Telephone services were brought under the Service Tax net by the Finance Act, 1994 (32 of 1.994) w.e.f. 1-7-1994 vide Notification No. 1/94, dated 28-6-1994. The service shall be taxed, if provided by a Telegraph authority to subscribers.

Rate of Service Tax: The rate of service tax is specified in section 66 of the Act. The Finance (No. 2) Act, 2004 has substituted the charging section 66, and the rate of service tax is enhanced from 8% to 10% ad valorem. The increase in tax rate has come into force from the date of enactment of the Finance (No. 2) Act, 2004 i.e. 10-9-2004. Further, the Finance (No. 2) Act, 2004, w.e.f. 10-9-2004 has also levied an education cess @ 2 % of the service tax. The cess paid on inputs services shall be available as credit for payment of cess on output services. For further discussion in this regard, refer to -'Payment of Service Tax'.

The term 'telephone' has not been defined in the context of service tax. However, in a case, the High Court has defined the term 'telephone connection' under section 3 of the Indian Telegraph Act, 1885 as

"The expression 'telephone connection' would in common parlance mean connecting two telephone apparatus so as to enable the caller to avail the speech transmission facility with a desired person." [N. Krishna Devaraya v Union of India AIR 1996 Kar 189,192].

(1) Meaning of telephone

‘System of transmitting speech etc. by wire or radio' (reference the Oxford Mini bictionary). 'an instrument for reproducing sound at a distance, especially by means of electricity: specifically an instrument with a microphone and a receiver mounted on a handset, for transmitting speech: the system of communication which uses these instruments' (reference the Chambers English Dictionary). Therefore, in telephone there is essentially transmission of speech. Thus, 'telephone' includes cellular phone and cordless phone in which there is transmission of speech but does not include e-mail, internet and telegram facilities in which there is no transmission of speech.

(2) Cellular Phone service is telephone service

Yes, the department in its Trade Notice No. 31/96, dated 9-4-1996, Pune Commissionerate (appended as Annexure 1) has clarified, "Cellular Telephone Services shall fall within the purview of Service tax".

(3) Pager Service is telephone service

No, a pager although falls under the definition of 'telegraph' as defined under section 3(l) of Indian Telegraph Act, 1885, but is not the same as 'telephone' since there is no conversion of acoustic signals to electric signals and vice versa and no two way speech communication. The department in its Trade Notice No. 31/96, dated 9-4-1996, Pune Commissionerate (appended as Annexure 1) has clarified, "Pager Services shall not fall within the purview of Service tax" under telephone services. However, the reader may note that 1pager service' has been taxed separately w.e.f. 1-11-1996, for detailed discussion refers to 'Pager services' of this book.

(4) Public Mobile Trunking services (PMRTS) are telephone services

No. The services rendered by Public Mobile Trunking services (PMRTS) are in the nature providing connectivity, through wireless system or radio frequency, amongst the subscribers falling within a specified area of service provider. The communication is made through radio terminals or radio trunking hand sets. A message either can be sent or received at any point of time, and simultaneously listing or talking between two persons is not possible under PMRTS System. The Central Board of Excise & Custom in its letter No. F. No. 341/16/2000-TRU, dated 10-8-2000 (appended as Annexure IX) has clarified that these services do not appear, in any way, to be using the telephone line or telephone instrument. Hence, even if PMRTS providers may be covered as a 'telegraph authority' in terms of license issued to them, they are not providing any service in relation to a telephone connection therefore, they are not covered under telephone services.

Taxable service

The definition of taxable service provided by the telegraph authority has been given under sub-clause (b) of clause (105) of section 65. That is:

any service provided "to a subscriber, by the telegraph authority in relation to a telephone connection".

(1) Add-on facility are taxable services

Yes, telephone department and mobile phone operator provides certain add on facilities to their subscribers on payment basis, it includes call transfer charges, roaming facility, call identification facility, short message services, dynamic code lock facility. All such facilities will form part of the taxable services.

(2) Free telephone facility covered under the taxable\ services

No, the Government in its Circular No. 23/3/97-ST, dated 13-10-1997 (appended as Annexure 11) has clarified, "in case the service is provided free and no amount is received by the telegraph authority, the question of service tax liability does not arise". Thus, free telephone facility by the telegraph authority to its employees etc. is not covered under the taxable services.

(3) Board Clarification

The CBE & C in its Circular No. 46/09/2002-ST, dated 8-8-2002 [F. No. 149/2/2002-CX.4] (appended as Annexure X) has clarified that for both Basic Telephone Service Providers (BSTP's) and Cellular Mobile Service Providers (CMSPs) no service tax is leviable in respect of following services:

'Rental for junction links'. -These relate to charges for using junction links of the BSNL/MTNL from one exchange to another.

'Port Charges'. -These are something like entry charges for allowing access into the BSNL network.

'Infrastructure Charges'. -Sometimes the basic as well as cellular telephone service providers need space to keep their own equipments to facilitate the interconnectivity. This space, when provided by DOT (now BSNL), a rental is recovered from them by the DOT.

(4) 'Inter-connection link charges' are taxable services

Yes. 'Inter-connection link charges' are charges relating to interconnectivity provided between the basic/cellular telephone providers and the BSNL/MTNL exchanges. This enables the private basic telephone operators or the mobile service providers to access BSNL telephone lines and vice-versa. This interconnection can be through a cable owned by the BSNL; in which case a monthly/annual rent is charged. If the cable has been laid/provided by the private basic/cellular telephone service provider, no rental is charged by BSNL. The Board earlier in its letter F. No. 149/1/2000-CX.4, dated 14-3-2001 had clarified that 'Inter-connection link' are not taxable. But, now in its Circular No. 46/09/2002-ST, dated 8-8-2002 [F. No. 149/2/2002-CX.4] (appended as Annexure XI) has modified its earlier Circular and clarified that such charges are nothing but charges for providing 'leased circuits', which is brought under service tax w.e.f 16-7-2001. Therefore, service tax is leviable on 'Inter-connection linked charges' recovered by BSNL from Basic Telephone Service Providers (BSTPs) and Cellular Mobile Service Provider (CMSPs), under the 'leased circuits services'.

Liable to pay service tax

Service tax is liable to be paid when telephone service is provided by telegraph authority.

(1) 'Telegraph authority'

"Telegraph authority has the meaning assigned to it in clause (6) of section 3 of the Indian Telegraph Act, 1885 and includes a person who has been granted a licence under the first proviso to sub-section (1) of section 4 of that Act" [clause (III) of section 65].

As per section 3(6) of Indian Telegraph Act, 1885:

"Telegraph authority means the Director-General of Posts and Telegraphs, and includes any officer empowered by him to perform all or any of the functions of the Telegraph authority under this Act".

As per Service Tax Rules, the following persons are liable to pay service tax:

As per sub-clause (i) of clause (d) of sub-rule (1) of Rule 2 of the Service Tax Rules, 1994, in relation to telephone or pager or a communication through telegraph or telex or a facsimile communication or a leased circuit services, the person liable to pay service tax means -

(a) the Director General of Posts and Telegraphs, referred to in clause (6) of section 3 of the Indian Telegraph Act, 1885 (13 of 1885); or

The Director-General of Posts and Telegraphs is the head of Post and Telegraph department. However, if he delegates his power to any officer to perform all or any of the functions of Telegraph authority, that officer is also a Telegraph Authority [clause (6) of section 3 of the Indian Telegraph Act, 1885].

(b) the Chairman-cum-Managing Director, Mahanagar Telephone Nigam Ltd., Delhi, a company registered under the Companies Act, 1956 (1 of 1956); or

(c) any other person who has been granted a licence by the Central Government under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1885 (13 of 1 885).

§ Therefore, the person to whom licenses have been issued by the Central Government are also included in the expression 'telegraph authority'.

§ "the Central Government may grant a license, on such conditions and in consideration of such payments as it thinks fit, to any person to establish, maintain or work a telegraph within any part of India" [first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1885].

(2) Government Clarification

The Government in its Press Note, dated 30-6-1994 issued by the CBEC, Department of Revenue, Ministry of Finance, New Delhi [appended as Annexure II in 'General Insurance Business Services'] has explained, "in relation to telephone connections provided to the subscriber, the tax will be paid by the Director-General of Telephones and Chairman-cum-Managing Director, MTNL. There is a provision to collect tax from others who may enter the field".

The Government in its Circular No. 33/1/2001, dated 29-01-2001, (appended as Annexure XI) by modifying the Circular No. 5/5/94, dated 11-101994 (appended as Annexure XII) has clarified that Department of Telecom Services (DTS) w.e.f. 1-11-2000 no longer remains a Government Department but corporatised into Bharat Sanchar Nigam Ltd. (BSNL). Therefore the payment of Service Tax by Book Transfer under the appropriate head is not in order, and as in the case of MTNL, the payment of Service Tax along with interest and penalty, if any, by BSNL will be made under TR-6 Challans in the nominated nationalized banks by the dates prescribed in the Act.

The Government has noticed that (vide Office Memorandum, dated 3-2-2003 of Pr. Chief Controller of Accounts, C.B.E. &C. appended as Annexure XIII) procedure prescribed in the aforesaid Circular No. 33/1/2001, dated 29-1-2001 is not being followed by the BSNL, and BSNL is making payment to DOT as per old procedure, which is inconsistent with legal provisions relating to Service Tax. Through aforesaid memorandum, Commissioners have been requested to ensue the BSNL circles under their jurisdiction strictly comply with legal provisions in the matter of payment of Service Tax.

(3) Whether 'home operator' or visiting operator' liable to pay service tax for plastic roaming & international roaming facilities by mobile phone operator?

The Government in its Circular No. 22/2/97, dated 3-9-1997 (appended as Annexure III) has clarified that in case of plastic SIM card roaming provided by the cellular operators to the subscribers, "the cell phone -company with whom the subscriber is registered ('home operator') should collect the tax from the subscriber irrespective of the adjustments or sharing of the bills with other companies whose services are utilized ('visiting operator') by the subscribers while roaming".

The Government has also clarified in its CBE & C-ST Circular No. 28/2/99, dated 4-6-1999 (appended as Annexure IV) that aforesaid "Circular No. 22/2/97, dated 3-9-1997 would not only apply to plastic roaming facility but also apply mutatis mutandis to automatic roaming facility including international automatic/ plastic roaming facility provided by cellular phone operators". Thus, "Board is of the view that the service tax shall be chargeable on the comprehensive (gross) bill raised by Home Network operator on its subscribers inclusive of foreign usage bill and roaming surcharge". Thus, it appears to be charging service tax on the services rendered out of India whereas as per section 64 of the Act, service tax is payable on all taxable services rendered in India except State of Jammu and Kashmir.

However, as per sub-clause (b) of clause (105) of section 65, 'a service in relation to a telephone connection provided by a telegraph authority is taxable when provided to a subscriber', and 'subscriber means a person to whom any service of a telephone connection has been provided by telegraph authority' [refers to clause (104) of section 65]. Therefore, subscriber is registered with a cell phone operator in India, hence when service (even for international roaming) is provided to the subscriber in India, the entire amount collected from the subscriber will attract service tax.

When telephone services liable to be charged to tax

Telephone services liable to be charged to service tax when provided to

- a subscriber,

- by a telegraph authority.

(1) 'subscriber'

"Subscriber 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" [clause (104) of section 65].

Therefore a 'subscriber' is a person. Now, the question is that who is person?

(2) Meaning of 'person'

The term 'person' has not been defined in the context of service tax. But, the term 'person' has been defined as "person shall include any company or association or body of individuals, whether incorporated or not" [clause (42) of section 3 of General Clauses Act, 1897].

Therefore, even though, in general, person is understood as only natural person (i.e. human being) but in the context of service tax, it includes natural, artificial and juristic person also. Thus, partnership firm, company, corporation, societies, government enterprises, Hindu undivided family (H.U.F.), etc. will also fall under the definition of person.

Therefore, a subscriber may be artificial or juristic person or may be a natural person; when service is provided to any such person, it will fall under the service tax net.

The value of taxable services for charging tax

The value of taxable services in relation to telephone services provided by the telegraph authority to the subscriber, shall be the gross amount charged from the subscriber for such services [section 67].

(1) Initial deposits made by the subscriber to be included in the taxable value

As per Explanation to section 67, for the removal of doubt, in respect of telephone services, it is declared that the value of taxable services does not include the initial deposit made by the subscriber at the time of application for telephone connection. But, it has also been declared that the value of taxable services includes the adjustment made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection.

(2) Adjustment made from deposits under OYT Scheme will be included in taxable value

Yes, in case of telephone connection under OYT Scheme, the department makes adjustments in every subsequent bill from the deposits made at the time of application for the telephone connection, in accordance with clause (b) of the Explanation 1 to section 67, such adjustment shall be the part of taxable value.

(3) Installation charges, shifting charges etc. are part of the taxable value

Yes, as per section 67, taxable value shall be the gross amount charged from the subscriber, therefore, it includes installation charges, shifting charges, call transfer charges, monthly rentals, STID/ISD call charges or any other services provided by the telegraph authority to its subscriber on payment basis. The Central Board of Excise and Customs in answer to question no. 12.3 of the 'Frequently asked questions on Service Tax' issued in October 2003 has stated, "the rental charges are included in computing the value of taxable service provided by telephone service provider. Thus, Service Tax applies to call charges, including rentals".

(4) Taxable value of services for Cellular/Mobile phone services

In case of cellular phone services, air time charges, caller ID charges, voice mail charges, monthly rentals or any other services provided by the operator to its subscriber on payment basis shall be the part of value of taxable services.

(5) Cost of mobile-phone is the part of value of taxable services

No, as per section 67, taxable value shall be the gross amount charged from the subscriber for providing telephone services, but mobile-phone charges, being the hardware, is not the charges for services, therefore cannot be part of value of taxable services.

(6) Cost of 'sim cards' are the part of value of taxable services

Yes, in a point raised before the Government - whether the cost of 'sim card' has to be included in value of taxable services, the Government in its Circular No. 23/3/97-ST, dated 13-10-1997 (appended as Annexure 11) has clarified, "the Simp Card is essentially an activation device necessary for operating the cellular phone. The Simp Card as such does not have any significant intrinsic value unlike a telephone instrument. Moreover the Simp Card unlike the telephone instrument cannot be purchased by the customer from elsewhere. The charges towards the Simp Card can essentially be viewed as processing charges for activating the cellular phone and as such gross total amount should necessarily include the value of the Simp Card. The amount received by the Cellular telephone company from subscribers towards Simp Card will form part of the taxable value for levy of service tax".

The Government has issued Notification No. 12/2003-ST, dated 20-6-2003, w.e.f. 1-7-2003 (appended as Annexure IV in the 'Payment of Service Tax') by giving a general exemption for all taxable services from the levy of service tax of the value of goods and materials sold by the service provider. While explaining the scope of exemption under aforesaid Notification No. 12/2002, the Government in para 2.9.1 of its Circular No. 59/8/2003, dated 20-6-2003 (appended as Annexure V in the 'Payment of Service Tax') has also clarified, "This exemption would be available only in cases where the sale of such goods is evidenced and the sale value is quantified and shown separately in the invoice". The aforesaid Notification No. 12/2003 has been amended w.e.f. 10-92004, vide Notification No. 12/2004-ST, dated 10-9-2004, and now, w.e.f. 10-92004 the abatement under the aforesaid Notification shall be available if no credit of duty paid on such goods and materials sold has been taken under the provisions of the CENVAT Credit Rules, 2004 (which has been discussed in the 'Credit of service tax and excise duty') or where such credit has been taken by the service provider on such goods and materials, such service provider has paid the amount equal to such credit availed before the sale of such goods and materials. In the case of Escotel Mobile Communication Ltd v Union of India (2002) 126 STC 475 Kerala High Court it is held that sim card is goods. Therefore, after the aforesaid Notification No. 12/2003, w.e.f. 1-7-2003, now, the contents of the Circular M.F. (D.R.) Circular No. 23/3/97-ST, dated 13-10-1997 to that extent has become redundant and service tax shall not be leviable on the 'sim cards' sold to the subscriber by the mobile phone operator provided the cost of 'sim cards' charged is separately shown in the bill raised to the subscriber.

(7) Discount on airtime charges is eligible for deduction from taxable value

Yes, the Government in its Circular No. 23/3/97-ST, dated 13-10-1997 (appended as Annexure 11) has clarified, "in case where the telegraph authority has extended services at a discounted price, the service tax liability is only in respect of the discounted price so received". Thus, discount on the airtime charges allowed by the cellular phone operator shall be eligible for deduction from taxable value.

(8) Licence fee will be included in the taxable value

The licence fee, if any, charged by the telegraph authority from the subscriber will also form part of taxable value, since value of taxable service is the gross amount charged from the subscriber for such services. But, if the licence fees is charged by the Central Government while granting licence under first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1885, to provide such services, it will not constitute part of the taxable value as the same is not charged for service as well as not recovered from the subscriber.

(9) Surcharge will be included in the taxable value

No, the Government has issued M.F. (D.R.) Circular No. 32/3/2000-CX, dated 20-12-2000 (appended as Annexure V) in respect of telephone services provided by telegraph authority in which it is clarified that service tax is not leviable on the amount of surcharge collected for delayed payment of telephone bills, since it does not alter the value of taxable services. The said circular was issued by withdrawing the earlier circular No. 29/3/99, dated 15-7-1999 in which it was stated that surcharge is also to be included in the taxable value.

Therefore, in case of telephone services, the value of taxable services shall be the gross amount (excluding initial deposits but including adjustment from initial deposit) charged by the service provider for such services rendered by him without claiming any abatements towards administrative/ office expenses incurred for rendering such services. In other words, 'gross amount' here indicate that no deduction shall be allowed in respect of any expenditure incurred by the service provider which has proximate connection in rendering the services by him.

Exempted telephone services:

(A) Specified telephone services

The Government w.e.f. 1-7-1994, has exempted following telephone services from the whole of the service tax (vide Notification No. 3/94-ST, dated 30-6-1994 (appended as Annexure VI)

1. Departmentally run Public Telephones for local calls.

2. Guaranteed public telephone operating only for local calls.

3. Free telephone at Airports and Hospitals where no bills are being issued.

(B) Telephone services provided to diplomatic mission

The Government has exempted all the taxable services provided by the telegraph authority in relation to telephone connection to the specified diplomatic missions or members from the whole of the service tax (vide Notification No. 5/96-ST [GSR 174 (E)], dated 3-4-1996 (appended as Annexure VII).

(C) General Exemption

The Government has granted exemption from the whole of Service Tax in respect of all taxable services, for services provided to United Nations or an International Organisation. Similarly, the exemption, subject to certain conditions, has also been granted for taxable service provided to a developer or units of Special Economic Zone (SEZ). The Government, w.e.f. 20 November, 2003 has restored the exemption, as an interim measure, from the whole of service tax when payment is received in convertible foreign exchange for the taxable services rendered in India provided it was not repatriated from or sent outside India, such exemption was earlier withdrawn w.e.f. 1-3-2003. The reader may note that detailed discussion about aforesaid exemptions along with relevant notifications have been given in the 'Exemption from whole of Service Tax - Some Cases'.

Government Clarifications:

For more clarifications see regarding 'Collection of Service Tax on Telephones' vide Trade Notice No. 8/ 96-ST, dated 3-1-1997, Rajkot Commissionerate (appended as Annexure VIII) and clarification regarding 'Cellular Telephone Service' vide Circular No. 23/3/97-ST, dated 13-10-1997 (appended as Annexure II)

N.B. The readers may note that provisions, procedures and other related discussion related to registration, payments of service tax, filing of return, interest and penalty, assessment procedure, appeal, refund of tax, etc., which are same, as applicable in respect of other taxable services, have been given in separate.

Annexure I

[Trade Notice No. 311/96, dated 9-4-1996, Pune Commissionerate]

1. Certain doubts were expressed regarding the application of Service Tax to "Pager Services" and "Cellular Telephones" by the pager companies and field formations.

2. The matter has been examined at length. The term "taxable Service" has been defined in section 65 of Chapter V of the Finance Act, 1994 (hereinafter referred to as the Service Tax Act, 1994). The term "taxable Service" means any service provided to a subscriber by the Telegraph Authority in relation to a telephone connection only. A pager although falls under the definition of "Telegraph" as defined under section 3(1) of the Indian Telegraph Act, 1885, but is not the same as "telephone" since there is no conversion of acoustic signals to electric signals and vice versa and no two way speech communication.

3. It is therefore clarified that "pager Services" shall not fall within the purview of the Service Tax Act, 1994 at present as these services are not in relation to a telephone connection.

4. Cellular Telephone Services shall, on the other hand, fall within the purview of the Service Tax Act, 1994 as the Cellular Telephone Companies are licenced under the first proviso to sub-section (1) of section 4 of the Indian Telegraph Act, 1885 and provides services to subscribers in relation to a telephone connection.

5. These companies should immediately contact the Service Tax Cell in the Headquarters of Central Excise Commissionerate, Pune for understanding the procedures for payment of Service Tax, as soon as they start cellular phone services in the jurisdiction of Pune Commissionerate.

[Authority: Min. of Fin. Service Tax Circular No. 7/1/96 (F. No. 149/8/95-CX.4), dated 29-2-1996

Annexure II

Cellular telephone service - Clarification

[M.F. (D.R.) Circular No. 23/3/97-S.T., dated 13-10-1997]

I. Issue: Whether rent and access charges for providing junctions for mobile operation to cellular telephone operators by DOT will be subject to service tax.

Cellular telephone services operates between two subscribers holding cellular phone and also with persons holding local telephone. While the Company charges home network/air time charges on their subscribers using their network cellular phone facility, additionally they collected land line charges when the subscribers calls other than Cellular Phone numbers which are routed through the DOT network for which they are provided with junctions. Cellular telephone operators are required to pay to DOT rent charges on junctions in addition to DOT charges collected at specific rate per unit from their customers.

Decisions: Cellular phone operators are realising rent and access charges from their subscribers and as such when cellular companies pay service tax on the amounts received by them from their subscribers it includes rent and access charges and as such to charge again service tax on their charges by DOT will amount to double taxation. Board is of the view that no service tax is again chargeable on rent and access charges paid to DOT by cellular phone operators.

II Issue: Whether the cost of Simp Card has to be excluded from activation charges to be collected from subscribers for the purposes of levy of service tax.

Decision: The value of taxable services in relation to telephone connection provided to subscribers is the gross total amount received by the telegraph authority from the subscriber. The Simp Card is essentially an activation device necessary for operating the cellular phone. The Simp Card as such does not have any significant intrinsic value unlike a telephone instrument. Moreover the Simp Card unlike the telephone instrument cannot be purchased by the customer from elsewhere. The charges towards the Simp Card can essentially be viewed as processing charges for activating the cellular phone and as such gross total amount should necessarily include the value of the Simp Card. The amount received by the Cellular telephone company from subscribers towards Simp Card will form part of the taxable value for levy of service tax.

III. Issue: Whether cellular companies are correct in adjusting the tax paid earlier without filing any refund claim with the Department.

Cellular companies have adjusted service tax paid in excess earlier, in subsequent payments of service tax required to be made by them, without following the procedure of filing a refund claim in respect of excess payments made earlier.

Decision: There is no provision in the Finance Act, 1994 to adjust service tax against tax already paid. The assessee has to file a refund claim under section 11B as made applicable to service tax and cannot make adjustment while raising the bills.

IV. Issue: Whether the companies are right in not paying service tax on the free telephone provided to their employees and friendly users from whom they' do not recover any charges, but pay service tax only on line laying charges which represents value of calls made through the network other than cellular phone.

Cellular telephone operators provides services to a category called "friendly users" which is mainly provided to its sister concerns and to their employees from whom they do not recover any air time charges and only recover "land line charges" which represents the value of the calls made through the network other than cellular phones (DOT Number).

Decision: The value of taxable services in relation to telephone connection provided to subscribers is the gross total amount received by the telegraph authority from the subscriber. In case the service is provided free and no amount is received by the telegraph authority, the question of service tax liability does not arise. Only land line charges will be liable for tax.

V. Issue: Whether the company can allow discount on their air time charges and in such cases are eligible to pay tax only on reduced amount.

Cellular Companies gives discount to its customers on air time charges and also at times give other allowances to the customers.

Decision: The value of taxable services in relation to telephone connection provided to subscribers is the gross total amount received by the telegraph authority. In case where the telegraph authority has extended services at a discounted price, the service tax liability is only in respect of the discounted price so received.

Annexure III

Service Tax on Cellular Telephone services

[M.F. (D.R.) Service Tax Circular No. 22/2/97, dated 3-9-1997]

Presently two consortiums; are formed by two set of cellular operators to provide plastic or SIM card roaming to the subscribers. Under plastics roaming, a subscriber is provided with a single SIM card with a 10 digit number. While last 5 digits of the number remains same in other circles, first five digits change according to area code.

A doubt has been expressed by the field formation as to whether the operator (Home Operator) with whom the customer have subscribed or the operator (Service Operator) where the customers is visiting will be liable to pay the Service Tax in cases of plastic roaming facility introduced by cellular phone companies.

Attention of trade is invited that the Cellular Telephone services come under the definition of Telegraph authority as defined under sub-section (42) of section 65 of the Finance Act, 1994 (referred to as Service-tax Act) read with Service Tax Circular No. 7/1/96, dated 29-2-1996. As per sub-section (41) to section 65, taxable service means any service provided to a subscriber by the telegraph authority in relation to a telephone connection. For the purpose of collecting service tax, there should be a flow of service from the telegraph authority to the subscriber of the telegraph authority. In other words, the service tax should be collected from the subscriber by the cellular telephone company with whom the subscriber is registered and hence that cellular telephone company becomes the persons responsible for collecting service tax. The value of taxable services in relation to the cell phone connection provided to a subscriber is the gross total amount received by the cell phone company from the subscriber. Therefore, the cell phone company with whom the subscriber is registered should collect the tax from the subscriber irrespective of the adjustment or sharing of the bills with other companies whose services are utilized by the subscriber while roaming. In view of the above it is clear that in case of plastic roaming facility, the home operator (home network), i.e., where the subscriber belongs to and who arranges roaming facility in other metro cities through the arrangements with the service operators (visiting network) should collect and pay the service tax.

The Commissioner of Central Excise may require the cellular telephone company (Home Network) to produce before the assessing officer the bills raised by the service operators on him for the purpose of reconciliation.

Annexure IV

International Roaming Facility - Collection of Service Tax

Clarification [MF (DR) CBE&C-ST Circular No. 28/2/99

(F. No. 149/6/97-CX.4), dated 4-6-1999

Doubts have been raised whether Board's Service Tax Circular No. 22-2-1997 dated the 3rd September, 1997 would also apply to International roaming facility.

2. The matter has been examined by the Board. In the case of International roaming the foreign visited network operator forwards the usage bills to the Home Network operator pertaining to the subscribers of Home Network operator who have made usage of visited network. On receipt of the usage bill from the foreign network operator the Home Network operator includes the said amount and roaming surcharge in the regular monthly bill of the subscriber. As the value of taxable service under section 67(b) of the Finance Act, 1994 as amended is the gross total amount charged by the telegraph authority (here Home network operator) from the subscribers, the Board is of the view that the service tax shall be chargeable on the comprehensive (gross) bill raised by Home Network operator on its subscribers inclusive of foreign usage bill and roaming surcharge.

3. Accordingly it is held that the Service Tax Circular No. 22/2/97, dated 3.9.1997 would not only apply to plastic roaming facility but also apply mutatis mutandis to automatic roaming facility including International Automatic/ plastic roaming facility provided by Cellular phone operators.

Annexure V

Service Tax not leviable on surcharge collected on delayed payment of telephone bill

[MF (DR) Service Tax Circular No. 32/3/2000-CX, dated 20-12-2000]

I am directed to say that it has been brought to the notice of the Board that divergent practices exist in respect of levy of service tax on 'surcharge' collected for delayed payment of telephone bills.

2. The matter has been carefully examined by the Board. As per the provisions of section 65(48)(b) of Chapter V of the Finance Act, 1994, service tax is leviable on the service provided by the telegraph authority to a subscriber, in relation to a telephone connection. Further, under section 67(b) of the said Finance Act, the value of taxable services has been defined to include only the amount charged for the services provided by the Telegraph authority to a subscriber. On a harmonious interpretation of the above provisions and also taking note of the fact that the amount of surcharge on delayed payment of a telephone bill does not alter the value of taxable services, it is hereby clarified that service tax is not leviable on the amount of surcharge collected for delayed payment of telephone bills. Consequently, Board's Service Tax Circular No. 29/3/99, dated 15-7-1999 (issued from file F. No. 149/5/97-CX.4) which is contrary to the above position stands withdrawn.

3. It is desired by the Board that pending disputes, if any, be finalised as per the instructions contained herein. Trade and field formations may also be informed suitably.

Annexure VI

Exemption to specified telephone services from service tax

[Notification No. 3/94-ST, dated 30-6-1994]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services, as are specified in column (2) of the Table hereto annexed, from the whole of the service tax leviable thereon under section 66 of the said Act.

Table

S. No. Specified Taxable Services

(1) (2)

12. Departmentally run Public Telephones for local calls.

13. Guaranteed public telephone operating only for local calls.

14. Free telephone at Airports and Hospitals where no bills are being issued.

2. This notification shall come into force on the 1st day of July, 1994.

Annexure VII

Exemption of Telephone Connection Services to Diplomatic

Missions or Members thereof from service tax

[Notification No. 5/96-ST [GSR 174(E)], dated 3-4-1996, as amended upto date]

In exercise of the powers conferred by section 93 of the Finance Act, 1994 (32 of 1994), the Central Government, being satisfied that it is necessary in the public interest so to do, hereby exempts the taxable services provided by the telegraph authority to the Diplomatic Missions or members thereof specified in column (2) of the Schedule hereto annexed in relation to telephone connections, from the whole of Service Tax leviable thereon under section 66 of the said Act:

1 [Provided that the exemption contained in the notification,

(i) in respect of Serial No. 2 [75, 78, 80, 86 and 93 relating to Brazil, France, Norway, Spain and Ireland] respectively, shall be applicable in respect of telephones of the Embassy Building and the Ambassador's residence;

(ii) in respect of Serial No. 83, 87 and 88 relating to Singapore, Thailand and Burkina Faso respectively, shall be applicable in respect of official telephones only;

(iii) in respect of Serial No. 91 relating to Bahrain, shall be applicable in respect of telephones of Consulate General in Mumbai]

3 [(iv) in respect of Serial No. 95 relating to Uruguay, shall be applicable in respect of telephones of the Embassy and members of the mission holding diplomatic rank only]

9 [(v) in respect of Serial No. 96 relating to Belarus, shall be applicable in respect of telephones of the Embassy and members of the mission holding diplomatic rank only]

10 [(vi) in respect of Serial No. 97 relating to Sri Lanka, shall be applicable in respect of telephones of the Embassy and members of the mission holding diplomatic rank only]

11 [(vii) in respect of Serial No. 98 relating to Armenia, shall be applicable in respect of telephones of the Embassy and members of mission holding diplomatic rank only.]

Schedule

SI. No.

Name of Diplomatic Mission

SI. No.

Name of the Diplomatic Mission

Australia

Bhutan

Botswana

Brunei

Bulgaria

Cambodia

Canada

Cyprus

Denmark

Finland

Oman

Pakistan

Panama

Poland

Qatar

Russian Federation

Saudi Arabia

Sudan

Switzerland

Tanzania

Germany

Greece

Hong Kong

Iraq

Jamaica

Japan

Kenya

Republic of Korea

Kuwait

Laos

Angola

Mauritius

Mongolia

Morocco

Mozambique

Mayanmar

Netherlands

Nigeria

Trinidad & Tobago

Tunisia

Turkey

Uganda

Syria

United Arab Emirates

Uzbekistan

Yugoslavia

Zambia

Yemen

Portugal

4 [56

5 [79

6 [82

7 [93

8 [95

9 [96

10 [97

11 [98

Kazakistan

Lebanon

Turkmenistan

Kyrghyzstan

Tajikistan

D.P.R. Korea

Afghanistan

Austria

Algeria

Cuba

Colombia

Croatia

Czech Republic

Ghana

Hungary

Democratic People’s Republic of Korea

Namibia

Israel

Holy See

Iran

Sweden

Vietnam

Sahrawi Arab Democratic Republic

Palestine

Zaire

Brazil

Somalia

Argentina

France]

Mexico

Norway

Egypt]

Libya

Singapore

Zimbabwe

Slovak Republic

Spain

Thailand

Burkina Faso

Phillipines

Italy

Baharain

Indonesia]

Ireland

USA]

Uruguay]

Belarus

Sri Lanka]

Armenia]

Annexure VIII

Collection of Service Tax on Telephones - Clarifications

[Trade Notice No. 8/96-ST, dated 3-1-1997, issued by the Rajkot Commissionerate]

A copy of the Government of India, Ministry of Finance, Department of Revenue, New Delhi's Service Tax Circular No. 16/10/96 (Telephones) issued vide F. No 149/5/95-CX.4, dated 15 October, 1996 on the above subject is forwarded herewith for information, guidance and necessary action.

2. In this connection certain difficulties have been pointed out by the Commissioners regarding collection of service tax on telephones. After considering the matter, the following clarifications are being issued:

I. Issue - Difference between billed amount and amount actually collected

It has been represented that there are difference between the amount of service tax to be collected (based on billed amount) and service tax actually collected.

As per sections 67(b) and 68 of Service Tax Act (sic, Chapter V of Finance Act, 1994) the amount of service tax has to be levied on the value of the telephone bills received during the month and the amount of service tax collected should be paid to the credit of Central Government by 15th of the following month.

Decision. -The amount of service tax may be collected on the value of taxable services i.e. the telephone bills received during the month rather than billed. Department may not insist at this stage for reconciliation of the figures of such service tax billed and service tax collected and may place reliance on the financial control system of Telecom Department for the reconciliation of the telephone bills which would automatically mean reconciliation of service tax.

II. Issue - Actual date of crediting of service tax to the book account of the Central Government

As per section 68(2), the service tax collected during any calendar month shall be paid to the credit of Central Government by 15th of the following month. Rule 6(1) of Service Tax Rules, 1994 says that Secondary Switching Area (SSA) shall deposit with the designated bank in Form TR-6 by 15th of the following month and collected by him on the value of taxable services. Under sections 75 and 76 of the Act, an interest has to be charged at the rate of 1.5% of every month or part of the month by which such crediting of tax is delayed and a penalty. The field formations are in confusion as to the date of credit so as to arrive at the calculation of interest and penalty.

Decision. -The first date on which the book transfer is made in the cash section of Secondary Switching Area (SSA) may be taken as the date of crediting to the Central Government. In this connection, a similar document as Annexure 'A' is hereby prescribed under rule 7 of Service Tax Rules, 1994 to be filed along with ST 3 in case of payment through TR-6 in designated banks by substituting entries in Column No. 7 (Challan No. and Date) by this Annexure so as to calculate the penalty and interest, if any, by the date given in this column.

Annexure 'A'

S. No.	Month	Value of Taxable Service	Service Tax @ 5%	Actual amount to be paid	Actual amount Paid
(1)	(2)	(3)	(4)	(5)	(6)

Challan No. and actual date of crediting of service tax

Difference

Between 5 and 6

Penalty or interest received, if any

(7)

(8)

(9)

Annexure IX

Service Tax on Public Mobile Radio Trunking Services - Rep. of jet Air Skyline Transport Pvt. Limited, Indore - Regarding

[F. No. 341/16/2000-TRU, dated 10-8-2000]

I am directed to refer to your letter F. No. V/DGST/(21)(6) Tele/5/99/6600, dated 6th March, 2000 and the copy of the licence agreement of M/s. jet Air Skyline Transport Co. Pvt. Ltd., Indore on the above subject.

The matter has been examined in the Board's Office. The services rendered by Public Mobile Radio Trunking Services (PMRTS) are in the nature of providing connectivity, through wireless system or radio frequency, amongst the subscribers falling within a specified area of the service provider. The communication is made through radio terminals or radio trunking hand sets and a message can be either sent or received at any point of time, and simultaneous listening or talking between two persons is not possible under PMRTS System. These services do not appear, in any way, to be using the telephone line or telephone instrument. Hence even if PMRTS providers may be covered as a 'telegraph authority' in terms of license issued to them, it appears that they are not providing any service in relation to a telephone connection.

In view of the above, it is clarified by the Board that the Public Mobile Radio Trunking Services (PMRTS) are not covered under the scope of taxable services provided in relation to 'telephone connection' as per sub-section 48(b) of section 65 of the Finance Act, 1994. A revised clarification may therefore be issued to the Commissioners.

It has been decided by the Board that, as a matter of policy, all cases involving interpretation of law or policy, relating to service tax, should be referred to the Board for examination and issue of any clarification and no clarification on such matters may be issued by your office.

Annexure X

Services provided by BSNL to basic/cellular telephone service

providers - Regarding

[Circular No. 46/09/2002 (F. No. 149/2/2002-CX.4), dated 8-8-2002]

I am directed to say that doubts have been raised regarding recovery of service tax on certain services provided by Bharat Sanchar Nigam Ltd. (BSNL) to Basic Telephone Service Providers (BTSPs) and Cellular Mobile Service Providers (CMSPs). References have been received from the Cellular Operators Association of India, New Delhi, and the Department of Telecom (DOT). The services relating to which doubts have been raised are the following:

(i) 'Inter-connection link charges': These are charges relating to interconnectivity provided between the basic/cellular telephone providers and the BSNL/MTNL exchanges. This enables the private basic telephone operators or the mobile service providers to access BSNL telephone lines and vice-versa. This interconnection can be through a cable owned by the BSNL; in which case a monthly/annual rent is charged. If the cable has been laid/provided by the private basic/ cellular telephone service provider no rental is charged by BSNL.

(ii) 'Rentals for junction links': These relate to charges for using junction links of the BSNL/MTNL from one exchange to another.

(iii) 'Port charges': These are something like entry charges for allowing access into the BSNL network.

(iv) 'Infrastructure charges': Sometimes the basic as well as cellular telephone service providers need space to keep their own equipments to facilitate the interconnectivity. This space, when provided by the DOT, a rental is recovered from them by the DOT.

2. This issue had been examined earlier in the Board on a reference received from the BSNL and a clarification was issued vide letter F. No. 149/1/2000-CX.4, dated 14-3-2001 (addressed to BSNL with copies to all Chief Commissioners) that so far as BTSPs are concerned no service tax was leviable in respect of services listed at (i), (ii) and (iv) above. The clarification did not mention anything about 'port charges'.

3. It has been reported by the DOT that since Board's clarification dated 14-3-2001 referred to BTSPs only, service tax continued to be collected by them on the same services if provided to the CMSPs.

4. The matter has been examined in the Board. So far as the above 4 services are concerned no difference can be drawn between BTSPs and CMSPs.

5. It is clarified that in respect of services listed at (ii), (iii) and (iv) above no service tax is presently leviable.

6. So far as 'inter-connectivity linked charges' are concerned these are nothing but charges for providing 'leased circuits'. This service (leased circuits) has been brought under the coverage of service tax w,e.f. 16-7-2001. While issuing Board's clarification, dated 14-3-2001 it was inter alia intimated that this service was not taxable. However, since 'leased circuits' have become taxable w.e.f. 16-7-20011 only, Board's clarification, dated 14-3-2001 stands modified accordingly.

7. In short, no service tax is leviable in respect of services listed at (ii), (iii) and (iv) above from both the BTSPs and CMSPs. However, service tax is leviable w.e.f. 16-7-2001 by Corrigendum F. No. 149/2/2002-EX.4, dated 16-8-2002, on 'inter-connection linked charges' recovered by BSNL from BTSPs as well as CMSPs.

Annexure XI

Collection of Service Tax on Telephone - Regarding

[ST Circular No. 33/1/2001, Board F. No. 149/1/99-CX-4, dated 29-1-2001]

I am directed to refer to Service Tax Circular No. 5/5/94, dated 11-10-1994 wherein against Department of Telecommunications (DOT), it has been stipulated that there will no payment by TR-6 Challan and it will be only by booking/ crediting under the appropriate head and to say that owing to the Department of Telecom Services (DTS) being corporatised into Bharat Sanchar Nigam Ltd. (BSNL), w.e.f. 1-11-2000 it no longer remains a Government Department and therefore the payment of Service Tax by Book Transfer is not in order. In view of the above it has been decided that as in the case of the MTNL the payment of Service Tax alongwith interest and penalty, if any, by BSNL will be made under TR-6 Challans in the nominated nationalised banks by the dates prescribed in the Act. I

There is no change in the remaining contents of the Circular.

Suitable instructions may be issued in this regard to all concerned in your jurisdiction.

Annexure XII

Collection of Service Tax on Telephone - Regarding

[Circular No. 5/5/94, Board's F. No. 149/1/94-CX.4, dated 11-10-1994-ST]

Attention is drawn to Service Tax Circular No. 1/1/94, dated the 29th June, 1994. In terms of Para 5(a) of the circular a procedure has been prescribed for collection of service tax relating to telephone services. Representations have been received from the Department of Telecommunications (DOT) and MTNL about the difficulties in centralizing the colle~tion and assessment formalities taking these factors into consideration, a rives procedure is being prescribed for the collection of Service Tax in relating to Telephone Services in respect of DOT and MTNL.

I. Department of Telecommunications (DOT)

(i) DOT has a network of 250 Secondary Switching Areas (SSAs). These SSAs are under the jurisdiction of 18 Telecom circles. A list of the SSAs and the Telecom Circles is enclosed.

(ii) These Secondary Switching Areas (SSAs) will be individually registered with the Collector of Central Excise in whose jurisdiction they are located.

(iii) Efforts have been made to identify all the Secondary Switching Areas (SSAs) which will be under the jurisdiction of a particular Collectorate. However, in case of any incorrect identification, Collector of Central Excise may rectify them at their own level by registering the SSAs in their jurisdiction.

(iv) These Secondary Switching Areas (SSAs) will submit the prescribed quarterly return to the jurisdictional Collector of Central Excise for the purpose of assessments of Service Tax. In addition, the SSAs will also intimate by fax/ telex/ telegram, the jurisdiction Collector of Central Excise, the total amount of service tax collected during a month, by the 5th of the following month. Service Tax collected during the month will be booked/credited by the SSAs under the head "0044-Service Tax Service Tax on Telephone Billing" by the 15th of the month following the calender month. Penal interest and penalty payable, if any, on delayed payment of tax by the SSAs will be credited and classified under the sub-head "Other receipts" of the minor head "Service Tax on Telephone Billing".

(v) There will not be any payment by TR-6 Challan. It will be only by booking/ crediting under the head mentioned above.

(vi) Order No. 1/1/94 and 2/2/94 issued under Rule 3 have now been rescinded and a new order No. 3/3/94 specifying the jurisdiction of all Collectors of Central Excise has been issued.

(vii) The cell/division created in the headquarters of the collectorate will deal with matters relating to Service Tax on telephones;

(viii) Collector of Central Excise, Bombay-I and Collector of Central Excise, Calcutta-I will be responsible for collection of Service Tax in Bombay and Calcutta as is being done in respect of other services.

II. Mahanagar Telephone Nigarn Ltd. (MTNL)

(i) The Chief General Manager, MTNL, Delhi will register with Collector of Central Excise, Delhi.

(ii) The Chief General Manager, MTNL, Bombay will register with Collector of Central Excise, Bombay-I.

(iii) The quarterly return will be filed by the Chief General Manager, Delhi and Bombay with Collectorate registered for the purpose of assessment of Service tax.

(iv) The payment of Service Tax by MTNL will be made under TR-6 Challan in the nominated Nationalised banks in Delhi and Bombay. The payment will be made by 15th of the month following the calendar month as required in the Act.

The Chief General Manager, MTNL, Delhi and Bombay will also intimate by fax/ telex/ telegram to the local Collector, the total amount of Service Tax collected during the month by 5th of the following month for the purpose of information.

Annexure XIII

Service-tax on Telephone Billing - Payment by Bharat Sanchar Nigam Ltd.

[Pr. Chief Controller of Accounts, CBE&C, Office Memorandum, dated 3-2-2003]

As per the procedure prescribed by Deptt. of Revenue vide F. No. 149/l/99-CX-4, dated 29-1-2001 [2001 (130) ELT T11], BSNL is required to make payments of Service Tax direct to the Central Excise & Customs Commissionerates through TR-6 challans in the nominated nationalised Bank as in the case of MTNL. It has been noticed that the prescribed procedure is not being followed by the BSNL. But on the basis of instructions issued by Deptt. of Telecommunications vide letter dated 18-12-2000, BSNL is making payment of DOT for booking in their accounts as per the old procedure followed, which is contrary to the prescribed procedure.

The Chairman, CBEC vide his D.O. dated 1-11-2001 has also conveyed to Member (Finance), DOT that DOT cannot be made liable to collect and pay Service Tax through Book adjustment on behalf of BSNL as it would be inconsistent with the legal provisions relating to Service Tax. The Chairman has therefore asked Member (Finance), DOT, to withdraw their order dated 18-12-2000, as it is contrary to the provisions of Service Tax Laws and the Ministry of Finance circular dated 29-1-2001.

Commissioners, Central Excise & Customs are requested to take action and ensure that the BSNL circles under their jurisdiction strictly comply with legal provisions in the matter of payment of Service Tax. Cases of non-compliance may be intimated to this office.

This issues with the approval of Pr. Chief Controller of Accounts, CBEC.