Service tax on inter-connect charges hits legal roadblock | india | Hindustan Times
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Service tax on inter-connect charges hits legal roadblock

india Updated: Jan 11, 2007 16:28 IST
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Finance Minister P Chidambaram is expected to take a call this week on whether the government can levy an additional service tax on mobile phone users who talk to people using other mobile service providers.

Chidambaram's decision will be taken in the wake of Attorney General Milon K Banerjee's recent view communicated to the government that the extra service tax of 12 per cent is not tenable on interconnection usage charges.

"We have expressed our reservations on the view of the AG (Attorney General) and tabled the same before Finance Minister P Chidambaram. The minister is expected to take a view on the issue this week," a revenue department official said.

Interconnection Usage Charges (IUC) refer to the cost collected by a telecom company, say A, from another company, say B, for allowing a subscriber of company B to use A's network.

Currently, mobile phone users pay service tax on their total bill amount. "To separately charge a service tax on IUC is double taxation," said TV Ramachandran, director general of Cellular Operators' Association of India, the mobile services companies lobby group.

Ramachandran said that an independent report by Ernst & Young concluded that up to 44 per cent of every rupee paid by a mobile phone user today reached the government in the form of some charge or tax.

Revenue Department officials said that the view of the AG was not binding on the department. Officials said the AG's stance was based on the definition of telephone connection service as described in the law. The law, at present, stipulates that a telephone connection service means 'any service provided to a subscriber by the telegraph authority in relation to a telephone connection'.

The view of the AG is that one telecom authority cannot be a subscriber of another telecom authority. The department is, however, not in total agreement with this view. A section in the department is of the view that the service tax on inter-connect charges should be levied with retrospective effect since 2001," an official said.

According to Ramachandran, the total impact of a move to impose service tax on IUC with retrospective effect would cost the mobile phone industry a "few hundred crores". Officials added that even the AG had in his view stated that the department could levy the tax with prospective effect after bringing in the required changes in law recognising charges even between two telecom authorities as a service.

Officials said that the stand of the department regarding inter-connect charges would not impact the recent clarification that service tax would be leviable from January 15 on temporary in-bound international roaming. The department had last week clarified that domestic telecom companies would have to pay service tax on the amount charged by them to foreign telecom companies in lieu of providing temporary roaming to their subscribers visiting India.

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