In a major relief to Verizon India, Justices S Muralidhar and Prathiba M Singh allowed cenvat credit to the Company by holding that the connectivity services rendered by them under a Master Supply Agreement to a foreign entity constitute ‘Export of Service’ under the relevant Service Tax Rules.
While accepting the contentions of the assessee, the bench observed that the provision of telecommunication services by Verizon India during the period January 2011 till 1st July 2012 must be considered as ‘export of service’ since the payment for the service was received by Verizon India in convertible foreign exchange and the recipient of the service was Verizon US which was located outside India.
The question before the Court was that whether the services provided by Verizon India under a Master Supply Agreement it has with MCI International Inc. for rendering connectivity services for the purpose of data transfer, constitutes export of telecommunication services under the Finance Act, 1994 read with the relevant rules thereunder?
Petitioners obtained the National Long Distance (‘NLD’) and International Long Distance (‘ILD’) licences from the Government of India in order to provide connectivity services for the purpose of data transfer. The Service Tax department was of the view that the services rendered by the petitioners amounts to telecommunication services on which service tax is leviable.
The petitioners contended that it does not provide voice/telephony services but only data transfer service. In order to provide wireless voice telephony services, separate licence and spectrum is required. They claimed that they merely provide ‘business support services’ to Verizon US. It further contended that even if the services rendered by it are considered to be telecommunication services, the criteria for determining if there is an export of services under the Export of Service Rules 2005 (ESR) is the same.
The petitioners’ claim for cenvat credit was rejected by the department by stating that the services provided by Verizon India do not qualify as ‘export of services’ as they are provided within India. According to the department, telecommunication services rendered by Verizon India during the period April 2011 to September 2014 do not qualify as ‘export of services’.
The bench also observed that Verizon India may have utilised the services of Indian telecom service providers in order to fulfill its obligations under the Master Supply Agreement with Verizon US made no difference to the fact that the recipient of service was Verizon US and the place of provision of service was outside India.
Directing the department to allow refund to the assesses, the bench said that the subscribers to the services of Verizon US may be ‘users’ of the services provided by Verizon India but under the Master Supply Agreement it was Verizon US that was the ‘recipient’ of such service and it was Verizon US that paid for such service. Also, Verizon India and Verizon US were ‘related parties’ was not a valid ground, in terms of the ESR or the Rule 6A of the ST Rules.
“The Circular dated 3rd January 2007 of the CBEC had no application to the case on hand. It did not pertain to provision of electronic data transfer service. It was wrongly applied by the Department. With its total repeal by the subsequent Circular dated 23rd August 2007, there was no question of it applying to deny the refund for the period January 2011 till September 2014,” the bench added.
Even for the period after 1st July 2012 the provision of telecommunication service by Verizon India to Verizon US satisfied the conditions under Rule 6A (1) (a), (b), (d) and (e) of the ST Rules and was therefore an ‘export of service’. The amount received for the export of service was not amenable to service tax.
Read the full text of the Judgment below.
