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TMI Blog2023 (5) TMI 768X X X X Extracts X X X X X X X X Extracts X X X X ..... NIXI, and they have raised invoice for such services provided, on NIXI, and have also admitted to pay service tax." 2. Mahanagar Telephone Nigam Limited, Delhi [the appellant] is a public sector unit of the Government of India in the Ministry of Communications & Information Technology. It is engaged in the business of telecom and information technology related services, including 'internet telecommunication service'. 3. Intelligence was gathered by the officers of the department that various 'internet service providers', including the appellant, had entered into bilateral domestic private 'peering arrangements' with each other for carrying internet traffic on each other's backbone, but they were not discharging service tax on the value of the services provided to other internet service providers. The officers also believed that the services rendered by the appellant to other internet service providers was covered under 'internet telecommunication service' as defined under section 65(57a) of the Finance Act, 1994 [the Finance Act] and made taxable under section 65(105)(zzzu) of the Finance Act from 16.05.2008. Accordingly, a show cause notice dated 12.10.2013 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ateway Protocol. Peering parties interconnect at network focal points such as the network access points (NAP) and at regional switching points. Initially, peering arrangements did not include an exchange of money. More recently, however, some large ISPs have charged smaller ISPs for peering. Each major ISP generally develops a peering policy that states the terms and conditions under which it will peer with other networks for various types of traffic." (emphasis supplied) 5. Internet peering is, therefore, an arrangement of traffic exchange between internet service providers. Internet service providers with their own networks agree to allow traffic from other internet service providers in exchange for traffic on their backbones. It involves two networks coming together to exchange traffic freely and for mutual benefit. Internet peering is considered to be settlement free as neither party pays the other for access to their customers as it would normally be of equal value. Usually, therefore, the internet service providers do not charge each other for such an arrangement. 6. During investigation it was also noticed by the officers that the appellant had received income from Nati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w access to the core area only to authorized personnel of member under supervision of NIXI staff; iv. Provide 24 X 7 watch of MTNL's equipment; v. Provide installation and support services; vi. Provide network management related services; vii. Provide any other services as declared by the NIXI Board. d) The member i.e. MTNL shall: i. Make payments to NIXI as per the determined Schedule: ii. At his own cost ensure the faultless connection of its network through leased line to the NIXI network, as per the Technical Requirements of NIXI; iii. Ensure that its usage of the Connection/NIXI's network is not detrimental in any way and does not cause damage to the NIXI network/infrastructure or to the usage of NIXI by other members or to the traffic exchange thereon; iv. As member may allow other ISP's to connect to NIXI and handover their traffic through its own facilities." 10. It is seen in terms of the Membership Agreement entered into between the appellant and NIXI that NIXI is a neutral internet exchange facilitating the internet service providers to connect with each other for efficient routing of domestic traffic and the appellant would make payments to NIXI a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide data separately w.e.f. 16.05.2008. 9.4 Prior to 01.04.2011, the ST was payable on recipient basis, and thereafter (i.e. since 01.04.2011), ST is payable on Invoice basis in terms of the POT-R. In the instant case, since the amounts paid or payable by M/s NIXI to M/s MTNL-D is the settlement amount, i.e. after adjustment or deduction of amounts payable by M/s MTNL, then it cannot be said that the amounts have not been grossly charged or grossly received by M/s MTNL. Therefore, irrespective of gross amount received or otherwise in case of settlement by M/s. MTNL, they appeared to be liable for payment of ST. Moreover, even though invoices were not issued by M/S MTNL-D, but monthly data of out-traffic or in-traffic have been supplied by M/s NIXI to M/s MTNL-D, and rates per GB is also known to M/s MTNL-D. LIABILITY TO PAY ST 10. Therefore, it appeared that during the period 16th May, 2008 to June 2012, M/s MTNL had received total commercial consideration from NIXI for providing taxable service totally amounting to Rs. 6,73,25,946/- for the Internet Telecommunication services provided by them in terms of the referred Agreements, on which ST (Including Edu. Cess and S&H C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;B' will pay to 'A' (through NIXI) a pre-determined amount per Giga byte x [traffic from 'A' to 'B' - traffic from 'B' to 'A']. Thus, the "requested" traffic from ISP 'A' to ISP 'B' is measured and subtracted from the "requested" traffic from ISP 'B' to ISP 'A'. 18.2 It is also evident on record that till 30.06.2012, NIXI was paying the amount in respect of the difference of In-traffic and Out-traffic to the MTNL when [In-traffic (-) Out Traffic] was in negative, i.e. when out traffic (upload) was more than In-traffic (download), otherwise MTNL had to pay the amount of the difference to NIXI." (emphasis supplied) 17. The Commissioner then examined whether the appellant had provided the said taxable services against consideration, particularly when the appellant had come out with the categorical case that it had not received any consideration since it received only settlement amount due to the understanding with NIXI and the said settlement amount was calculated on the basis of 'the requester pays' as per the Routing and Traffic Policy of NIXI. The observations made by the Commissioner are as follow ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oice on M/s. NIXI on 09.10.2013 after initiation of investigation by the DGCEI. It has been the contention of the appellant all along that amount of Rs.7,44,19,477/- for which the invoice has been issued to M/s. NIXI also includes service tax element of Rs.70,93,529/-. Thus in a way, the appellant had admitted their service tax liability on the services provided to other ISP companies through M/s. NIXI in the form of pearing arrangement. The only contention of the appellant is that since they have not received any payment against the pearing services or against the invoice dated 09.10.2013 and therefore, legally they are not bound to pay any service tax on the same. We find that the arguments undertaken by the appellant is not sustainable in the light of legal provisions as existed with effect from 01 April, 2011, the service tax was paid from the date of invoice raised on the service recipient by the service provider. In this regard, it will be relevant to have a look at Rule 3 of the Point of Taxation Services 2011 which came into from 01.04.2011. ***** 6. A glance at the above mentioned provisions make it abundantly clear that liability to pay service tax arises from the dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equired statutory definitions. 24. 'Internet' has been defined under section 65(56b) of the Finance Act as follows: "65(56b) "internet" means a global information system which is logically linked together by a globally unique address, based on Internet Protocol or its subsequent enhancements or upgradations and is able to support communications using the Transmission Control Protocol or Internet Protocol suite or its subsequent enhancements or upgradations and all other Internet Protocol compatible protocols." 25. 'Internet telecommunication service' has been defined in section 65(57a) of the Finance Act as follows: "65(57a) "internet telecommunication service" includes,- (i) internet backbone services, including carrier services of internet traffic by one Internet Service Provider to another Internet Service Provider; (ii) internet access services, including provision of a direct connection to the internet and space for the customer's web page, (iii) provision of telecommunication services, including fax, telephony, audio conferencing and video conferencing, over the internet." 26. Section 65(105)(zzzu) of the Finance Act, which makes the 'internet telecommuni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appellant regarding the out-traffic and the rate per GB and the appellant provided the said data. 31. It is on the basis of this data that the department computed the quantum of the proposed service tax. The said amount was neither received nor receivable by the appellant. This was only a notional value, but it formed the basis for issuance of the show cause notice. This would be clear from Annexure A to the show cause notice which is reproduced below: Period Out Traffic at NIXI (in GB) Rate per GB Charges for out traffic (in Rs.) ST Rate ST Total ST (ST + Edn cess + S & HEC) 1 2 3 4 5 6 9 16.05.08 to 23.02.09 80520.67 50 4026034 12.36% 483124 497618 24.02.09 to 31.03.09 15075.63 50 753781.5 10.30% 75378 77639 01.04.09 to 30.06.09 25862.96 50 1293148 10.30% 129315 133194 01.07.09 to 30.06.11 1677054.43 25 41926361 10.30% 4192636 4318415 01.07.11 to 31.03.12 919784.74 17 15636341 10.30% 1563634 1610543 01.04.12 to 30.06.12 263591.54 14 3690282 12.36% 442834 456119 Total 2981889.97 67325946 6886921 7093529 32. The Commissioner bifurcated an inserverable activity of peering into ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bered that NIXI is a non-profit government company and was set up for peering of internet service providers and operators on a neutral basis in line with the best practices. This is what was observed by the Supreme Court in Assistant Commissioner of Income Tax (Exemptions) vs. Ahmedabad Urban Development Authority [Civil Appeal No. 21762 of 2017 decided on 19.10.2022] and the relevant observations are as follows: "209. The Revenue has appealed the decision of Delhi High Court in which the National Internet Exchange of India (NIXI) was held to be a GPU category charity. The materials on record show that NIXI was established in 2003 under the aegis of the Ministry of Information Technology of the Union Government for the promotion and growth of internet services in India, to regulate the internet traffic, act as an internet exchange, and undertake ".in" domain name registration. Concededly, NIXI, is a not for profit, and is barred from undertaking any commercial or business activity. Its object is to promote the interests of internet service providers and internet consumers in India, improve quality of internet service, save foreign exchange, and carry on domain name operations. It ..... X X X X Extracts X X X X X X X X Extracts X X X X
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