JUDGMENT
M. Veeraiyan, Member (T)
1. This is an appeal against the order of the Commissioner No. STC/Telephone/04/Commr/Ahd/2006 dated 18/10/2006
2. Heard both sides.
3. The relevant facts, in brief, are as follows:
a. The appellant is licensed under the Telegraph Act to provide mobile telephone services within the State of Gujarat;
b. They have communication network of their own; they have subscribers of their own and they are also paying service tax on the call charges collected from their subscribers;
c. Their subscribers are talking not only amongst themselves but also talk to subscribers of other telecom authorities and receives the calls originating in the network of other telecom authorities whether basic or mobile. There is an arrangement by which the facilities of different telecom authorities are shared and the expenses and incomes are shared. There is, therefore, interconnectivity between basic / cellular operators either for transit or termination of calls. This link can be by way of a cable, optical fibre, radio frequency or a satellite link. These activities and charges for them are regulated by the Telecom Regulatory Authority of India (TRAI).
d. The appellant has been collecting from other telecom authorities like Reliance Infocomm Limited, BSNL, Bharti Cellular Limited, Bharti Telesonic Limited, Idea Cellular Limited, Tata Teleservices Services Limited, Videsh Sanchar Nigam Limited, etc., sums known as interconnect usage charges (IUC). They have received a total sum of Rs. 180,06,00,231/- from these telecom authorities for the period 16/07/2001 to 30/09/2005.
e. The Commissioner has treated the said IUC charges as charges towards “leased circuit service” rendered by the appellant to various telecom authorities and demanded duty of Rs. 15,89,86,209/- as Service Tax and imposed penalties under various sections including Rs. 16 crores under Section 78 of the Finance Act, 1994.
4. The learned advocate for the appellant, made inter alia, the following submissions:
a. The appellant as a telegraph authority have revealed to the department whatever charges are collected from their subscribers and paid service tax.
b. In respect of calls received from subscribers of other telecom authorities to the subscribers of the appellant company IUC charges from other telecom authorities have been collected for use of their network in transmitting such calls to the appellants’ subscribers. The charges collected by the appellants is only for services rendered by the appellant by use of their network in terminating the calls.
c. For example, in the case of Reliance Infocomm, who are a later entrant, Reliance Infocomm were required to provide the infrastructure for link and thereafter when calls from their subscribers are received, they are received into switches installed in the exchanges maintained by the appellant; when Reliance Infocomm subscriber makes a call, the facilities of not only Reliance Infocomm is used but also the facilities of appellant is used. However, the charges for the calls are collected only by Reliance Infocomm, a part of it shared by Reliance Infocomm to the appellant company. Similar is the arrangement in respect of other subscribers of other telecom authorities whose calls terminated with the subscribers of the appellant company.
d. The appellant company, in a similar way, uses the facilities and services of other telecom authorities in respect of calls terminating at the end of the subscribers of other telecom companies and out of the call charges collected from subscribers of the appellant company, similar amounts are paid to the other telecom companies.
e. The charges are @ 30 paise per pulse irrespective of which telecom authorities has provided the link or connectivity. In the case of Reliance Infocomm the circuit linking the appellant company is provided for at their own cost by Reliance Infocomm. In the case of BSNL for the link provided by them the rent is payable but in addition the IUC charges as prescribed by TRAI is payable to BSNL.
f. The total investment in the so called leased circuit is very insignificant when compared to the entire investment on the network. The link between one telecom authorities to another telecom authority cannot be treated as a leased circuit and one telecom authority cannot be considered as subscriber of other telecom authority. The telecom authority is not known as subscriber in the concerned trade parlance.
g. The definition of subscriber under Section 65(104) as applicable to a “leased circuit” should be taken in the context of other accompanying words namely, a telephone connection, a facsimile, a pager, a telegraph or a telex. Further the ‘leased circuit’ is also available to any common subscriber as in the case of “hot lines”;
h. The Karnataka High Court which dealt with the nature of services rendered by PCO in the case of PCO v. Telecom Authority has taken the view that PCO themselves function as telecom authorities and that they cannot be treated as subscriber and that service tax collected by them as PCO has to be paid directly to the Central Government.
5. The learned Authorised Representative of the department during the course of his arguments and in the written summary of submissions made, inter alia, the following submissions:
a. The agreement between the appellant company and the other telecom authorities are referred to as interconnect agreements.
b. This inter connection is provided by the appellant by way of a dedicated link to other telephone operators for their exclusive use, by providing different bandwidth for different operators.
c. The term the “leased circuit” is not confined to merely physical wires and cables but also the other systems/equipments which support the circuits. In terms of Section 65(60), the term “leased circuit” means a dedicated link provided between two fixed locations for exclusive use of the subscriber and includes a speed circuit, a data circuit, a telegraph circuit.
d. The appellants have admitted in the reply that there is a dedicated link between the appellant and the other operators; and that the dedicated links are part of the entire telecom network set up by the appellant;
e. But for the leased circuit no call from a subscriber of one telecom authority can go to the subscriber of another telecom authority. During the duration of a call between one subscriber and another subscriber the circuit is for exclusive use of the subscriber. Therefore there is a dedicated link;
f. A close reading of the definition of subscriber under Section 65(104), the definition of ‘taxable service’ under Section 65(105)(zd), the definition of ‘telegraph authority’ under Section 65(111) and definition of person liable for paying service tax as defined in Rule 2(d)(i)(c) of Service Tax Rules, 1994 will would not show that at telegraph authority can not only be provider of services but also receiver of services and therefore the appellant company can fit in as a person and as a subscriber while receiving the services from another telecom authority.
g. As regards the claim of revenue neutrality when no tax has been paid, the question of availability of cenvat credit cannot and does not arise. Further, service tax on leased circuit was payable on and from 16/07/2001 while, benefit of cenvat credit has been extended to service tax only in 2003.
6. We have carefully considered the rival submissions. To enable the subscribers of one telecom authority to access the subscribers belonging to other telecom authority there has to be inter connection between the telecom authorities, These interconnection / link could be provided by way of a cable; optical fibre, radio frequency or through a satellite link. Therefore, it can be concluded that there is interconnection between the appellant company network and the network of other telecom operators. In some cases admittedly there are circuits linking such networks of different telecom authorities. Between appellant company and Reliance Infocomm Limited, it is stated that Reliance Infocomm Limited only has provided the necessary interconnection / link facility. In such a situation since the circuit belongs to Reliance Infocomm Limited the question of appellant company leasing the circuit to Reliance Infocomm and consequently the appellant company collecting any charges cannot arise. Further, in this case the link is used not only for calls terminating with the appellant company but the link is also used for the purpose of calls emanating from the appellant company to the subscribers of Reliance Infocomm. It is also not disputed that the charges for calls emanating from the appellant company to the subscribers of Reliance Infocomm are payable by the appellant company to Reliance Infocomm. Similarly charges at identical rates are payable for calls terminating at the subscribers of the appellant company from the subscribers of Reliance Infocomm to the appellant company by Reliance Infocomm. If the IUC charges collected by the appellant company from Reliance Infocomm is treated as towards “leased circuit” services provided by the appellant company, as held by the Commissioner, the question of appellant company paying IUC charges on identical rates to Reliance Infocomm should not arise.
7. Similar is the arrangement between the appellant company and other telecom authorities. The charges of 30 paisa for every pulse (each call is measured in terms of number of pulses for the purpose of calculating charges) by the concerned telecom authority is irrespective of who owns or established the link or circuit. This goes to show that the charges calculated cannot be merely for the purpose of using the connecting circuit between two telecom authorities.
8. When a call for one telecom authority is made to a subscriber belonging to another telecom authority the caller makes the full payment for the call to the first telecom authority. However, for the purpose of establishing contact with his counter part he avails the facilities of his own telecom authority and the telecom authority of the terminating subscriber. The subscriber of one telecom authority has no brevity of contract of contact with the other telecom authority. There is an internal arrangement only between one telecom authority and the other telecom authority and the charges for use of facilities of terminating calls of any telecom authority is being paid by the originating telecom authority.
9. The above charges are being prescribed by TRAI. The department’s contention that but for the circuit no call from a subscriber of one telecom authority can go to the subscriber of another telecom authority is true but that does not mean that the circuit is invariably dedicated. Therefore, the findings of the Commissioner that during the duration of a call from one subscriber to another subscriber the circuit is for the exclusive use of the subscriber is not acceptable.
10. The telecom authorities stand on a different footing from the subscribers. A telecom authority’s link to another telecom authority cannot be considered as to a subscriber. The decision of the Karnataka High Court in PCO vs. Telecom Authority treating the PCO as a telegraph authority in relation to the BSNL and not as a subscriber will be relevant in this regard.
11. Therefore, the followings emerges:
a. That no telegraph authority can be treated as subscriber of another telegraph authority in relation to the link established between one telegraph authority and another telegraph authority;
b. The IUC charges collected by each telecom authority for the calls terminating to the subscribers under them emanating from other telecom authorities cannot be treated for use of “leased circuit”:
c. No telegraph authority can be held to be providing a dedicated link to the subscriber in the network of another telecom authority during the duration of a call between his subscriber and the subscriber in the terminating telecom authority.
d. No grounds have been adduced to hold the charge of @ 30 paisa per pulse collected by the appellant in respect of calls terminating at their end is towards so called leased circuit service. Therefore, the charges collected by them cannot be treated as towards the services rendered as leased circuit services.
12. The appeal is allowed with consequential relief, if any.
(Pronounced in the Court on /2007)