Customs, Excise and Gold Tribunal - Mumbai
Bpl Mobile Communications Ltd., ... vs Commissioner Of Central Excise on 1 March, 2007
Equivalent citations: 2007(119)ECC100, 2007ECR100(TRI.-MUMBAI), [2007]9STJ218(CESTAT-MUMBAI), 2007[7]S.T.R.440, [2007]8STT416, (2007)10VST313(CESTAT-MUM)
ORDER
Jyoti Balasundaram, Vice President
1. The brief facts of the case are that the appellants herein are providers of cellular telephone services which services are covered by the definition under Section 65(74) of Chapter V of the Finance Act, 1994, as amended. On the basis of information received by the department that they have not been including the value of SIM cards in the taxable value on which they were paying service tax, they were asked to inform the practice followed by them for payment of service tax on SIM cards, to which the appellants replied that they were not paying service tax on the value of the SIM cards. They discontinued charging activation charges from customers and payment of service tax due on the said element of taxable services w.e.f. 1.5.2001, prior to which date they were recovering activation charges from post-paid telephone connection subscribers and charging 5% tax on the same. Post 1.5.2001, they were selling SIM cards and paying sales tax on the sale proceeds, as levied by the Government of Maharashtra. Show cause notices proposing to demand service tax together with interest on the sale of SIM cards and proposing penal action were issued to the three appellants, alleging that they had deliberately concealed the value of taxable service and furnished inaccurate value by not including SIM card charges recovered from the customers with intent to evade payment of tax. The Deputy Commissioner confirmed the service tax demand of Rs. 1,38,82,016/- together with interest during the period 1.4.2003 to 31.3.2004 and imposed penalty of Rs. 200/- per day under Section 76 and penalty of Rs. 2,77,00,000/- under Section 78 upon M/s. Hutchison Essar Ltd., service tax demand of Rs. 89,90,074/- together with interest during the period 1.7.2002 to 31.01.2004 and imposed penalty of Rs. 200/- per day under Section 76 and penalty of Rs. 1,79,80,000/- under Section 78 upon M/s. BPL Mobile Communications Ltd., and service tax demand of Rs. 52,84,205/- together with interest during the period 24.7.2002 to 31.3.2004 and penalty of Rs. 200/- per day under Section 76 and penalty of Rs. 1,05,65,000/- under Section 78 upon M/s. Bharti Tele-Ventures Ltd. Appeals by all the three assessees were dismissed by the common order of the Commissioner (Appeals); hence these appeals.
2. We have heard both sides.
3. We find that the issue as to whether the providing of telephone connection was sale of goods (SIM cards) or a contract of service, was decided against the assessees by the Hon'ble Kerala High Court's judgment in Escotel Mobile Communications Ltd. v. UOI reported in 2002 (126) STC 475 (Ker.). The matter was carried in appeal to the apex court which, vide its judgment reported in (2006) 3 SCC, held that the Centre cannot include the value of SIM cards, if they are found ultimately to be goods, in the cost of the service, and remanded the matter to the Sales Tax Authorities concerned for determination of the issue relating to SIM cards in the light of the observations contained in its judgment. The relevant paragraphs of the apex court's judgment are reproduced herein below:
85. This brings us to the decision of the Kerala High Court in Escotel.
86. In that case Escotel was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central sales tax and sales tax under the Kerala General Sales Tax Act, 1963 as applicable. The question was one of the valuation of these goods. The State Sales Tax Authorities had sought to include the activation charges in the cost of the SIM card. It was contended by Escotel that the activation was part of the service on which service tax was being paid and could not be included within the purview of the sale. The Kerala High Court also dealt with the case of BPL, a service provider. According to BPL, it did not sell cellular telephones. As far as SIM card merely represented a means of the access and identified the subscribers. This was part of the service of a telephone connection. The Court rejected this submission finding that the SIM card was "goods" within the definition of the word in the State Sales Tax Act.
87. It is not possible for this Court to opine finally on the issue. What a SIM card represents is ultimately a question of fact, as has been correctly submitted by the States. In determining the issue, however the assessing authorities will have to keep in mind the following principles: If the SIM card is not sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sales, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the "aspects" doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel & Restaurant Assn. of India v. Union of India (SCC pp. 652-53, paras 30-31)....
88. No one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction. This does not however allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. Even in those composite contracts which are by legal fiction deemed to be divisible under Article 366(29-A), the value of the goods involved in the execution of the whole transaction cannot be assessed to sales tax. As was said in Larsen & Toubro v. Union of India (SCC p. 395, para 47)....
89. For the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. As was held by us in Gujarat Ambuja Cements Ltd. v. Union of India SCC at p. 228, para 23....
90. We will therefore have to allow the appeals filed by BPL in Civil Appeals Nos. 3329-30 of 2002 and Escotel in Civil Appeal No. 2408 of 2002 and remand the matter to me Sales Tax Authorities concerned for determination of the issues relating to SIM cards in the light of the observations contained in this judgment.
4. In the present cases, the appellants have paid sales tax and are not challenging the levy thereof. Therefore, the transaction has been accepted by them to be a sale of goods. This being so, the question of considering the activity as an auxiliary service cannot be considered and service tax cannot be levied on the value of the SIM cards, in the light of the Tribunal's order in Idea Mobile Communications Ltd. v. CCE, Trivandrum 2006 (4) STR 132.
5. Following the ratio of the above judgments, we hold that the levy of service tax and imposition of penalty is not sustainable and accordingly set aside the impugned order and allow the appeals.
(Pronounced in Court)