Service tax on IUC may take a while

The issue of applicability of service tax on interconnect usage charges may take a while to be resolved.

The revenue department has once again sought inputs from the Cellular Operators Association of India (COAI) on the issue before finalising its stance.

Cellular operators have resisted the attempts of the tax department to bring interconnect usage charges (IUC) under service tax. The IUC refers to the charge payable by one service provider to the other for free flow of calls across different telecom networks.

No technical service or any other service is at present rendered by one telecom operator to another. If there is no interconnection between telecom operators, then subscribers of say MTNL or BSNL would not be able to speak to Bharti or Hutch subscribers.

"IUC charges are part of the total subscriber bill collected by service providers. Service tax is already paid by service providers on the carriage charge and termination charge. The levy of service tax on IUC would be tantamount to charging of service tax twice for the same call," a COAI official said.

The COAI has also pointed out that there will be no revenue gain to the government from the levy of service tax on the IUC since the payment of service tax on this will be set off against the output service tax liability.

Demand for payment of service tax on the IUC charges only creates administrative hassles "" and because there is no revenue gain to the government "" it only increases inefficiencies in the economy, the association has said.