Custom, Excise & Service Tax Tribunal
Bharti Hexacom Ltd vs Jaipur-I on 18 July, 2018
1
E/53954/2014
IN THE CUSTOMS, EXISE AND SERVICE TAX APPELLATE
TRIBUNAL, NEW DELHI, PRINCIPAL BENCH NEW DELHI
Date of Hearing: 07.06.2018
Date of Decision: 18.07.2018
Appeal No. ST/54461/2014 - DB
[Arising out of Order-in-Original No. JAI-EXCUS-001-COM-
162-13-14 dated 13.05.2014 passed by the Commissioner,
Customs, Central Excise and Service Tax, Jaipur]
M/s Bharti Hexcom Ltd. ...Appellant
Vs.
CCE, Jaipur - I ...Respondent
Appearance:
Represented by Shri Narendra Singhvi, Advocate for the Appellant.
Represented by Shri Amresh Jain, D.R. for the Respondent.
Coram:
Hon'ble Mr. V. Padmanabhan, Member (Technical) Hon'ble Ms. Rachna Gupta, Member (Judicial) Final Order No. 52542/2018 Per Rachna Gupta:
Present is an appeal against the Order-in-Original No. JAI-EXCUS-001-COM-162-13-14 dated 13.05.2014, vide which the service tax liability of Rs. 66,54,629/- along with the interest and the penalties under Section 76 and 78 has been upheld for a period with effect from April 2007 to March 2012.
2. The factual matrix relevant for the purpose of the impugned adjudication is that the Appellant is mentioned to 2 E/53954/2014 be a telecommunication service provider who is paying due Service Tax on the services as provided by him. It is his case that the Appellant sells SIM Cards to the distributers who further sell it to the subscribers. In certain cases, he gives SIM Cards free of cost to the distributors without any consideration. In the former case, the Appellant is discharging the Service Tax liability. However, in the later case, since there is no consideration received, the Appellant is not paying any Service Tax. However, a Show Cause Notice dated 19.10.2012 was issued to the Appellant alleging it to have not paid Service Tax amounting to Rs. 66,54,629/- on the value of SIM Card having given to the distributor with printed M.R.P. which were subsequently sold by the distributors to the subscribers of the telecom services on the payment of printed value. Non-payment of tax on the said value, the appellant thereby has contravened the provision of Section 67, 68 and 70 of the Finance Act, 1994, read with Rules 6 and 7 of the Service Tax Rules. The said demand of the Show Cause Notice was confirmed vide the order under challenge. Hence, the present appeal.
3. We have heard both the parties at length.
4. It is submitted by the learned Counsel for the Appellant that the services of telecommunication were provided through territorial distributors in as such the 3 E/53954/2014 relationship between the Appellant and the distributors is on principle to principle basis. It is impressed upon that the Department has alleged that the discount offered by the Appellant to the distributors in the form of few free SIM Cards is considered as non-monetary consideration for services of business promotion of the Appellant, but the Department has no evidence for the same. It is further argued that the explanation attached to Rule 5 of the Service Tax Evaluation Rules including the gross value of the telecommunication services provided to be the taxable value, has wrongly been given retrospective effect by the Department. The learned Counsel has relied upon BPL Mobile Cellular Ltd. vs. CCE, 2007 (8) STR 546 (Tri.- Chennai) and Vodafone Essar vs. Commissioner, 2015- TIOL-1173-CESTAT-MUM, which was upheld by Hon‟ble Supreme Court vide Citation No. 2011 (24) STR J 175 (SC). It is impressed upon that the period post March 2011, i.e., after the inclusion of explanation to Rule 5, the Appellant has made good the short payment of Service Tax even qua the free SIM Cards given to the distributors. This is an admitted fact as apparent from the Show Cause Notice also. Apart from the merits, it is submitted by the learned Counsel that the Show Cause Notice is barred by limitation as there was no ground with the Respondent to allege suppression of the facts on the part of the Appellant and to 4 E/53954/2014 invoke the extended period of limitation for 5 years. It is impressed upon that on this score itself, the appeal deserves dismissal.
5. While rebutting the arguments, it is submitted by learned D.R. that transaction about distributing 10 free SIM Cards to its distributors is not at all the transaction of charity. It is impressed upon that after the amendment in Section 67 of the Act of 1994 in the year 2007, even non- monetary consideration, but having a true value thereof are to be taken into consideration while assessing the taxable value and that the same is very much in accordance of Rule 3 of Manner of Determination of Value Rules. Learned D.R. has impressed upon that true value, irrespective paid or not shall be the criteria of taxability, accordingly. With respect to the retrospective application of the Amendment in Sub- rule 5 of Determination of Value Rules, it is submitted that the change, as was brought in the year 2011, was mere clarificatory without bringing any substantive change in the Section 67 of the Act and for the said reason, Martin Lottery case cannot be made applicable to the facts and circumstances of the present case. The case law, with respect to Vodafone Essar vs. Commissioner and BPL Mobile Cellular Ltd. vs. CCE, as relied upon by the applicant is also denied to be applicable to the facts of the present case, on the ground that both the cases are prior to the amendment 5 E/53954/2014 of the year 2011. It was further submitted that on the basis of evidence, it was specifically mentioned in the Show Cause Notice itself, that the SIM Cards having the MRP printed, even if given free of cost, the object thereof is the company‟s business promotion by increasing the number of subscribers. No question of principle of "quid pro quo", as asserted by the Appellant at all arises. While justifying the order under challenge and impressing upon that the plea of availability of extended period, learned D.R. has prayed for appeal to be dismissed.
(i) After hearing both the parties, we are of the considered opinion that it is apparent and admitted that the SIM Cards which were given to the subscribers free of cost also had an MRP printed thereupon. It is also an admitted fact that the said free SIM Cards were sold by the distributor at the same price as has been printed thereupon to the subscriber. The moment the subscriber activate those SIM Cards, they become the service recipients of the appellant who admittedly is a tele-communication service provider. He is providing same services to the subscribers as he is providing services to the subscribers who had purchased those SIM Cards which were sold by the Appellant to the distributors against the printed price thereupon.
6. We note that initially there was a contention whether the sale of SIM cards is a service activity or sale of goods.
(a) The Hon‟ble Supreme Court, in case of BSNL Vs. CCE (2006) 3SCC 1, held that whether it is a sale or a service would depend on the intention of the dealing 6 E/53954/2014 parties and the transaction of SIM may involve both the aspects of sale and service, i.e., activation of SIM could be service and value of physical SIM could be subject of sales tax - This is a raw interpretation, the base contention and this confusion continued for many years.
(b) Finally the position kind of settled down with Idea Mobile Communication Ltd. Vs. CCE Cochin (2011 (23) STR 433 SC), wherein it was held that the entire value for SIM is subject to service tax. the language used was - The value of taxable service is calculated on the gross total amount received by the operator from the subscribers.
7. The Government had amended valuation rules w.e.f. march 2011 with the explanation added to Rule 5(1) of Determination of Value Rules which says:
"For removal of doubts any expenditure incurred by the service provider in provision of service would form part of value of taxable service say out of pocket expense incurred and charged to the client."
The question is - how the position regarding the value paid by the end subscribers in the supply chain of SIM cards initially sold by the telecom company can „explain‟ any aspect regarding the expenditure.
8. Thus, Rule 5(1) and the explanation thereof were practically disjoint, these were used as independent Rules and thus the explanation does not attain any clarificatory nature. It is difficult to consider it retrospectively applicable. 7
E/53954/2014
9. As for the applicability of the case of Union of India vs. Martin Lottery Agencies Ltd. (2009) 14 STR 593 SC), there also the explanation to the clause in the definition of BAS was held to be introducing a new type of service to the tax net and was considered as substantive change - thus was held prospective.
In this case - though the nature of service and its taxability is not in question - the point is that the value of the service has been redefined. It is subject of interpretation whether this can be considered as a substantive change or not.
To one understanding, it is substantive because it is a change in the parameter to assess value of service from a back period which could not be perceived at all from the main Rule 5(1) to which this explanation was inserted for removal of doubts.
10. In a recent judgment, the Hon‟ble Supreme Court in case of UOI vs. Intercontinental Consultants and Technocrats ( 2018 (3) TMI 357 SC), has dismissed the appeal again the Delhi High Court judgment in the same case in which it was held that Rule 5(1) was ulra vires to the extent it was considering reimbursable expenses as part of the value of taxable service. Thus practically the main rule to which this „explanation‟ is under contention has already been held ultra vires.
The logic was that this value of reimbursable expenses could have been defined by Section 67 ( main legislation) not by delegated legislation in the Rule. The value since was included in the definition of „consideration‟ from May 14, 2015, which was part of the main section 67, it was within the vires of the law. 8
E/53954/2014 The point here is that - we have an explanation to a Rule which has been held Ultra Vires - even if we presume that the explanation was for removing doubts of the Rule, whether that will hold good would be a question.
11. Rest apart the above discussion the fact for the present case still remains is that the SIM Cards which the distributor received as free, has been sold on MRP, and since the MRP is inclusive of prices, therefore, demand has to be calculated by taking MRP as cum tax value in terms of Section 67(2) of the Finance Act, 1994. Resultantly, we find no infirmity vide the order upholding the demand though by wrongly relying upon explanation to Rule 5 and its retrospective effect.
12. With respect to imposition of interest and penalties, we are of the opinion that the adjudicating authority has rightly observed noticee to have already been registered with the Department and as such to already been well aware of the provisions of Service Tax, still not disclosing the taxable value of the SIM Cards supplied free of cost to the distributors in their returns nor paying the tax thereupon without seeking any clarification to that effect is sufficiently a positive act which constitutes suppression of facts. We find no infirmity in the said findings, in consequence whereof the challenge to the Show Cause 9 E/53954/2014 Notice on the ground of limitation also stands falsified. In the given circumstances, the Department was well entitled to invoke the extended period of limitation. As a result of the entire above discussion, the appeal in hand is hereby dismissed.
[Pronounced in open court on 18.07.2018] (Rachna Gupta) (V. Padmanabhan) Member (Judicial) Member (Technical) RN