ORDER
C.N.B. Nair, Member (T)
1. Telegraphic service is one of the services which is liable to service tax. ‘Taxable service’ in regard to telegraphic service has been defined under at serial No. 41 (b) of Finance Act, 1994 as service provided:
“41 (b) to a subscriber, by the telegraph authority in relation to a telephone connection”.
Telegraph authority’ has been defined in the same Act under serial No. 42 as under:
(42) telegraph authority has the meaning assigned to it in clause (6) of section 3 of the Indian Telegraphic Act, 1885 and includes a person who has been granted a license under the first proviso to sub-section (1) of Section 4 of that Act.”
Tax is payable on ad valorem basis. The value of taxable service has been defined in Section 67 at serial (b) as under:
“in relation to telephone connection or pagers provided to the subscribers shall be the gross total amount (including adjustments made by the subscribers at the time of applications for telephone connections or pagers) received by the telegraph authority from the subscribers”.
2. The dispute in the present case is about valuation of taxable service in the case of PCOs of the appellant M/s Bharti Infotel Ltd. The impugned order has held to the effect that the value of the service would be the price charged by the PCO operator from the PCO user (customer). As against the same, the contention of the appellant is that the value of the service is the amount paid by the PCO operator to the appellant.
3. We have perused the record and heard both sides. The contention of the learned Counsel for the appellant is that it is clear from the definitions of telegraphic service, and value of service that valuation should be on the basis of value of service provided to the subscriber and not to the customer.
4. The contention of the learned SDR is that the definition of subscriber has been amended as under:
“subscriber” means a means a person to whom any service of a telephone connection or a facsimile or a leased circuit or a pager or a telegraph or a telex has been provided by the telegraph authority.”
According to the SDR this definition of subscriber takes in customer also. Learned SDR also contends that PCO operator is only an agent of the appellant. It is being submitted that this position is clear from the fact that the appellant fixed the rate at which the PCO operator (the agent) will be charging the customers. She also points out that there are other conditions in the agreement requiring the display of appellant’s logo, fixing of working hours of the PCO, service to Airtel customer etc. She has also emphasized that the Commissioner has held that the relationship between the PCO operator and the appellant is one of agent and principal.
5. The agreement between the appellant and the PCO operator is as follows in regard to the relationship:
Annex 1 – Terms and conditions for Touchtel STD/ISD-PCO connections in urban areas [Annex to the Touchtel STD/ISD-PCO Customer Agreement Form]
The terms and conditions for subscribers of Touchtel STD/ISD-PCO connection(s) are as follows-
1. Initial security deposit of Rs. 2000 per STD/ISD-PCO connection is to be made with Touchtel at the time of signing the “Customer Agreement Form”. balance security deposit of Rs. 3000 payable in equal installments in the first three bills. The deposit amount can be paid by cash/demand draft /pay order in favor of Bharti Telenet Ltd. The security deposit will carry simple interest @State bank of India FD rate for a duration of one year and the same will be credited to the Touchtel STD/ISD-PCO subscriber’s account at the end of the financial year.
2. The billing of the subscriber will be monitored after the end of the first quarter. If the average monthly billing for the monitoring period is higher than Rs. 5000. The deposit amount will be revised to this higher amount and collected from the subscriber. Thereafter subsequent reviews of security deposit will be done after every year. Increases in security deposit will be informed in the next billing cycle. The subscriber will have to make a deposit for the increased amount as mentioned above.
3. The subscriber will be charged call charges @Rs. 0.984 per call unit and a service tax @ 5% will be payable on the total bill amount.
4. All charges are to be paid by cash/demand draft/pay order in favor of Bharti Telenet Ltd.
The Touchtel STD/ISD-PCO subscriber may charge their customer at a maximum rate of Rs. 1.25 per call unit (all-inclusive). A service charge @ Rs. 2.00 per call may also be charged.
6. A fortnightly invoking schedule will be followed
Billing Period Invoice date Last date for making the
payment
1st to 15th day of the 16th day of the 22nd day of the month
month month
16th to last day of the 1st day of the next 7th day of the next month
month month
7. In regard to a public telephone, there are three entities (i) telegraphic service provider (ii) subscriber and (iii) customer/user. It is clear from the definitions in the Act that customers/users of phone are not recognized in the scheme of the levy. The tax is in regard to a telegraphic service provided to the subscriber.
Valuation is also based on the “gross total amount” received by the provider from the subscriber (the receiver of the service). The amendment in 2001 referred to by the ld. SDR did not make difference to this scheme. It only recognizes services like facsimile as telephone service. Thus, the amount charged by the PCO operator from the customer has no relevance for valuation. Valuation of service provided by the appellant to the subscriber cannot be based on amount charged by the PCO operator from the customer. In the present proceeding, the additional service tax is demanded on this basis. Its is clearly contrary to the scheme of valuation provided in the Act. The impugned order is therefore, set aside and the appeals are allowed with consequential relief, if any to the appellant.