The Hindu Business Line : Interconnect service without tax

Will service tax be levied on interconnection user (ICU) charges in the case of international or domestic interconnection services provided by one telecom provider to another?

Rajesh Reddy

Under the existing service tax law, taxable services should be provided to subscribers. In the case of interconnection services, the services are provided to another telecom service provider and not to any subscriber. As such, on this ground (based on status of subscriber), no service tax shall be payable. No telegraph authority can be treated as subscriber of another telegraph authority in relation to the link established between one telegraph authority and another.

As such, service tax may not be payable. This has also been viewed by the Ahmedabad Bench of CESTAT in Fascel Ltd vs CST Ahmedabad (2007 8 STJ 430). Also, the CBEC has clarified vide Circular No. 91/2/2007 dated March 12, 2007, that interconnection user charges are not taxable. However, the Finance Act, 2007 has amended the definition of taxable service to substitute ‘any person’ with ‘subscriber’ and the telecom services are being made much wider in scope by merging all telecom-related services into one category — ‘telecommunication service’. The same will be taxable when the amended definition of telecommunication service comes into effect, that is, from June 1, 2007. A Circular No. 92 dated March 12, 2007, has also been issued to this effect.
Cold storage

Our client owns a cold storage. The services of cold storage are exempt under the definition of storage and warehousing services. However, the client has given a portion of the cold storage building on monthly rent. As rental income is now covered under new services introduced by the Finance Act, 2007, can the rent received from the party for a portion of cold storage be taxed under the new service? The monthly rentals are exclusive of electricity and water charges. These two expenses are reimbursed to our client by the party paying the rent.
R. Sriram

Section 65 (102) of the Finance Act, 1994 defines storage and warehousing inclusively. The term storage and warehousing includes services provided with respect to goods, including liquids and gases, but not agricultural produce or any service provided by a cold storage.

SANJIV AGARWAL

It is therefore clear that service in relation to cold storage will be not be taxable under storage and warehousing service. But if a portion of cold storage building is given on hire/rent on a monthly rent, then the nature of service changes and it may become a taxable service under Section 65(90)(a) which has been introduced w.e.f. June 1, 2007.
However, the explanation to the definition includes use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls, and multiple use buildings. In this particular case, nature of service and use of building are very important and if the nature of service is cold storage only, service tax may not be levied, as mode of payment (monthly rent) has nothing to do with taxability or otherwise of a service. In this case, nature of service in substance would prevail over form.

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