The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), New Delhi, has set aside three adjudication orders confirming service tax demands aggregating approximately ₹41.57 crore holding that facilitating access to government-owned data through an e-governance portal did not amount to providing Online Information and Database Access or Retrieval (OIDAR) services.

The bench of Dr. Rachna Gupta (Officiating President) and P.V. Subba Rao (Technical Member) has observed that interest earned on fixed deposits was not considered for any service and could not attract service tax under either the pre-negative list or post-negative list regime. It further found that the disputed services provided to universities after July 1, 2012, were covered by the applicable exemption notification.

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The appellant/assessee is a joint venture involving the Madhya Pradesh government and Tata Consultancy Services, established to develop, maintain and manage the State’s e-governance portal.

The portal operated as a single-window electronic gateway through which government departments could provide services to citizens. These included applications for birth and marriage registration, departmental certificates, driving licences, electricity and water connections, payment of utility bills and grievance redressal.

The company also provided online facilities to recognised educational institutions for admissions, examinations and fee collection. Separately, it collected bills and insurance premiums for commercial entities such as BSNL, Airtel, LIC and SBI Life.

To extend access to these facilities, the company established a network of kiosks. It collected registration charges and annual franchise fees from kiosk operators, along with security deposits enabling them to collect payments within specified limits.

The three challenged orders confirmed service tax of ₹19,77,25,602 for October 2009 to September 2014, ₹12,73,16,427 for October 2014 to March 2016, and ₹9,06,56,452 for April 2016 to June 2017. The orders also imposed interest and penalties.

For the period before July 1, 2012, the department sought to classify the disputed activities as OIDAR services. For the subsequent period, it contended that the services were taxable because they did not fall within the negative list.

MP Online disputed the classification, submitting that it merely created and operated the technical infrastructure through which government departments and citizens could access government data and complete transactions.

The company argued that the information belonged to the government, while it provided the network and portal facilitating access. It also submitted that no service charges were levied merely for browsing or collecting the data.

For the earlier period, MP Online maintained that its assistance to government departments and recognised educational institutions could not be taxed as business support services because the activities did not support business or commerce.

The department defended the demands and argued that the extended limitation period had been correctly invoked. According to the Revenue, the company had failed to disclose the correct classification and discharge the appropriate tax liability in its returns, with the alleged suppression being discovered during audit.

Rejecting the department’s classification, the tribunal held that OIDAR services could be alleged only where the data belonged to the service provider.

In this case, MP Online had provided a network through which Madhya Pradesh government officers and citizens could access the government’s data. That arrangement did not establish that the company itself supplied OIDAR services.

The bench relied on United Telecom Ltd. v. Commissioner of Service Tax, noting that the Revenue’s appeal against that decision had been rejected by the Karnataka High Court. It also referred to the larger bench decision in Air India Ltd. v. Commissioner of Service Tax, New Delhi, which followed the same precedent.

The finding distinguished the provision of technological infrastructure from the provision of access to data belonging to the service provider.

The tribunal separately examined services provided to government departments for collection of utility bills and to universities and educational institutions before July 1, 2012.

It found that these were support services, but were not provided to business entities. Consequently, they did not fall within the categories of business auxiliary services or business support services for the disputed period.

On that basis, the tribunal held that no service tax was payable on those activities under the earlier regime.

For the period beginning July 1, 2012, the tribunal noted the shift to the negative list framework, under which services generally became taxable subject to the applicable exclusions and exemptions.

However, it held that the services provided to universities were covered by Entry 9(d) of Notification No. 25/2012-ST. Accordingly, no service tax was payable on those services even after the change in the taxation framework.

The bench distinguished these activities from services supplied to commercial corporations such as BSNL, Airtel, LIC and SBI Life. Those services were taxable both before and after July 1, 2012.

It recorded MP Online’s submission that service tax had already been paid on commissions received from the commercial entities. It also noted that the company had paid service tax on fees charged to kiosk operators, treating them as franchise fees, during both periods.

Another significant issue concerned interest earned on fixed deposits.

The assessee collected payments on behalf of government departments, educational institutions and utility companies, and was required to remit them within the stipulated period—generally on the same day, the following day or, in some cases, within five days.

During the intervening period, the company held surplus funds, which it deposited in fixed deposits and earned interest. The department sought to levy service tax on that interest income.

The tribunal rejected the demand, explaining that interest represented the time value of money. It was received for money deposited with the bank and did not constitute consideration for a service.

The bench therefore held that the fixed deposit interest was not exigible to service tax under either the pre-negative list or post-negative list regime.

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