In a statement CBEC said: 'They normally charge customers on the basis of usage of time. They also provide lease lines on lumpsum payment basis. They are, therefore, liable to pay service tax on the amount charged from customers.'

However, the customs department has exempted ISP on inter-connectivity services taken up by another ISP. 'Interconnection of one ISP to another is a commercial and technical arrangement under which service providers connect their equipment, networks and services to enable their customers to have access to data informations ... Therefore, interconnection charges paid by one ISP to another are not liable to service tax,' explained the CBEC.