The issue on which the clarification from CBEC is sought is whether International Private Leased Circuit (IPCL) charges incurred in foreign currency by BPO/MNCs against receipt of services from the service provider situated outside India/group companies are liable to service tax under reverse charge mechanism [Section 66A of the Finance Act, 1994 read with Rule 2 (1) (d) (iv) of the Service Tax Rules 1994].
The activities are in the nature of Leased Circuit services presently covered under Telecommunication service. However, for getting classified under Telecommunication service, Section 65 (105 (zzzx) of the Finance Act, 1994 provides that the service should be provided by a Telegraph authority.
Telecommunication service as defined under Section 65 (109a) covers services which are provided by a person who has been granted a licence under the first proviso to sub-section (I) of section 4 of the Indian Telegraph Act, 1885. In this situation in the instant case since the service provider is located abroad, he is not covered under the definition given in Section 65 (109a). Thus the service provided by foreign vendors cannot be taxed under Telecommunication service.
However, it has been clarified that the above activity of receiving IPCL service from abroad is chargeable to Service Tax under Business Support Service [Section 65 (105)(zzzq) ibid] at the hands of recipients situated in India in terms of Section 66A of the Finance Act, 1994, read with Rule 2 (1) (d) (iv) of the Service Tax Rules. 1994 and provisions of Taxation of Services (Provided) From Outside India and Received in India, Rules 2006 apply. The definition of business support service inter alia includes the above activity.
[CBEC Letter No. F.No.137/21/2011-ST dated 15.07.2011]
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