable as the foreign satellite service provider was not a telegraph authority.
Accordingly, the CESTAT found no reason to interfere with the Commissioner's order dropping the show cause notices and dismissed the Revenue's appeal.
Appearances: Shri Priyesh Bheda, Authorized Representative for the Revenue/Appellant; Shri Prasad Paranjape along with Shri Kevin Gogri and Ms. Sonakshi Singh for Tata Communications Limited/Respondent.