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 telepone 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. We have heard Ld. Counsel, Shri S. Ignatius for the appellant and Ld. SDR Smt. R. Bhagya Devi for the respondent.
4. 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 notification No. 4/2001-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.
6. On a careful consideration of the submissions, we notice that the plea raised by the appellant has got strong force. The expression "telephone service" was not defined in the Finance Act, 1994. The notification 4/2001-ST dated 9.7.2001 brought into effect service tax on leased circuit services only w.e.f. 16.7.2001 by including the said term within the expression "telephone service". Therefore, the service tax is to be levied on "leased circuit services" in from the date of notification i.e. 16.7.2001. We have also noticed that there is a difference between the telephone connection / line and leased circuit.
The appellants have filed a chart showing the difference in their functioning and in the way in which the charges are collected from the customers. The telephone connection / line operates on electronic switch located in the telephone exchange while the leased circuits is permanently made available for 365 days 24 hours a day, to the telephone user. There is no telephone number in the case of leased circuits and only computers along with associated accessories are connected to the line. It is meant only for data communication and not for voice communication. While in the case of telephone connection / line, it is issued at both the ends for communication through a telephone instrument. The department's plea that telephone connection includes "leased circuit services" is not correct as they are two modes of communication and acts differently. The Tribunal in the case of HEXACOM (I) LTD Vs. CCE Jaipur (Supra) has also held that 'service tax' was not levaible on leased circuits and the amounts paid are required to be returned to the assessee. The finding recorded in the cited case is noted herein below :- "2. We have perused the records and heard both sides. It is not in dispute that no service tax was leviable during the period in question. Therefore, whatever payment was made did not relate to service tax at all. It was merely on erroneous collection by DOT and payment by the appellants. Therefore, provisions relating to refund of service tax, including those relating unjust enrichment, cannot have any application to the return of the amount in question. It if further noted that provisions contained in Section 11D of the Central Excise Act have not been made applicable to service tax.
Therefore, if any amount are collected erroneously as representing service tax, which is not in force, there is no bar to the return of such amount. The rejection of refund application was, therefore, not correct.
3. In the result, the appeal is allowed. The amount of service tax Collected from the appellants during the periods 1998-99 and 1999-2000 shall be refunded to the appellants forthwith.
In view of the above cited decision, there is merit in the appellant's claim and the impugned order to this extent of levying service tax on "leased circuit services" within the meaning of telephone service charges' is set aside and the appeal is allowed with consequential relief.