Custom, Excise & Service Tax Tribunal
Tata Teleservices (Maha) Ltd vs Commissioner Of Service Tax Mumbai-Ii on 2 November, 2018
IN THE CUSTOMS, EXCISE & SERVICE TAX
APPELLATE TRIBUNAL
WEST ZONAL BENCH AT MUMBAI
COURT No. I
APPEAL Nos. ST/85143,85144/2015
(Arising out of Order-in-Original No. 95 & 96/ST-II/RS/2014 dated
30.9.2014 passed by Commissioner of Service Tax-II, Mumbai)
Tata Teleservices (Maha.) Ltd. Appellant
Vs.
Commissioner of Service Tax, Mumbai-II Respondent
Appearance:
Shri D.B. Shroff, Sr. Advocate, for appellant
Shri Roopam Kapoor, Commissioner (AR) and Shri M.K. Sarangi,
Joint Commissioner (AR), for respondent
CORAM:
Hon'ble Dr. D.M. Misra, Member (Judicial)
Hon'ble Mr. Sanjiv Srivastava, Member (Technical)
Date of Hearing: 19.6.2018
Date of Decision: 2.11.2018
ORDER No. A/87807-87808/2018
Per: Sanjiv Srivastava
The two appeals are directed against the order in
original of Commissioner Central Excise Mumbai II,
holding as follows in the matter remanded by the
Tribunal by its order dated 03.09.2012
".a) I uphold the demand of Service tax (including E.
Cess and S.H.E Cess) amounting to Rs 26,18,56,057/-
(Rupees Twenty Six Crore Eighteen Lakhs Fifty Six
2 ST/85143,85144/2015
Thousand and Fifty Seven only) made in the show cause
notice F No V/ST/Dn-V/Bel/Tata Tele/2012-13/34634
dated 23.12.2012 and Rs 1,79,01,623/- (Rupees One
Crore Seventy Nine Lakhs One Thousand Six Hundred
and Twenty Three only) made in the show cause notice F
No V/ST/Dn-V/Bel/Tata Tele/2012-13/3768 dated
20.05.2014, totally amounting to Rs 27,97,57,680/-
(Rupees Twenty Seven Crore Ninety Seven Lakhs Fifty
Seven Thousand Six Hundred and Eighty only) under
Section 73(1) of the Act and confirm the same under the
provisions of Section 73(2) of the Act, I order recovery of
the amount so confirmed.
b) I appropriate Rs 3,00,00,000/- (Rupees Three Crores)
and Rs 16,85,046/- (Rupees Sixteen Lakhs Eighty Five
Thousand Forty Six Only) paid by the Noticee against the
service atx liability confirmed at (a) above.
c) I order recovery of interest at the appropriate
rate(s), on the amount of demand confirmed at (a) above,
from the due date(s), under the provisions Section 75 of
the Act from M/s Tata Teleservices (Maharashtra)
Limited.
d) Impose penalty of Rs 10,000/- (Rupees Ten Thousand
only) on M/s Tata Teleservices (Maharashtra) Limited,
under the provisions of Section 77 of the Act;
3 ST/85143,85144/2015
e) Impose penalty of Rs 27,97,57,680/- (Rupees Twenty
Seven Crore Ninety Seven Lakhs Fifty Seven Thousand
Six Hundred and Eighty only) on M/s Tata Teleservices
(Maharashtra) Limited, under Section 78 of the Act."
2.1 Acting on the intelligence that Appellants have
evaded Service Tax on the amount received by them on
supply of SIM cards in the course of rendering services
under the category of telecommunication services, a
investigation was undertaken by the officers of Service
Tax Commissionerate Mumbai -I
2.2 During course of investigations statements of Shri
Srinath Narasimhan Managing Director, Shri S G
Murali C F O and Shri Shri Sanjay Chopra, General
Manager Taxation were recorded. From the scrutiny of
records and statements recorded during the
investigation it transpired that-
i. Appellants failed to correctly discharge service
tax for services rendered in form of sale of SIM
card under category of Telecommunication
Services for the period from 1.04.2007 to
31.03.2012;
ii. During period prior to 1st December 2010, they
were paying Service Tax only on the talk time
contained in the SIM Card and not on its total
value. Thereafter, the talk time was segregated
4 ST/85143,85144/2015
from the value of SIOM card value and only
VAT was paid on the value of SIM Card
transactions;
iii. These facts were suppressed from the service
Tax department. This fact about non intimation
to the service tax department has been
admitted by Shri Srinath Narasimhan
Managing Director, Shri S G Murali C F O in
their statements;
iv. Appellants had suppressed the correct nature
of service in form of sale of SIM card provided
by them which fall within the category of
"Telecommunication Service" with intention to
evade payment of Service Tax.
v. They failed to declare the correct value of SIM
card transaction which is an integral part of
"Telecommunication Service" provided by them
during the period from 01.04.2007 to
31.03.2012 with intent to evade payment of
Service Tax.
vi. A show cause notice dated 23.10.2012 was
issued to Appellant demanding service tax of Rs
26,18,56,057/- not/ short paid by them during
the period 01.04.2007 to 31.03.2012;
vii. One more show cause notice dated 20.05.2014
demanding Service Tax of Rs 1,79,01,623/-/-
5 ST/85143,85144/2015
not/ short paid by them during the period
01.04.2012 to 31.03.2013;
viii. In both the show cause notices penalties were
proposed and also the demand for the interest
made under Section 75 of the Finance Act,
1994.
2.3 Matter has been adjudicated by the order as
referred in para 1 supra, by the Commissioner
confirming the demands made by the show cause notice
along with interest. Penalties were also imposed under
Section 77 and Section 78 of the Finance Act, 1994.
Against this order of Commissioner, Appellant are in
appeal.
3.1 Appellants have challenged the order of the
Commissioner in their appeal memo on various grounds
as mentioned below:
a. The order of Commissioner has been based on
incorrect reading and interpretation of the decision of
Apex Court in case of BSNL as in the said case the court
held that SIM card is always subjected to sales tax.
Clearly the Apex court has laid down scenarios for
provision of SIM card by the Telcom companies. Their
case falls within one of the scenario, thus the
conclusion derived by the Commissioner relying on said
decision are not correct.
6 ST/85143,85144/2015
b. The decision of Apex Court in case of IDEA Mobile
Communication Ltd. Is not applicable in their case, and
is clearly distinguishable on facts.
c. The basic foundation that SIM card is a part of
'service' is erroneous , since the SIM card is being sold
by them as 'goods" as per the Apex Court decision in
case of BSNL.
d. Dominant nature test applied is not relevant as
the transaction of sale of SIM card is totally separate
from the transaction of providing the taxable
"telecommunication service".
e. The order has been passed by not considering the
submissions made by them on 12th September 2014
hence bad in law.
f. Even if the value of SIM cards is to be included in
the value of taxable services provided by them then also
they should be allowed the benefit of Notification No
12/2003-ST (upto 30 June 2012) and inclusion of
trading of goods in negative list (from 1st July 2012)
should be allowed.
g. Quantification of demand is erroneous.
h. Extended period has been wrongly invoked as the
matter was in knowledge of the department through
out.
7 ST/85143,85144/2015
4.1 We have heard Shri D B Shroff Learned Counsel
for Appellants and Shri Roopam Kapoor Commissioner
& Shri M K Sarangi Joint Commissioner, Authorized
Representative for the Revenue.
4.2 Arguing for the Appellants learned counsel
submitted that the SIM cards are sold as goods
independent of any service element, hence VAT has
been correctly paid by them. Even Apex Court has in
case of BSNL has stated that when SIM are sold
independently they should be levied to VAT/ sales tax
and not service tax.
4.3 Learned counsel submitted that indeed in their
case there is actual transfer of property in SIM cards
from Appellant to its customer. In terms of clause 3(h)
of the terms and condition of CAF, the subscriber gets
the absolute ownership of the SIM card and restriction
on transferability i.e. requirement to take their consent
is only to comply with the KYC obligations and due to
security concerns regarding the misuse of SIM cards.
This fact distinguishes their case from the other
operators. Since there is actual transfer in property of
SIM the decision of Apex Court in case of IDEA Mobile
Communication will not be applicable in their case. Post
2015, the CAF has been amended to provide that the
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property in the SIM vests with Appellant, thus prior to
2015, there was intention to transfer the property in
goods.
4.4 Commissioner was wrong in applying the
Dominant intention test in case two separate
transaction of sale of goods and service. Such test can
be applied only to the composite transaction. The
contention of department that SIM card by itself has no
value and represents the right to use the service of the
Appellant. It is submitted the transfer of such an
intangible right is also a sale under Article 366(29A)(d)
of Constitution attracting VAT. He relies on the decision
of Apex Court in case H Anraj Vs Government of Tamil
Nadu [1986 (61) STC 165.
4.5 Since all the facts were brought to the knowledge
of the department during course of audit undertaken in
the year 2009, they are not guilty of suppressing any
facts from the department with intent to evade payment
of service tax hence extended period should not have
been invoked for demanding tax for the period 2007 to
2012 {Sunil Forgings Ind {2016 (332) ELT 341 (T-Mum)],
Trans Engineers India Pvt Ltd [2015 (40) STR (T-Mum)].
Pushpam Pharmaceutical [1995 (78) ELt 401 (SC)]}. Also
the issue in the present case was of interpretation and
they acted under the bonafide belief, extended period
should not have been invoked {BPL Mobile
9 ST/85143,85144/2015
Communication [2008 (9) STR 349 (Bom)], Bharti Airtel
Limited [2016 (43) STR 400(T-Del)], Idea Mobile
Communication Ltd [2012 (26) STR 27 (T-Del)]. For this
reason no penalty should also be imposed on them.
4.6 Since there was no delay in payment of Service
Tax penalties under Section 76 and 77 are not justified.
4.7 He submitted that in their case the requirements
of Notification No 12/2003-ST are satisfied and benefit
of the same to the extent of value of SIM card should
have been allowed to them. {Bharti Airtel {20012 (27)
STR (T-Del)]}
4.8 Heb submitted that the quantum of tax payable if
any needs to be recomputed. For period upto November
2010, they were paying the Service Tax on service
component of SUK. For computing the demand the
benefit of tax already paid should have been allowed.
4.9 He also claimed that the benefit of Sales tax paid
by the appellant should be adjusted against the demand
of service tax if any {M/s Idea Mobile Communication
Ltd vs UOI 2016 (42) STR 823 (P &H)], K G Khosla and
Co Pvt Ltd [1972 30 STC 13] & BHEL [1996 (4) SCC
230]
4.10 Learned AR arguing for the revenue submitted
that, the issue with regards to inclusion of value of SIM
cards in the value of taxable service provided by the
10 ST/85143,85144/2015
mobile companies has been settled by the Apex Court in
case of Idea Mobile Communications Ltd vs CCE 2011-
TIOL-71-SC-ST. Hence following the ratio of the said
decisions the value of SIM has been rightly held to be
included in the value of taxable services provided.
4.10 He further submitted that the distinction sought
to be made by the appellant from the case of other
operators is not factually and legally tenable. So long as
the subscriber has no option to use same SIM again and
again for receipt of telecommunication service from any
provider and right to transfer it for use to any other
person, it is only permissive use and no sale. Only by
putting remark on documents that property in SIM is
transferred to subscriber is not valid claim, as the SIM
and/ or Mobile number which it represents is controlled
by the operator. In case the consumer ports the number
to any other operator, he has to use another SIM of new
operator. Further the intention to transfer the property
in SIM not mentioned in Starter Kit.
4.11 The claim that SIM card once sold is not taken
back also corroborate the position that it has no value
for subscriber unless coupled with the agreement to
provide service. It is not the claim of the appellant that
the dominant intention of the parties (subscriber and
operator) is to sale SIM rather than provide Telecom
Service.
11 ST/85143,85144/2015
4.11 The contention that there is separate transaction
of sale and service is misleading. What is sold is the
starter kit and only agreement with subscriber. At the
time of buying the starter Kit subscriber is buying the
starter kit with intention to use telecom services.
Similarly appellants by providing the CAF form and the
user guide is also making it clear to the buyer that what
is intended for by Mobile operator is for the usage of the
tele-communication services He relied on the decisions
as follows in his support.
i. BSNL [2011-TIOL-731-HC-AP-ST]
ii. Mahanth Ente vs State 2018-TIOL-657-HC-MAD-
CT date 16.03.2018
4.12 He also referred to the invoices produced by the
appellants, and pointed out that the invoice specifically
states
"-The property in SIM card would remain vested with VIL
and there is no transfer of property or right to use SIM
cards to any person including subscribers.
-For item "Refill Slips, Scratch Cards and TopUp" 12.36%
Service Tax 9inclusive of Education Cess of 3%) is being
charged
-Service tax is on total Maximum Value."
The above remarks in view of the learned AR specifically
clinch to issue as appellants themselves are declaring
that there is no transfer in property or the right to
12 ST/85143,85144/2015
usage. Hence in his view there is no sale of SIM hence
the benefit of exemption under notification No 12/2003-
ST has been rightly denied to the Appellants.
4.13 He also pointed out that as per the invoices
enclosed (pg 129-173 of paper) while price for GSM
card/ pre-paid smart card/ smart card have been
shown at the price of Rs 7.88/ pc (p-154) to Rs 12.57
/pc (p-166) but for splitting value for VAT same has
been shown at Rs 237/ pc. Gross profit as per CA
Certificate has been shown at 27.37% to 38.15% Hence
the finding of adjudicating authority towards artificial
splitting of value cannot be disputed.
4.14 He relies upon the decision of Bombay High Court
in case of Mosanto Mahyco Biotech India Ltd vs UOPI
[2016-44-STR-161-BOM] to state that mere mention of
any commodity in VAT Act does not suomotto leads to
tax, rather what must be looked at is the real nature of
transaction and actual intention of parties if it is
permissive use, then it is service and liable to service
tax. In present case, supplying SIM card to subscriber is
only its permissive use and enjoying mobile service,
which can be discontinued by the mobile operator at his
will.
4.15 Appellant had been adopting different marketing
strategies from time to time and prepared the
13 ST/85143,85144/2015
documents accordingly. These fact were not intimated to
the department. Further the issue with regards to
leviability of Service Tax has been adjudicated by the
Apex Court in the case of BSNL in the year 2006. Hence
any misinterpretation of the same cannot be claimed to
interpretational issue or a bonafide belief. The business
practice has come to knowledge of department first in
2009, and hence show cause notice has been issued
invoking extended period of limitation. He relied on the
decisions of as follows in his support
i. Mysore Rolling Mills Pvt Ltd Vs CCE Belgaum
[1987 (28) ELT 50 (SC)]
ii. Lakhan Singh vs CCE [2016 (46) STR 297 (T-Del)]
iii. Vodafone Digilink Ltd [2013-29-STR-229-Raj]
5.1 We have considered the submissions made by the
Appellant and Revenue.
5.2 The issues for consideration for us as per the
submissions made by the Appellants are:-
i. Whether the value of SIM sold by the Appellants
as an independent commodity be included in the
assessable value of the taxable service under
Section 65 (105)(zzzx) of the Finance Act, 1994
("Act") for the purpose of levy of service tax?
14 ST/85143,85144/2015
ii. Whether the extended period of limitation can be
invoked for confirming the service tax demand in
the facts of the present case?
iii. Whether penalty can be imposed on the Appellants
in the facts the present case?
6.1 Submissions made by the appellant in respect of
supply chain for procurement of SIM card and technical
aspects relating to provision of telecommunication
services are reproduced below:
"1.7 The appellant procures SIM card from SIM card
vendors/manufacturer on issuance of purchase order
which contains specification of the SIM card required by
the appellant. The manufacturer issues excisable invoice
on the appellant. The vendor charges VAT on local sales
made by them to appellant.
1.8 The Registered Serial Number (RSN), International
Mobile Subscriber Identity Number for GSM (IMSI) and
provided by the appellant to the vendor along with short
code of services which are to be provided to subscriber.
These details are integrated/programmed into the SIM
card for the purpose of authentication of the telephone
number and corresponding service by the vendor.
Subsequently, vendor supplies the SIM card as per
specifications required by the appellant along with
information of RSN number in a softcopy.
1.9 On receipt of SIM card by the vendor, the appellant
pair the RSN number with Mobile Number (MDN) in the
network and IT systems. Such paired information is then
supplied to knitting vendors for packing. The RSD/MDN
are printed on stickers which are displayed on kit. The
15 ST/85143,85144/2015
knitting vendor also adds CAF and User Guide supplied
by the appellant to the kit to complete the SUK.
1.10 After knitting of SUK, the same is sent for onward
distribution/sale, accordingly cost of goods and,
whenever, if any, the service value is on the system for
generating invoices reflecting the respective configured
values. The aggregate of the two values, wherever
applicable, forms the MRP of the SUK packet.
1.11 Once the SUK is sold to the distributor the appellant
is under no obligation to take back the same i.e. the risks
and rewards pertaining to the SIM card are entirely borne
by the distributor.
Technical aspect
1.12 The telecom network has five basic elements for
maturing a call namely Mobile Switching Centre, Base
Station Controller, Base Transceiver Station (three are
immovable items), SIM card and hand set (two are
movable items).
1.13 The telecommunication service starts as and when
the aforesaid five basic elements are mapped and paired
together i.e. when the appellant as telecom operator sets
up the infrastructure and the customer purchase the
necessary equipment i.e. handset and SIM card
compatible to the network of the appellant.
1.14 Till the time of activation, aforesaid five elements
are still in network building stage and the actual
activation commences once the handsets and the SIM
card are paired, interfaced and integrated.
1.15 The SIM card has an inbuilt memory of varying
capacity used for storing personal information/data and
is integrated with IMSI which when mapped with MDN
number authenticates and identifies a customer in the
appellant's network.
16 ST/85143,85144/2015
1.16 After the purchase of SIM card by the prospective
customer the retailer sends SMS to the appellant and
also to distributor the customer is mapped in the system
with a request to unblock the IMSI/MIN/RSN. Based on
the above SMS the IT System unblocks the said
IMSI/MIN/RSN. This is called as First Level SMS.
1.17 On receipt of the aforesaid SMS of the retailer, the
distributor sends SMS to the appellant confirming the
activation request made by the retailer. This is called as
Second Level SMS.
1.18 After inserting the SIM card into handset
IMSI/MIN/RSN is transmitted to the network of the
operator to validate connection and once the validation is
approved the customer get access to the network. Till
acceptance of CAF in compliance of the DoT requirements,
the activation is only temporary.
1.19 To activate the services of the appellant the
customer has to make a call for which he has to purchase
the talk time except where the customer circumvents and
gets activated by dialing toll free number wherein the
customer will receive only incoming calls and messages.
Such customers are deactivated as and when the
circumvention is detected or maximum of six months
whichever is earlier.
1.20 In view of the aforesaid, it is submitted that the
selling of SIM card is prior to the activation of
telecommunication services on the handset of the
appellant and hence is an independent activity on which
the appellant has appropriately paid the applicable VAT."
6.2 From the above submissions it is crystal clear,
that the SIM Cards purchased by the Appellants from
the vendors/ suppliers/ manufacturers of SIM card and
17 ST/85143,85144/2015
those supplied by them are distinct. The ones procured
by them are not mapped to their network and are
capable of being programmed and mapped to any
network. However the SIM's provided by the Appellant
are programmed and mapped tow their network. Thus
these SIM cards are now the part of the
telecommunication network of the appellants and after
activation are for the purpose of identifying the
subscriber on their network so that he can make or
receive the call through their network. Thus the claim of
the appellant that the sale of SIM card by the appellant
is an independent transaction of sale of goods
simplicitor is not tenable, because the same SIM cannot
be used for any other purpose other than identifying the
consumer on appellants network for provision of
telecommunication services.
6.3 Hon'ble Apex Court decision in case of BSNL [2006
(2) STR 161 (SC)] held as follows:
80. 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
18 ST/85143,85144/2015
parties intended that the SIM card would be a separate
object of sale, 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 a 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 Association of India v.
Union of India (1989) 3 SCC 634 - "subjects which in one
aspect and for one purpose fall within the power of a
particular legislature may in another aspect and for
another purpose fall within another legislative power.
They might be overlapping; but the overlapping must be
in law. The same transaction may involve two or more
taxable events in its different aspects. But the fact that
there is overlapping does not detract from the
distinctiveness of the aspects". No one denies the
legislative competence of 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."
6.4 Thus in view of the said decision of the Apex
Court, the SIM Cards as purchased by the Appellants
from the suppliers/ vendors etc are distinct from the
one's supplied by them to their consumers. While those
19 ST/85143,85144/2015
purchased by them are liable to VAT/ Custom Duty/
Central Excise Duty, those provided by them through
their network are incidental to the supply of services
provided by them.
6.5 Hon'ble Apex Court has in case of Idea Mobile
Communication [2011 (23) STR 433 (SC)], further held-
"12. A SIM Card or Subscriber Identity Module is a
portable memory chip used in cellular telephones. It is a
tiny encoded circuit board which is fitted into cell phones
at the time of signing on as a subscriber. The SIM Card
holds the details of the subscriber, security data and
memory to store personal numbers and it stores
information which helps the network service provider to
recognize the caller. As stated hereinbefore the Kerala
High Court had occasion to deal with the aforesaid issue
and in that context in its Judgment pronounced on 15th
February, 2002 in Escotel Mobile Communications Ltd. v.
Union of India and Others, reported in (2002) Vol. 126
STC 475 (Kerala) = 2006 (2) S.T.R. 567 (Ker.) = 2004
(177) E.L.T. 99 (Ker.), it was stated in paragraph 36 that
a transaction of selling of SIM Card to the subscriber is
also a part of the "service" rendered by the service
provider to the subscriber. The Kerala High Court in the
facts and circumstances of the case observed at paras 36
and 47 as under :-
"36. With this perspective in mind, if we analyse the
transaction that takes place, it appears to us that there is
no difficulty in correctly understanding its facts. The
transaction of selling the SIM. card to the subscriber is
also a part of the "service" rendered by the service
provider to the subscriber, Hence, while the State
Legislature is competent to impose tax on "sale" by a
20 ST/85143,85144/2015
legislation relatable to entry 54 of List II of Seventh
Schedule, the tax on the aspect of "services" rendered not
being relatable to any entry in the State List, would be
within the legislative competence of Parliament under
Article 248 read with entry 97 of List I of the Seventh
Schedule to the Constitution. We are, therefore, unable to
accept the contention of Mr. Ravindranatha Menon that
there is any possibility of constitutional invalidity arising
due to legislative incompetence by taking the view that
"sale" of SIM card is simultaneously exigible to sales tax
as well as service tax. Once the "aspect theory"' is kept
in focus, it would be clear that the same transaction
could be exigible to different taxes in its different aspects.
Thus, we see no reason to read down the legislation as
suggested by Mr. Menon.
..............
47. Conclusions :
(a) The transaction of sale of SIM Card is without doubt exigible to sales tax under the KGST Act. The activation charges paid are in the nature of deferred payment of consideration for the original sale, or in the nature of value addition, and, therefore, also amount to parts of the sale and become exigible to sales tax under the KGST Act.
(b) Both the selling of the SIM Card and the process of activation are "services" provided by the mobile cellular telephone companies to the subscriber, and squarely fall within the definition of "taxable service" as defined in section 65(72)(b) of the Finance Act. They are also exigible to service tax on the value of "taxable service" as defined in Section 67 of the Finance Act."
13. It would be appropriate to mention that later on the said Escotel Mobile Communications Ltd. merged with the 21 ST/85143,85144/2015 appellant company i.e. M/s. Idea Mobile Communication Ltd. The aforesaid decision of the Kerala High Court was under challenge in this Court in the case of BSNL v. Union of India reported in (2006) 3 SCC 1. The Supreme Court has framed the principal question to be decided in those appeals as to the nature of transaction by which mobile phone connections are enjoyed. The question framed was, is it a sale or is it a service or is it both. In paragraphs 86 and 87 of the Judgment the Supreme Court has held thus : -
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 cards were concerned, it was submitted that they had no sale value. A 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 22 ST/85143,85144/2015 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 sale, 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 a 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) " '... subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legislative power'.
* * * There might be overlapping; but the overlapping must be in law. The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects."
23 ST/85143,85144/2015
14. In paragraph 88 this Court observed that 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 but that would not in any manner 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. It was also held that 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. Consequently, the Supreme Court after allowing the appeals filed by Bharat Sanchar Nigam Ltd. and Escotel 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 that judgment.
15. As against the order passed by the adjudicating authority, the appellant assessee took up the matter in appeal before the Commissioner of Central Excise & Customs, Cochin. The appellate authority upheld the findings of the adjudicating authority. The assessee took up the matter before the CESTAT, Bangalore. The CESTAT vide its order dated 25-5-2006 held that the levy of service tax as demanded is not sustainable for the reason that the assessee had already paid the sales tax and therefore it follows that service tax is not leviable on the item on which sales tax has been collected.
16. Being aggrieved by the aforesaid order dated 25-5- 2006, an appeal was filed before the Kerala High Court by the department, which was disposed of by the impugned order dated 4-9-2009 [2010 (19) S.T.R. 18 (Ker.)].
17. The High Court has given cogent reasons for coming to the conclusion that service tax is payable inasmuch as 24 ST/85143,85144/2015 SIM Card has no intrinsic sale value and it is supplied to the customers for providing mobile service to them. It should also be noted at this stage that after the remand of the matter by the Supreme Court to the Sales Tax authorities the assessing authority under the Sales Tax Act dropped the proceedings after conceding the position that SIM Card has no intrinsic sale value and it is supplied to the customers for providing telephone service to the customers. This aforesaid stand of the Sales Tax authority is practically the end of the matter and signifies the conclusion.
18. The sales tax authorities have themselves conceded the position before the High Court that no assessment of sales tax would be made on the sale value of the SIM Card supplied by the appellant to their customers irrespective of the fact whether they have filed returns and remitted tax or not. It also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there is a liability to pay the same. If the article is not susceptible to tax under the Sales Tax Act, the amount of tax paid by the assessee could be refunded as the case may be or, the assessee has to follow the law as may be applicable. But we cannot accept a position in law that even if tax is wrongly remitted that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee. The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card.
19. There cannot be any dispute to the aforesaid position as the appellant itself subsequently has been 25 ST/85143,85144/2015 paying service tax for the entire collection as processing charges for activating cellular phone and paying the service tax on the activation. The appellant also accepts the position that activation is a taxable service. The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. Thus, it is established from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers. The Sales Tax authority understood the aforesaid position that no element of sale is involved in the present transaction."
6.6 In view of above the distinction drawn by the appellants between their case and the case of other mobile operators is irrelevant. The real test laid down by the Apex Court is not vis a vis the transfer of SIM or the property in SIM, but the nature of use of the SIM. If the SIM is used for identification of the consumer on network of the mobile operator, then provisioning of SIM is incidental to the service being provided by the operator. Accordingly w do not find any merit in the 26 ST/85143,85144/2015 submissions made by the Appellant in respect of non inclusion of the value of SIM in the services provided by them.
7.1 Learned counsel has argued that benefit of the notification No 12/2003-ST should be available to them.
In his view all the conditions of sale are fulfilled and the value of the SIM separately shown as required for admissibility of the said exemption. It cannot be the case that consumer, of telecommunication services provided by the appellant had the intent to purchase the said SIM without services that are to provided making use of the SIM. The intent of the consumer is to avail the telephony service. Even if the appellants claim that they have transferred the property in the said SIM the same cannot be held to be correct. The SIM as programmed and provided by the Appellant to the consumer is always the part of the tele-communication network of the appellant and has no other use other than to identify the consumer on the said network.
Since the property in the said SIM in effect is not transferred to the consumer, and the said SIM is only used for activation, identification and provisioning of the telecommunication services to the consumer, the transaction in SIM cannot be said to be one of sale of goods. Apex Court has also in case of Idea Mobile Communication held that the intrinsic value of the SIM 27 ST/85143,85144/2015 to consumer is zero, which implies that consumer would not purchase the SIM for a consideration other than the supply of services. Similar view has been expressed by the Kerala High Court in case of Idea Mobile Communication Ltd. [2010 (19) STR 18 (Ker)] "2. The question involved is whether the value of SIM cards sold by the respondent to their mobile subscribers is to be included in taxable service under Section 65(105)(zzzx) of the Finance Act, 1994 which provides for levy of service tax on telecommunication service or it is taxable as sale of goods under the Sales Tax Act. Different mobile operators took divergent stand in the matter before the departmental authorities. While BPL Mobile Services, a leading mobile operator, took the stand that SIM card has no intrinsic sale value and is supplied to the customers for providing mobile service and they paid service tax including value of SIM card, respondent herein paid sales tax on the sale price of SIM cards and started remitting service tax only on activation charges. BSNL also took the stand similar to BPL Cellular services and their sales tax assessment on the value of SIM cards upheld by this Court was taken up to Supreme Court which led to judgment in BSNL's case, 2006 (2) S.T.R. 161 (S.C.) = A.I.R. 2006 S.C. 1383. The Supreme Court elaborately discussed the issues raised and in paragraph 86, the contention of the respondent that they have paid sales tax on sale price of SIM card is recorded by the Supreme Court. However, the Supreme Court in the final judgment left open the issue to be considered by the assessing authorities under the Sales Tax Act. It was further discussed in paragraph 92 of the judgment that the nature of transaction involved in providing telephone connection may be a composite contract of service and 28 ST/85143,85144/2015 sale. It is possible for the State to tax the sale element provided there is a discernible sale and only to the extent relatable to such sale. Since the sales tax authorities under the KGST Act did not show any anxiety to decide the matter after remand by of the Supreme Court, we issued specific direction for compliance with the judgment. Special Government Pleader produced orders of the Asst. Commissioner of Commercial Taxes, Special Circle, Thiruvananthapuram, wherein he has conceded the position canvassed by BSNL and BPL Mobile services that SIM card has no intrinsic sale value and it is supplied to customers to provide telephone service to them. So much so, the assessing authority under the Sales Tax Act dropped the proceedings to levy sales tax on SIM cards. So far as the respondent is concerned, it is not known whether returns are filed conceding turnover and liability under the Act, or whether assessments are pending. In any case, the assessing officer in the case of respondent cannot take a stand different from the stand taken by another assessing officer in the case of BSNL and BPL mobile services. Consequently, no assessment for sales tax could be made on the sale value of SIM cards supplied by the respondent to their customers, no matter whether they have filed returns and remitted tax or not. There is no need for us to consider the legality or otherwise of the proceedings pertaining to respondent pending before the Sales Tax authorities. If tax is wrongly remitted, it is for them to claim refund and if tax remitted is collected tax, it has to be forfeited under Section 46(A)(1) of the KGST Act, and customers can claim refund. Leaving open this issue, we proceed to decide the correctness of the Tribunal's order which is under challenge.
29 ST/85143,85144/2015
3. In the BSNL case decided by the Supreme Court, the controversy was whether sales tax is payable on the value of SIM cards to the State Government or whether the value has to be included in taxable service for reckoning liability towards service tax payable to Central Government. Now since the State Government after remand by Supreme Court has given up the claim for sales tax, the question to be considered is whether the value of SIM cards forms part of taxable service. Admittedly respondent answers the description of telegraph authority defined under Section 65(111) of Finance Act, 1994 and they are registered for the payment of service tax and they are in fact remitting tax on activation charges. The exclusion claimed by them is only on the value of SIM cards, that too only on the ground that they are free to supply SIM cards as sale of goods and remitted sales tax thereon. In order to consider whether the value of SIM card constitutes taxable service, we have to examine the functioning of this item in the service provided by the respondent. Admittedly SIM card is a computer chip having it's own SIM number on which telephone number can be activated. SIM card is a device through which customer gets connection from the mobile tower. In other words, unless it is activated, service provider cannot give service connection to the customer. Signals are transmitted and conveyed through towers and through SIM card communication signals reach the customer's Mobile instrument. In other words, it is an integral part required to provide mobile service to the customer. Customer cannot get service without SIM card and it is an essential part of the service. SIM card has no intrinsic value or purpose other than use in mobile phone for receiving mobile telephone service from the service provider. Therefore, in our view, the stand taken by 30 ST/85143,85144/2015 the BSNL and BPL Mobile Services that it is not goods sold or intended to be sold to the customer but supplied as part of service is absolutely tenable and acceptable. Consequently, we hold that the value of SIM card supplied by the respondent forms part of taxable service on which service tax is payable by the respondent. Since the dispute was bona fide and it is settled based on the observations of the Supreme Court, we feel levy of penalty under Section 73 of the Finance Act, 1994 was not tenable. While upholding the demand of service tax on value of SIM cards and the interest thereon, we hold that no penalty could be levied on the respondent under Section 73 of the Act."
7.2 Thus we are not in position to agree with the contention of the Appellant that any sale of SIM cards independently have taken place in the process of providing the taxable service. The supply of SIM cards is integral with provision of the taxable service and without the said SIM cards the provisioning of this taxable service is impossible. Accordingly we are not in position to extend the benefit of Notification No 12/2003-ST to the Appellants.
8.1 Adjudicating authority has by the impugned order adjudicated two show cause notices. One was issued demanding service atx for the period from 2007 to 2012 and other one was issued for the period 2012-13. The Show Cause Notice issued demanding Service Tax for 31 ST/85143,85144/2015 the period 2007 to 2012 has been issued invoking extended period of limitation.
8.2 relying on the submissions made by the Appellant during the audit conducted by the revenue in 2009, appellants have claimed that all the facts were in knowledge of the department and hence relying on various case laws, they have argue against the invocation of extended period. They also have argued that there act of not paying the service tax was an bonafide act, on account of interpretational issues, extended period need not be invoked ofr demanding the service atx from them.
8.3 The entire period under consideration is from 2007 onwards after the decision of the Apex Court in the matter, the submission of the appellant in this respect cannot be accepted. There appears to be no interpretational issue left on basis of which appellants could have entertained the bonafide belief claimed by them. In fact appellants were only devising business plans and strategies to circumvent the law clearly laid down by the Apex Court.
8.4 The changes in the business plans and the marketing strategies, which resulted in the short payment of taxes were never brought to the knowledge of the department. This fact has been admitted by the 32 ST/85143,85144/2015 Chief Financial Officer of the Appellants in his statement recorded during the investigations. (Para 11
(iv) of the Show Cause Notice) 8.5 Further the issue of suppression needs to be examined vis a vis the acts of omission and commission of the appellants which have laid to the short payment of the taxes at the appropriate time. In fact non disclosure of the relevant facts when required, when made to circumvent the payment of taxes due is an act of suppression with intent to evade payment of duty.
8.6 Even if it is taken into account that appellants were audited during the year 2009, then also the fact of suppression with the intent to evade payment of duty does not get altered. The changing practices adopted by the appellant during the period prior and after audit are listed in table below:
Period Practice Comment Upto Single invoice issued for SIM Post November with provision of service Audit 2010 without bifurcation December 2009 Post Separate invoice issued for talk Post November time Audit 2010 December 2009 2012-13 Paying 6% under Rule 6(3) CCR Post 2004 treating trading as Audit exempted service. December 2009 2015-16 Paying Service Tax on activation onwards value. 33 ST/85143,85144/2015
8.7 Thus when appellants have themselves been experimenting with the business practices and documents, and have never declared about the same to the department at the appropriate time they cannot claim the benefit of knowledge of department.
8.8 The act of appellant declaring on the CAF that property in the SIM Card is transferred is nothing but an act of misdeclaration, as the property in the part of the mobile network used to identify the consumer on network, their credit and other details, is always with the appellants and not transferred. In fact even the right to use the said SIM also is not being transferred. Hence by mis-declaring the same on same on CAF, appellants have claimed transaction in SIM cards as that of independent sale and thus suppressed the value of services provided by them.
8.9 The reliance placed by the Appellants on various case laws do not help their cause as suppression, misdeclaration etc are questions in relation to fact and need to be assessed according to the facts of each case.
Sine on examination of facts in present case we find appellants have suppressed the true nature of transaction in SIM from the department, with intention to evade payment of taxes extended period of limitation has been rightly invoked for demanding service tax from them.
34 ST/85143,85144/2015 8.10 Reference is made to the decision of CESTAT in case of Lakhan Singh [2016 (46) STR 297 (T-Del)] wherein it has been held-
"8. In view of the above facts in each case certain relevant points are to be noted.
8.1 First point is the observation of the Apex Court in the case of para 8 of Chemphar Drugs (supra) as under :
"Whether in a particular set of facts and circumstances there was any fraud or collusion or wilful misstatement or suppression or contravention of any provision of any Act, is a question of fact depending upon the facts and circumstances of a particular case."
8.2 If there cannot be general rule, the rule of "positive act of suppression" itself cannot be a general rule for reasons as explained below.
8.3 Suppression with intent to evade payment of duty is seldom done by actions leaving trails and therefore the "positive act" that the Apex Court was referring to is not something which can always be demonstrated through existence of a physical thing or document. It is about a state of mind. This is to be judged from the facts of the case.
8.4 All the cases pointed out were with reference to a registered assessee and before self-assessment system came into existence. With the scheme of self-assessment the onus on the part of the assessee to disclose information to the department has become all the more important. The first step in such disclosure is taking registration. The second step is in filing returns filling all columns in the return in a bona fide manner and not in a clever manner.
35 ST/85143,85144/2015 8.4 Section 11A of Central Excise Act and Section 73 of the Finance Act, 1994 tries to strike a balance between the requirement to collect tax through a self-assessment scheme and the requirement not to slap an unforeseen levy on a bona fide assessee. (The mention about self- assessment is made in the context that when self- assessment was introduced, Section 11A was amended to change the normal period. The time limit for issuing a demand for short levy in cases not involving suppression, was increased from 6 months to 12 months.). The fact to be noted is that the legislature has consciously tilted the balance between these two requirements in favour of Revenue as may be seen from the fact that even an assessee making all disclosures (even having an approved classification list in the earlier regime of excise levy) is liable to pay demand of short levied duty for a past period of one year if a new interpretation is found to be correct. The provision is not that demand due to such interpretation will apply only from the date the changed interpretation is notified to the assessee. This tilt is justified because the interest of a sovereign which trusts its subjects to comply with its laws and pay tax has to be safeguarded and it cannot be totally left to the changing minds of the servants of the sovereign. Considering these aspects the matter how bona fide the assessee was, in the facts of a particular case, in not paying the tax due to the sovereign is to be judged.
8.5 If ignorance of law is not a defence a wrong understanding of law can be a much lesser defence.
8.6 It can be seen from all the decisions of the Apex Court that the question of suppression is examined basically with reference to two issues one whether the department had an opportunity to know about all the relevant matters and secondly whether the assessee had 36 ST/85143,85144/2015 reasonable cause with reference to clarifications issued by the department or decisions given by the Court to bona fidely believe that he was not liable to pay the disputed tax.
9. In the case of Service Tax there are two additional factors involved. Firstly the matter quite often involves intangibles, which can be seen mainly through concerned contracts or through the outcomes of service. The next issue is that because the levy is not administered by taxing all services and exempting specified services but by a system of taxing specified services. These factors, can in the facts of some cases, persuade a judicial mind to conclude that there was no wilful suppression."
8.11 In case of Vodafone Digilink Ltd [2013 (29) STR 229 (Raj)], Hon'ble Rajasthan High Court held as follows:
7.It is apparent that Cenvat credit of higher amount was unduly claimed; it was nowhere disclosed in the return. There was failure to make disclosure of the availment of the credit in excess and entire facts were not mentioned in various returns. Thus, it has been held to be a case of wilful suppression. Finding recorded by the Tribunal in para 7 of its order is quoted below :
So far as levy of penalty is concerned the case of the "7. appellant is that Cenvat credit of a higher amount was unduly claimed. Sample copy of the return is available in appeal folder at page 23 of the paper book. That nowhere discloses bona fide of the appellant. Had the appellant disclosed that it was under bona fide belief that service provided by the appellants as visiting network service provider was exempt and not taxable, the appellant 37 ST/85143,85144/2015 would have clearly guided the department to understand its claim on set off Cenvat credit. Failure to make such disclosure in return or submitting entire fact by any letter accompanying its return appears to be a case of wilful suppression. Suppression does not vanish by mere passage of time to issue of show cause notice and contravention of law gets no immunity from penal consequences. Suppression corroborated by an untrue declaration in the return filed calls for levy of penalty.
When the return contains a declaration as to the self assessment particulars stating that the assessee had paid service tax correctly in terms of provisions of the Act and Rules made thereunder such declaration becomes faulty in absence of bona fide statement either on the return or made through a letter accompanying the return. Once the appellant has claimed that service tax has been paid in accordance with the law and this is not paid, that imputes the appellant to the charge. Such view brings harmony in construction of law and for effective implementation thereof in respect of self assessment procedure. The act of false declaration can be remedied by levy of penalty. Thus penalty levied under Section 76 is confirmed and so far as penalty under Section 78 is concerned that shall be limited to the quantum of tax payable upon re-computation as directed aforesaid. However, the authority shall examine whether concession in penalty is permissible under second proviso to section 78 of the Act. Interest as required under Section 75 shall be payable on the tax due."
8.We agree with the aforesaid findings recorded as to suppression of facts.
9.Counsel for the appellant has relied upon decision of Hon'ble Supreme Court in Continental Foundation Jt. Ventura v. Commr. of C.Ex., Chandigarh-I - 2007 (216) 38 ST/85143,85144/2015 E.L.T. 177 (S.C.). in which expression "suppression" has been considered thus :
The expression "suppression" has been used in the proviso "10. to Section 11A of the Act accompanied by very strong words as 'fraud' or "collusion" and, therefore, has to be construed strictly. Mere omission to give correct information is not suppression of facts unless it was deliberate to stop the payment of duty. Suppression means failure to disclose full information with the intent to evade payment of duty, when the facts are known to both the parties, omission by one party to do what he might have done would not render it suppression. When the Revenue invokes the extended period of limitation under Section 11A the burden is cast upon it to prove suppression of fact. An incorrect statement cannot be equated with a wilful misstatement. The latter implies making of an incorrect statement with the knowledge that the statement was not correct."
10.It was not a case of mere omission to give correct information; it was devised deliberately so to evade tax liability. The limit of exemption was known and provisions of Rule 3(5) of the Rules of 2002 are clear.
Thus, it was deliberate suppression of facts. Even testing on the anvil of the aforesaid decision, we find the finding of suppression which has been recorded by the Additional Commissioner and confirmed by Commissioner (Appeals) as well as the Tribunal call for no interference. We find that five years' period of limitation has been rightly invoked in the instant case. We thus find no ground to interfere in the impugned orders. No substantial question of law is involved in the appeal.
39 ST/85143,85144/2015 8.12 Hon'ble Supreme Court has in case of Pasupati Spinning and Weaving Mills [2015 (318) ELT 623 (SC)] held that not declaring vital information on the RT-12 is suppression for invoking extended period-
"4.We have heard learned Senior Counsel on behalf of the appellant. He has argued before us that the extended period could not be availed on the facts of this case, but has fairly stated that if the notes to Heading No. 55.08 are to be read, considering the fact that there was no support to the sewing thread manufactured by the appellant, it would not be covered by the exemption Notification which would only apply if goods manufactured fall within the particular Heading mentioned. As it is clear that the sewing thread is not put up on a support, CESTAT is clearly right on merits. Equally, we do not think that there is any ground for interference on the extended period of limitation being applicable inasmuch as CESTAT is again correct in saying that as the declaration and RT-12 returns being vital documents submitted by the respondent (appellant herein) did not mention the vital word "hanks", they suppressed a material fact which, to their knowledge, would not bring their sewing thread within the exemption Notification. For all these reasons, we find no merit in these appeals. The appeals are, accordingly, dismissed, without any order as to costs."
8.13 Since we hold that appellants have suppressed the facts with intention to evade payment of taxes penalty under Section 78 is justified against them. Reliance is placed on the decision of Apex Court in case of Vandana Art Prints Pvt Ltd. [2017 (50) STR 91 (SC)] 40 ST/85143,85144/2015 "4.A neat submission that has been made by Mr. K. Radhakrishnan, learned senior counsel appearing for the appellant, is that in terms of Section 11AC of the Central Excise Act (hereinafter referred to as 'Act'), the penalty has to be equal to the duty so determined.
5.Section 11AC of the Act reads as under :-
Penalty for "11AC. short-levy or non-levy of duty in certain cases. - Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, the person who is liable to pay duty as determined under sub-section (2) of section 11A, shall also be liable to pay a penalty equal to the duty so determined :
Provided that where the duty determined to be payable is reduced or increased by the Commissioner (Appeals), the Appellate Tribunal or, as the case may be, the Court, then, for the purposes of this section, the duty as reduced or increased, as the case may be, shall be taken into account."
6.On the basis of the aforesaid language in the Section, the submission of Mr. Radhakrishnan is meritorious. Thus, while the penalty as demanded in respect of one Show Cause Notice had been quashed, the Tribunal could not reduce it for an amount lesser than the duty which has been upheld. The duty in respect of two demands comes to Rs. 40,44,720/-. Therefore, going by the provisions of Section 11AC of the Act, the penalty should also have been Rs. 40,44,720/- and not Rs. 20 lakhs."
41 ST/85143,85144/2015 9.0 In their submissions have claimed against the demand of interest from them. However we are not in agreement with said contention because demand of interest is a natural consequence on account of delay in payment of the tax. Since appellants have short paid the tax, interest is demandable from them under Section 75 of the Finance Act, 1994. From plain reading of the above provision it is quite evident that interest is compensatory in nature and is required to be paid by the tax payer in case of any default in payment of tax for the period of default. Issue with regards to statutory levy of interest is no longer res integra. Bombay High Court has in case of Commissioner Of Central Excise vs Padmashri V.V. Patil Sahakari [2007 (215) ELT 23 Bom] has held as follows:
"10. So far as interest Under Section 11AB is concerned, on reference to text of Section 11AB, it is evident that there is no discretion regarding the rate of interest. Language of Section 11AB(1) is clear. The interest has to be at the rate not below 10% and not exceeding 36% p.a. The actual rate of interest applicable from time to time by fluctuations between 10% to 36% is as determined by the Central Government by notification in the official gazette from time to time. There would be discretion, if at all the same is incorporated in such notification in the gazette by which rates of interest chargeable Under Section 11AB are declared.
The second aspect would be whether there is any discretion not to charge the interest Under Section 11AB 42 ST/85143,85144/2015 at all and we are afraid, language of Section 11AB is unambiguous. The person, who is liable to pay duty short levied / short paid / non levied / unpaid etc., is liable to pay interest at the rate as may be determined by the Central Government from time to time. This is evident from the opening part of Sub-section (1) of Section 11, which runs thus:
Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, who is liable to pay duty as determined under Sub-section (2) or has paid the duty under Sub-section (2B) of Section 11A, shall in addition to the duty be liable to pay interest at such rate....
The terminal part in the quotation above, which is couched with the words "shall" and "be liable" clearly indicates that there is no option. As discussed earlier, this is a civil liability of the assessee, who has retained the amount of public exchequer with himself and which ought to have gone in the pockets of the Central Government much earlier. Upon reading Section 11AB together with Sections 11A and 11AA, we are of firm view that interest on the duty evaded is payable and the same is compulsory and even though the evasion of duty is not mala fide or intentional."
11.0 Appellants have submitted that demand for the period from April 2007 to November 2010 has been made by multiplying the number of startup kits (SUK) with MRP of SUK, disregarding the fact that till November 2010, they had discharged service tax on service value forming part of MRP of SUK. They have also given the breakup of service tax liability for the
43 ST/85143,85144/2015 period April 2012 to March 2013, along with CA certificate certifying the payment on service tax component of SUK. Thus demand of service tax needs to be recomputed after taking into account the service tax already paid by them. Since Commissioner has in his order not considered the said documents and the service tax already paid by the appellants in respect of these transactions, the matter will have to be remanded back for re-quantification of the demand of service tax.
12.0 Now coming to the last question with regards to adjustment of the VAT paid towards the demand for Service Tax, we are not in position to permit or allow for such adjustment or uphold such contention. VAT is levied under the State Act and Service Tax under the Central Act. Since both the authorities, under which Service Tax and VAT are levied are not the same, the tribunal being creature of the Central Act, would not be in position to determine such transfer and adjustment of VAT paid under State Act, towards the tax liability under a Central Act.
13.1 In view of above we remand the matter to adjudicating authority for determination of quantum of Service Tax payable after allowing the benefit of service tax claimed to be paid by them in respect of the transaction undertaken by them.
44 ST/85143,85144/2015 13.2 On all other accounts except that stated above impugned order of Commissioner is upheld.
13.3 The appeals are disposed in above terms.
(Pronounced in court on 2.11.2018)
(Dr. D.M. Misra) (Sanjiv Srivastava)
Member (Judicial) Member (Technical)
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