Custom, Excise & Service Tax Tribunal
Vodafone Cellular Ltd vs Coimbatore on 8 March, 2019
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
SOUTH ZONAL BENCH, CHENNAI
Appeal Nos. ST/41798/2014 and ST/40131/2016
(Arising out of Order-in-Original No. 11/2014-Commr. Dated
28.5.2014 and Order-in-Original No. CBE/ST/12/2015-Commr.
Dated 28.10.2015 passed by the Commissioner of Customs,
Central Excise and Service Tax, Coimbatore
M/s. Vodafone Cellular Ltd. Appellant
Vs.
Commissioner of GS & Central Excise
Coimbatore Respondent
Appearance Ms. Krithika Jaganathan, Advocate for the Appellant Shri B. Balamurugan, AC (AR) for the Respondent CORAM Hon‟ble Ms. Sulekha Beevi C.S., Member (Judicial) Hon‟ble Shri Madhu Mohan Damodhar, Member (Technical) Date of Hearing :26.02.2019 Date of Pronouncement :08.03.2019 Final Order Nos. 40412-40413 / 2019 Per Bench Brief facts are that the appellants are holders of service tax registration for providing services inter alia telecommunication services. For this purpose, the appellant M/s. Vodafone Cellular Ltd. (VCL) are licensed under Indian Telegraph Act, 1885. VCL had entered into International GSM 2 ST/41798/2014 & ST/401312016 Roaming Agreements with various overseas telecommunication operators. As a part of such agreement, VCL provided services to international in-bound roamers who are subscribers of a foreign telecom operator but are on a visit to India. For these services, VCL charges the foreign telecom operators as per the roaming agreement. Department was of the view that the said services are subject to levy of service tax under Telecommunication Service. Show cause notices were issued for the periods 1.4.2011 to 30.6.2012 and 1.10.2013 to 30.9.2014 proposing to demand service tax along with interest and also for imposing penalties. After due process of law, the original authority confirmed the demand, interest and imposed equal penalty besides penalty under section 77(2) of Finance Act, 1994. Aggrieved, the appellants are now before the Tribunal.
2. On behalf of the appellant, ld. counsel Ms. Krithika Jaganath appeared and argued the matter. Her arguments are summarized as under:-
2.1 The present issue pertains to International Inbound Roaming Services provided by VCL to Foreign Telecommunication Operator Companies („FTOs‟), for which consideration is paid by the FTOs to the appellant in convertible foreign exchange. To this extent, the appellant has executed International GSM Roaming Agreements (hereinafter 3 ST/41798/2014 & ST/401312016 referred to as „Roaming Agreements‟) with FTOs overseas for providing their subscribers with roaming facilities during their stay in India. Under International Roaming Facility, a subscriber to a Telecom operator in a country, commonly referred to as Home Network operator („HNO‟) obtains access to network of another operator in the countries they visit, commonly referred to as the Visited Mobile Telephone Operator („VMTO‟). The roaming agreements enable reciprocal arrangements for provision of telecom services, whereby persons subscribing to VCL‟s network in India are able to use the contracting telecom operators‟ services in the foreign country, and an Inbound Roamer is able to use the appellant‟s network services in India.
2.2 In other words, the appellant is the HNO for its subscribers in India, and is a VMTO for subscribers of FTOs („Inbound Roamers‟) with whom a roaming agreement has been executed. Inbound Roamers would have access to appellant‟s network under the International In-bound Roaming Facility. In such arrangements, the VMTO keeps track of the calls and messages logged for the duration of the International travel and logs the corresponding charges. The VMTO raises invoices on the HNO for services provided to them. It is relevant to note that services are provided by the VMTO to 4 ST/41798/2014 & ST/401312016 HNO, and not to the subscribers. The consideration for the telecom services are received in convertible foreign exchange. 2.3 The appellant submits that the issue has been decided on identical facts by the Tribunal in the case of Vodafone Essar Cellular Limited vs. CCE, Pune 2013 (31) S.T.R. 738 (Tri. - Mumbai). The Tribunal had observed in such order in paragraph 5.1 that the FTO is the service recipient since the roaming agreements are executed between the appellant and the FTO. It was further noted that since the FTOs are the service recipients, the transaction would qualify as an export of service and no tax is required to be paid in terms of Rule 4 of the Export of Service Rules, 2005. The said decision has been subsequently relied upon in the following cases, where it has been consistently held that the transaction amounts to an export of services:-
a) Vodafone Cellular Ltd. v. CCE, Pune-III, 2014 (34) STR 890 (Tri.-Mumbai)
b) CST, Mumbai-I v. Vodafone India Ltd., 2015 (37) STR 286 (Tri.-Mumbai)
c) Paul Merchants Ltd. 2013 (29) S.T.R. 257 (Tri. -
Del.)
d) Vodafone Essar Gujarat Ltd. v. Commissioner of Service Tax, Ahmedabad 2015-TIOL-2100- CESTAT-Ahm.
e) Microsoft Corporation India Pvt. Ltd. v.
Commissioner of Service Tax, New Delhi 2014 (36) STR 766 (Tri.-Del.) 5 ST/41798/2014 & ST/401312016 2.4 The impugned order has observed that the decision of the Tribunal in Vodafone Essar Cellular Ltd. is per incuriam for not considering the Notification No. 36/2007. The impugned order has also relied on Circular No. 90/1/2007-S.T. dated 03.01.2007. The Notification No. 36/2007 stipulated that the services provided to International Inbound roaming subscriber were not liable to service tax for the period from 01.07.1994 to 14.01.2007, and the Circular dt. 03.01.2007 clarified that the international inbound roaming services would be taxable under the erstwhile telephone services from 15.01.2007 onwards. Appellant submits that the Notification No. 36/2007 only stipulated non-taxability of the transaction for the period between 01.07.1994 to 14.01.2007. It did not make any positive stipulation on the taxability of the transaction. 2.5 In any case, the decision of the Tribunal in the appellant‟s own case was rendered on an in-depth analysis of the facts and the tenets of service tax levy. Under the framework of the Finance Act, 1994, it was held that the service recipient would be the FTO, and therefore the services would be deemed to have been exported. Under such circumstances, the Notification No. 36/2007 cannot be given primacy over a decision that determines levy on first principles. It is submitted that the Circular dt. 03.01.2007 has since been withdrawn vide Circular 96/7/2007-ST dt. 23.08.2007 and this 6 ST/41798/2014 & ST/401312016 view has been expressed in Verizon Communication India Pvt. Ltd. vs. Assistant Commissioner, Service Tax, Delhi III, Division-XIV & Anr.; 2017-VIL-469-DEL-ST. 2.6 The appellant had filed rebate claims under Rule 5 of the Export of Services Rules, 2005 r/w Notification No. 11/2005-ST dt. 19.04.2005 for rebate of service tax paid on International Inbound Roaming Services exported to FTOs. Upon rejection of these rebate claims, the appellant filed a Revision Application before the Government of India. Order No. 01-05/2018 dt. 23.01.2018 („Order‟) was passed by the Principal Commissioner & Ex-Officio Additional Secretary to Govt. of India in adjudication of Revision Applications filed by M/s Vodafone West Limited and M/s Vodafone Cellular Limited against Orders-in-Appeal No. 199/2012(STC)/AK/COMMR(A)/ AHD dt. 03.09.2012 and CMB-CEX-000-APP-123 to CMB-CEX- 000-APP-126-13 dt. 27.03.2013 on the issue of International Inbound Roaming Services provided by the appellant to FTOs. The Order upheld the decisions in Vodafone Essar Cellular Limited vs. CCE, Pune, 2013 (31) S.T.R. 738 (Tri. - Mumbai) and in Vodafone Cellular Ltd. v. CCE, Pune-III, 2014 (34) STR 890 (Tri.-Mumbai) while also upholding the applicability of Circular No. 111/5/2009-S.T. dt. 24.02.2009 to the present circumstances. The order also upheld the reliance placed on the decision of the Tribunal in Paul Merchants Ltd. 2013 (29) 7 ST/41798/2014 & ST/401312016 S.T.R. 257 (Tri. - Del.) as binding precedent for the issue under consideration. Therefore, appellant submits that International Inbound Roaming will not be liable to service tax. The appellant further prays that where the demand is itself not sustainable, the levy of interest and imposition of penalty is not tenable.
2.7 The Service recipient in the instant transaction is the FTO, and not the Inbound Roamer. Inbound Roamer benefits from the arrangements between the FTO and the HMO. Once the Service Recipient is identified as being the FTO, the place of provision of services will have to be determined to ascertain if the services are exported or not. For the period prior to 01.07.2012 when Export of Service Rules were in vogue, Rule 3(iii) would operate for Telecommunication Services and the transaction would be treated as export if the Service Recipient is located outside India. For the period post 01.07.2012 when the POPS Rules were enforced, Rule 3 of the Place of Provision of Service Rules would operate. It stipulates that the location of the service recipient would be the place where services are deemed to have been provided. Since the FTO is the Service Recipient, the transaction must be treated as Export transactions for both periods.
8
ST/41798/2014 & ST/401312016
3. The ld. AR Shri B. Balamurugan appeared and argued the matter on behalf of the department. His arguments are summarized as under:-
3.1 He adverted to the definitions contained in Section 65(109a) of the Finance Act, 1994 as well as the taxable service defined under section 65(105)(zzzx) of the Act. He also drew our attention to Notification No. 36/2007-ST dated 15.6.2007. It is argued by him that this is a notification issued under section 11C of the Central Excise Act, 1944 read with Section 83 of Finance Act, 1994 whereby the service tax payable on roaming services provided by a telecom company to an international inbound roaming subscriber is not to be levied for a particular period from 1.7.1994 till 14.1.2007. This notification implies that the said services are leviable to service tax. Drawing attention to section 11C, he emphasized that only when services is subject to levy of service tax, there can be a notification issued under section 11C to exempt or take away the levy for particular period. Thus, the said notification 36/2007 would show that the services are taxable. 3.2 Again in circular No. 90/1/2007-ST dated 3.1.2007, the department has clarified the levy of service tax on services provided to international inbound roamers. In para 4 and 5 of the said circular, it has been clarified that during the period of roaming, the Indian telecom service provides telephone 9 ST/41798/2014 & ST/401312016 services to an international inbound roamer and this service being consumed in India is not export of service.. Thus, from 15.1.2007, the said services are subject to levy of service tax and therefore the claim of the appellant that the activity amounts to export of service cannot sustain. 3.3 With regard to Circular No. 96/7/2007-ST dated 23.8.2007, which is the master circular, relied upon by the appellant, he submitted that the said circular is only for clarification on technical issues relating to taxation of service.
The present issue is not technical in nature and it is with regard to the taxability of service. Therefore, the said master circular does not supersede the circular dated 3.1.2007. More in the Master Circular dated 23.8.2007, there is no mention of telecommunication services or section 65(105b), which all the more makes it clear that master circular does not supersede circular dated 3.1.2007.
3.4 The reliance placed by the ld. counsel on the decision in the case of Verizon Communication India Pvt. Ltd. Vs. Assistant Commissioner of Service Tax, Delhi - IIII reported in 2018 (8) GSTL 32 (Del.) was countered by ld. AR stating that the facts of the said case are entirely different and is not applicable to the present case.
4. Heard both sides.
10
ST/41798/2014 & ST/401312016 5.1 The issue is whether the appellants are liable to pay service tax on the international inbound roaming services received by a subscriber of foreign telecom company who visits India. It is not in dispute that the appellant had received consideration from the foreign telecom company for providing such international roaming. In other words, department does not have a case that consideration as received by the appellant from the person who was on visit in India and was receiving services from appellant as a subscriber of foreign telecom company. The international inbound roamer is not a subscriber of the appellants. The department has proceeded with the view that the actual beneficiary of the service is the inbound roamers and the appellant being a service provider for such international roaming facility, the service would fall within the levy of service tax. In fact, even though the actual beneficiary of the service is inbound roamer, there is no agreement by the appellant to provide service to the actual inbound roamer. The agreement to provide service is between the appellant and the foreign telecommunication company. Thus, for the appellant, the service recipient can only be the foreign telecommunication company and not the international inbound roamer. In case of any difficulty faced by the international inbound roamer he would call the customer care of the foreign telecom company to which he is a subscriber. Thus, as per the agreement, the 11 ST/41798/2014 & ST/401312016 appellant agrees to provide service to the foreign telecom company and therefore such foreign telecom company is the service recipient.
5.2 Since the service recipient is located outside India, as per Rule 3(iii) of Export of Service Rules, the said services would amount to export of service for the period prior to 1.7.2012. For the period after 1.7.2012, the Place of Provision of Services Rules, 2012 came to be introduced and as per Rule 3 of such Rules, the location of the service recipient has to be taken into account for deciding as to where the services have been provided. So for the entire period of dispute, since the service recipient is outside India, the same amounts to export of services.
5.3 In drawing such conclusion, we are assisted by the Master Circular dated 23.8.2007 issued by the department. It may be correct that in Circular No. 90/1/2007-ST dated 3.1.2007 such services of providing international inbound roaming facility has been clarified by the Board not to be export of service. Moreover, in the subsequent master circular dated 23.8.2007, it is specifically clarified that the said master circular supersedes all earlier circulars. The relevant paragraph is extracted below:-
"6. This circular supersedes all circulars, clarifications and communications, other than Orders issued under section 37B of the Central Excise Act, 1944 (as made applicable to service tax by section 83 of the Finance Act, 1994), issued from time to time by the CBEC, DG (Service 12 ST/41798/2014 & ST/401312016 Tax) and various field formations on all technical issues including the scope and classification of taxable services, valuation of taxable services, export of services, services received from outside India, scope of exemptions and all other matters on levy of service tax. With the issue of this circular, all earlier clarifications issued on technical issues relating to service tax stand withdrawn."
5.4 Though the ld. AR has been at pains to argue that the above Master Circular was a clarification on technical issues only, on perusal of the above extracted portion, it is seen stated that the technical issues including the scope and classification of taxable services, valuation of taxable services, export of services, services received from outside India also fall within the scope of the master circular. Further, in the case of Verizon Communication India Pvt. Ltd. (supra), the Hon‟ble Delhi High Court had considered the issue whether the master circular supersedes the earlier circulars. The Hon‟ble High Court had concluded that the circular dated 23.8.2007 makes it explicit that all circulars, instructions and communications issued from time to time stand superseded by the Master Circular. The relevant paragraph is extracted below:-
"42. Circular No. 90/1/2007, dated 3rd January, 2007 concerned provision of telephony services to subscribers of international telephone service providers who may be on a visit to India and are availing the inbound roaming services. The said Circular clarified that a telephone connection did not necessarily mean providing a telephone instrument or providing sim card. Even if a number was allocated temporarily to an inbound roamer and used internally it remained a service of a telephone connection. It was clarified that during the period of roaming, "the Indian Telecom service provides telephone service to an international inbound roamer. This service 13 ST/41798/2014 & ST/401312016 to an inbound roamer is delivered and consumed in India and, therefore, is not an export of service."
43. The said Circular dated 3rd January, 2017 did not deal with telecommunication services involving transfer of electronic data. Then came the Circular No. 96/7/2007-S.T., dated 23rd August, 2007. This was on the basis of the report of the Committee chaired by Shri T.R. Rustagi, former Commissioner of Customs & Central Excise and Director General (Inspection). On the basis of comments received, the C.B.E. & C. issued the above circular. Paragraph 6 of the said circular reads thus :
"6. This circular supersedes all circulars, clarifications and communications, other than Orders issued under Section 37B of the Central Excise Act, 1944 (as made applicable to service tax by section 83 of the Finance Act, 1994), issued from time to time by the C.B.E. & C., DG (Service Tax) and various field formations on all technical issues including the scope and classification of taxable services, valuation of taxable services, export of services, services received from outside India, scope of exemptions and all other matters on levy of service tax.
With the issue of this circular, all earlier clarifications issued on technical issues relating to service tax stand withdrawn." (emphasis supplied)
44. What this circular does is to indicate, in an Annexure thereto, the classification (by a three digit code) of services for the purposes of levy of service tax. The Annexure does not refer to "telecommunication services". This did not, however, mean that in relation to "telecommunication services", the earlier Circular dated 3rd January, 2007 continued to operate. Paragraph 6 of the Circular dated 23rd August, 2007 makes it explicit that "all circulars", clarifications and communications issued from time to time stands superseded. There is nothing to replace what has been superseded as far as the Circular dated 3rd January, 2007."
(emphasis supplied) 5.5 In para 54 of the said judgment, in sub-para (v), it has been categorically stated that with total repeal by the subsequent circular dated 23.8.2007, the earlier circular dated 3.1.2007 has no application. From the judgment rendered in Verizon Communication India Pvt. Ltd. (supra), we find that 14 ST/41798/2014 & ST/401312016 the master circular supersedes the earlier circulars issued by the Board and therefore the contention of the department that Circular dated 3.1.2007 has to be applied for levy of service tax is not sustainable.
5.6 The ld. counsel for appellant has also furnished the order passed by the revisionary authority in their own case vide order No.01-05/2018-ST/ASRA/Mumbai dated 23.1.2018. It is submitted by the ld. counsel that the appellant was earlier paying service tax on these services and claiming refund / rebate. In such proceedings, wherein the refund claim was filed by the appellant after paying service tax, the revisionary authority has granted the refund after considering all the circulars as well as the decision in the appellant‟s own case and the case of Verizon Communication India Pvt. Ltd. (supra). Paragraphs 15 and 16 of the said revisionary order makes it clear that the revisionary authority has taken note of all the circulars of the Board as well as the decisions relied upon by the appellant to grant the refund for the period prior to 1.4.2011. After 1.4.2011, appellant stopped paying the service tax for which show cause notices have been issued. It is clear from the order of Revisionary authority that when the appellant had paid service tax and filed refund claims on the very same services, the department has granted refund holding the services as export of services. The department has granted 15 ST/41798/2014 & ST/401312016 refund upto the period 31.3.2011. The department therefore cannot contend that the services are not export of services for the period from 1.4.2011 to 30.6.2012 and 1.10.2013 to 30.9.2014 which is the disputed periods in these appeals.
6. From the foregoing discussions, we are of the considered opinion that the services are not exigible to service tax being export of service. The impugned orders are set aside and the appeals are allowed with consequential relief, if any, as per law.
(Pronounced in court on 08.03.2019)
(Madhu Mohan Damodhar) (Sulekha Beevi C.S.)
Member (Technical) Member (Judicial)
Rex