2025 (5) TMI 1994 - AT - Service Tax

Taxability of services - internet service - Telecommunication services - fall under the category of Online Information and Database Access or Retrieval Services (OIDAR Services) - Demand of service tax along with interest and penalty - HELD THAT - On going through the case laws in this regard and produced by the learned counsel for the appellants we are of the considered opinion that to become taxable under the category of OIDAR the ownership of the data is essential. Understandably the appellants are mere internet service providers and do not give access to any data owned by them for payment of a consideration. This issue has been considered by the Tribunal in the case of United Telecom Limited 2008 (8) TMI 191 - CESTAT BANGALORE which are upheld by the Hon ble High Court of Karnataka. In view of the same we find that the service rendered by the appellant is not covered under the OIDAR therefore the demand as far as it is confirmed under OIDAR is liable to be set aside. Coming to the service tax of Rs. 21, 10, 146 is confirmed under Telecommunication Services classifiable under Section 65(105)(zzzx). Learned Counsel for the appellants submits that both the Original as well as the Appellate Authorities have gone beyond the scope of the show cause notice in confirming the demand under a service which was not even proposed in the show cause notice. Therefore we find that this portion of the demand also is not sustainable accordingly we hold that Revenue has not made out any case for confirmation of service tax demand on the appellant either on OIDAR or Telecommunication services in the facts and circumstances of the impugned case. Accordingly the appeal is allowed with consequential relief if any as per law.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

• Whether the services provided by the appellant, an internet service provider, fall under the category of Online Information and Database Access or Retrieval Services (OIDAR Services) for the purpose of levy of service tax.
• Whether the demand of service tax confirmed under telecommunication services is sustainable, especially when the classification of service was altered beyond the scope of the original show cause notice.
• Whether the authorities have exceeded their jurisdiction by confirming demands under a service category not proposed in the show cause notice.
• The applicability of relevant legal precedents and circulars issued by the Central Board of Excise and Customs (CBEC) in determining the classification and taxability of the services rendered by the appellant.

2. ISSUE-WISE DETAILED ANALYSIS

Issue 1: Classification of Services under OIDAR Services

Relevant legal framework and precedents: The Tribunal referred to the definition and scope of OIDAR services as per the Finance Act and examined the requirement that for a service to be taxable under OIDAR, the provider must own or control the data or information accessed by the customer. The Tribunal relied on its own earlier decisions, including the judgment in the case of United Telecom Limited, which was upheld by the Hon'ble High Court of Karnataka. The Tribunal also referred to the decision in M/s Nestle India Ltd. v. CCE & ST, LTU, which clarified the scope of OIDAR services.

Court's interpretation and reasoning: The Tribunal noted that the appellant merely provides internet gateway access obtained from other entities such as Power Grid Corporation of India, VSNL, and BSNL. The appellant does not own or provide access to any proprietary data or information for consideration. The Tribunal emphasized that mere provision of internet access or network connectivity does not amount to providing OIDAR services.

Key evidence and findings: The appellant's role as an internet service provider was established, and the nature of services was found to be limited to connectivity without ownership or control over data. The Tribunal highlighted the factual distinction between providing a private network or wide area network (WAN) and providing online information or database access.

Application of law to facts: Applying the legal principles, the Tribunal concluded that the appellant's services do not fall within the ambit of OIDAR services and hence are not taxable under that category.

Treatment of competing arguments: The Revenue relied on a CBEC circular dated 09.07.2001 to support the demand under telecommunication services, but the Tribunal found that this circular did not extend to classify the appellant's internet access services as OIDAR services. The appellant's reliance on judicial precedents was accepted as authoritative.

Conclusion: The demand of service tax under OIDAR services amounting to Rs. 19,61,773 was held unsustainable and liable to be set aside.

Issue 2: Demand of Service Tax under Telecommunication Services

Relevant legal framework and precedents: The demand was confirmed under Section 65(105)(zzzx) of the Finance Act, which defines telecommunication services. The appellant challenged the confirmation of demand on the ground that the original show cause notice did not propose this classification and that the authorities exceeded their jurisdiction by confirming demand under a different service category.

The Tribunal referred to its own earlier decision in the appellant's case (M/s Sandhu Builders Pvt. Ltd.), which emphasized that demand cannot be confirmed under a service classification not proposed in the show cause notice. The principle that classification must be consistent with the show cause notice was reiterated, supported by various judicial pronouncements.

Court's interpretation and reasoning: The Tribunal observed that both the Original and Appellate Authorities confirmed the demand under telecommunication services beyond the scope of the original show cause notice. This procedural irregularity rendered the demand unsustainable. Further, the Tribunal noted that the appellant's services, being internet access, are distinct from telecommunication services as defined and that the demand was not properly justified.

Key evidence and findings: The show cause notice did not propose the classification under telecommunication services for the relevant period. The authorities' confirmation of demand under this category was therefore beyond the scope of the notice.

Application of law to facts: The Tribunal applied the principle of natural justice and procedural fairness, holding that confirmation of demand under a service not proposed in the show cause notice violates the appellant's rights. The appellant's reliance on precedent was accepted to reinforce this position.

Treatment of competing arguments: The Revenue's reliance on the CBEC circular and interpretation of telecommunication services was rejected as insufficient to sustain the demand where procedural defects existed.

Conclusion: The demand of Rs. 21,10,146 under telecommunication services was held unsustainable and liable to be set aside.

3. SIGNIFICANT HOLDINGS

The Tribunal's significant legal determinations include the following:

On OIDAR Services: "To become taxable under the category of OIDAR the ownership of the data is essential. Understandably, the appellants are mere internet service providers and do not give access to any data owned by them for payment of a consideration."

On classification and procedural fairness: The Tribunal reiterated the principle that "the show cause notice was issued to the appellant proposes to classify the demand under [a particular service], whereas in the impugned order the demand has been confirmed by changing the classification under the head [different service] which cannot be done in view of the various decisions cited."

Core principles established:

• Taxability under OIDAR services requires ownership or control over the data or information provided.
• Internet service providers who merely provide connectivity without ownership of data do not fall under OIDAR services.
• Demand of service tax must be confirmed strictly within the scope of the show cause notice; any change in classification without fresh notice is impermissible.
• Procedural fairness and adherence to statutory requirements are essential in confirming service tax demands.

Final determinations: The Tribunal allowed the appeal, setting aside the entire service tax demand confirmed under both OIDAR and telecommunication services, holding that the Revenue failed to establish the taxability of the appellant's services under the impugned classifications and that procedural irregularities invalidated the demand.