CESTAT Mumbai Holds Satellite Transponder Capacity from Foreign Providers Not Taxable as BSS
The Customs, Excise & Service Tax Appellate Tribunal (CESTAT), Mumbai has reaffirmed that services involving the use of satellite transponder capacity supplied by Foreign Satellite Service Providers (FSSPs) to an Indian assessee do not fall within the scope of “Business Support Services” (BSS) and are not liable to service tax under the Finance Act, 1994, when the foreign provider is not a “telegraph authority” under the Indian Telegraph Act, 1885.
The decision came in the appeal titled Commissioner of CGST & Central Excise Vs Tata Communications Limited (CESTAT Mumbai), where the Revenue challenged an Order-in-Original dated 06.01.2017 by which service tax proceedings initiated against Tata Communications Limited were dropped.
Background of the Dispute
Nature of Business and Registration
The respondent, Tata Communications Limited, is engaged in providing, among other things:
- International Long Distance (ILD) services,
- Enterprise Data services, and
- Internet services.
For service tax purposes, the assessee was centrally registered under the Finance Act, 1994, with Service Tax Registration No. AAACV2808CST008.
To deliver connectivity to its customers, the assessee availed capacity on satellite transponders on a lease basis in the form of frequency bandwidth from various Foreign Satellite Service Providers (FSSPs) such as:
- Inmarsat Global Limited,
- Intelsat, and
- Thaicom Public Company Limited, among others.
In functional terms, calls or data originating at the customer’s end are transmitted via satellite, which then routes the signal to a Land Earth Station (LES) situated at a designated ground location. From there, the signal is passed on to terrestrial networks to reach the final recipient.
Competing Classifications: Telecommunication vs BSS
The assessee had classified the services obtained from FSSPs as “Telecommunication Services” as per Section 65(109a) of the Finance Act, 1994.
The department, however, took the position that the arrangement amounted to Business Support Services, specifically “infrastructural support services” within the meaning of Section 65(104c).
On this basis, two show cause notices (SCNs) were issued:
- SCN dated 20.10.2011 covering 2006-07 to 2010-11, proposing service tax of Rs.21,68,41,780 along with interest and penalties.
- SCN dated 17.08.2012 covering 2011-2012, proposing service tax of Rs.1,16,80,200 along with interest and penalties.
These notices alleged that the assessee, as recipient of taxable services from abroad, was liable to pay service tax under the reverse charge mechanism in terms of Section 66A of the Finance Act, 1994.
The adjudicating Commissioner, by common Order-in-Original No. 01-02/STA-I/SN/16-17 dated 06.01.2017, dropped both SCNs. This order was subsequently reviewed by the Committee of Chief Commissioners, which led to the present appeal by the Commissioner of CGST & Central Excise, Mumbai South Commissionerate.
Preliminary Application on Change in Jurisdiction
A miscellaneous application was filed by the department seeking correction of the description and address of the appellant in the cause title, following reorganization of Commissionerates pursuant to the transition to the GST regime.
The Tribunal noted that, pursuant to Notification No.13/2017-C.E. (N.T.) dated 09.06.2017, jurisdiction over the respondent vested with Commissioner of CGST & Central Excise, Mumbai South Commissionerate at the updated address. Recognizing this factual position, CESTAT allowed the application and directed the Registry to substitute the changed name and address of the appellant in the record.
Core Issues Before the Tribunal
The Tribunal framed two principal questions for adjudication:
Taxability Issue
Whether the capacity of transponders leased in the form of frequency bandwidth by FSSPs to the assessee is chargeable to service tax under the Finance Act, 1994.Validity of Dropping Proceedings
Whether the Commissioner was justified in dropping the show cause proceedings initiated through the two SCNs.
Arguments on Behalf of Revenue
The departmental representative argued that:
- The service of providing transponder capacity by FSSPs constitutes infrastructural support, squarely covered by the definition of Business Support Services under
Section 65(104c). - As the services were received from entities located outside India, the assessee was liable to pay service tax on a reverse charge basis under
Section 66A. - Reliance was placed on the CESTAT decision in **Ushodaya Enterprises Private Limited Vs. Commissioner of Customs, Central Excise & Service Tax, Hyderabad – 2020 (42) G.S.T.L. 84 (Tri.