CHENNAI TELEPHONES (BSNL) Vs. CCE

JUDGEMENT

(1.) THIS is an appeal against Order -in -Appeal Nos. 10/2002 (M -I) dated 14.3.2002 by which the Commissioner (Appeals) has confirmed the service tax of Rs. 2,11,56,278/ - for the period from 1.7.94 to 31.7.99 under Section 76 read with Sections 68 & 73 of the Finance Act, 1994 and has adjusted the amount of Rs. 1,66,71,876/ - already paid towards the above demand. There is further demand of Rs. 99,24,880/ - and Rs. 44,84,402/ - towards interest under Section 75 of the said Act for the belated payment of service Tax. However, the Commissioner has dropped the demand of service tax / interest on the surcharge amount collected.

(2.) THE Brief facts of the case are that M/s. Chennai Telephones (now BSNL) are the service providers of telephones and registered with the Department under Section 69 of the Finance Act, 1994. They also render the service of provision of circuits to the subscribers on payment of annual fees. they also collect surcharge from the customers for the belated payment of such annual fees. As they did not pay service tax on the above amount, a show cause notice dated 19.1.2000 was issued by the Commissioner of Central Excise, Chennai - I Commissionerate to demand the service tax along with interest and why penalty should not be imposed. The lower authority passed in impugned order against which they filed an appeal before the Commissioner (Appeals). The Commissioner considered the case and noted that the service provided by the appellant is in their case is provision of telephone circuit / NET/PW/PNX/PABX/ etc. to the customers on collection of annual fees. The Commissioner has noted that under Section 67 (b) of the Finance Act, 1994 as amended, the value of taxable services in relation to telephone connection provided to the subscribers shall be the gross total amount (including adjustments made by the telegraphic authority from any deposits made by the subscribers at the time of application for telephone connections) received (changed from 16.10.98) by the telegraphic authority from the subscribers. He has noted that in accordance with Chapter V of Finance Act ' 94, service tax is to be recovered on the services provided by the telegraphic authority in relation to the telephone connection. He has noted that since the provisions of circuits by M/s. BSNL to the customers are only in the nature of in relation to a telephone connection. Therefore, he held the view that the said services are taxable right from the imposition of service tax under finance Act, 1994. He also noted that Ministry of Communications (Dept. of Telecommunications) had clarified vide letter dated 17.9.96 and 7.12.98 that the impugned services are subjected to levy of service tax. Therefore, in view of this clarification, he held that appellant had collected service tax retrospectively from the customers and, therefore, he upheld the demand of service tax as confirmed by the lower authority.

(3.) LD . Counsel relied on the judgment of the Delhi Bench rendered in the case of wherein it has been held that service tax on leased circuits is not imposable and collectable. He, further, submitted that each of the heads in the Finance Act has been specified for levy of Service Tax. Under the relevant section of Finance Act, 1994 service tax was leviable only on telephone services and not to leased circuits. He submitted that charge collected on leased circuits is not to be added in the telephone services and the aid charges on leased circuits and its liability to levy of service tax was incorporated by subsequent amendment to the Finance Act. He submits that leased circuit service was included in the expression "telephone services" by separate -ST dated 9.7.2001 which appoints the dated 16th July 2001 as the date on which the Finance Act, 1944 (32 of 1994) shall be amended as provided in the said Section 137 and, therefore, it is effective only from 16.7.2001. He submitted that the cited judgement applies to the facts of the case and payment made towards service tax on leased circuits prior to 16.7.2001 is required to be refunded to the appellant.