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Service Tax Circular
No. 91/2/2007-ST dated 12.3.2007
Levy of service tax on interconnection service provided by one telecom operator
to another – reg.
The interconnection service is provided by one telegraph
authority to another to enable the telephone subscribers of these telegraph
authorities to connect with each other. Interconnection in technical terms means
the commercial and technical arrangements under which service providers connect
their equipment, networks, and services to enable their customers to have access
to the customers, services, and networks of other service providers. For
providing interconnection, the telegraph authority collects interconnect usage
charges (IUC). A question has been raised as to whether this service is taxable
and accordingly, whether service tax is applicable to IUC.
2. In past, divergent clarifications/instructions have been issued on this
matter. However, in view of representations and submissions of service provider,
the issue of taxability of IUC has been examined a fresh, in consultation with
service providers through the Cellular Operators Association of India.
3. As stated above, the interconnection usage service is provided by one
telegraph authority to another telegraph authority. In terms of the existing
definition, in the Finance Act, 1994, “telephone service” means any service
provided to a subscriber by the telegraph authority in relation to a telephone
connection. The subscriber means a person to whom any service of a telephone
connection has been provided by the telegraph authority. Therefore, a subscriber
in respect of telephone service is the person who avails of service of telephone
connection. While providing service of interconnection usage, no service of
telephone connection is provided to recipient telegraph authority. No doubt, it
is a service in relation to a telephone connection; however, as long as service
is not provided directly to a subscriber (as mentioned above), the service may
not fall in the category of telephone service. Therefore, IUC would not be
taxable under the category of service. Opinion of Law Ministry/Attorney General
has also been obtained in the matter. Law Ministry and Attorney General have
opined that IUC is not taxable in any of the existing taxable services.
4. However, vide Finance Bill, 2007, a new definition of ‘telecommunication
service’ has been incorporated vide clause (104) of section 65 of the Finance
Act, 1994 and IUC has been specifically incorporated in the definition of
‘telecommunication service’ to make it a taxable service. Further, any service
provided or to be provided, to any person, by a telegraph authority in relation
to ‘telecommunication service’ has been made taxable. This amendment will come
into effect from a date to be notified by the Government after enactment of
Finance Bill, 2007. Therefore, after this amendment comes into effect, service
tax would be applicable to IUC charges.
5. It is, therefore, clarified that for the period prior to the date when the
amended definition of “telecommunication service” comes into effect, service tax
is not applicable to IUC. Accordingly, all contrary circulars/ instructions
issued in the matter are withdrawn. Pending cases may be decided in terms of
this clarification.
6. Trade and field formations may be advised accordingly.
7. Hindi version will follow.(Gautam Bhattacharya)
Commissioner (Service Tax)
F. No. 149/2/2004-CX.4