Custom, Excise & Service Tax Tribunal
Vodafone Digilink Ltd vs Jaipur-I on 9 July, 2019
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CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL
NEW DELHI.
PRINCIPAL BENCH - COURT NO. II
Service Tax Appeal No. 51838 of 2015-Cus. (DB)
(Arising out of order-in-original No. JAI-EXCUS-000-COM-89-14-15 dated
03.03.2015 passed by the Commissioner of Central Excise, Jaipur).
M/s Vodafone Digilink Limited Appellant
5th Floor, Gaurav Tower
Malviya Nagar
Jaipur-302017.
VERSUS
Commissioner of Central Excise and Respondent
Service Tax, NCR Building, Statue Building, C-Scheme Jaipur. (Rajasthan) -302005.
APPEARANCE:
Shri J. C. Patel, Advocate for the appellant Shri Vivek Pandey, Authorised Representative for the respondent CORAM:
HON'BLE MR. ANIL CHOUDHARY, MEMBER (JUDICIAL) HON'BLE MR. BIJAY KUMAR, MEMBER (TECHNICAL) FINAL ORDER NO. 50868/2019 DATE OF HEARING: 10.01.2019 DATE OF DECISION: 09.07.2019 ANIL CHOUDHARY:
The present Appeal is filed against Order dated 5-3-2015 passed by the Commissioner of Central Excise, Jaipur, whereby he has confirmed a demand of service tax of Rs.1,85,40,232/- with interest against the Appellant and imposed on the Appellant, penalty equal to 50% of the said service tax amount under Section 78 of the Finance Act 1994.
2. The facts leading to the present appeal are as follows. 2
The Appellant is engaged in providing "telecommunication service" as defined in Section 65 (109 a) of the Finance Act 1994. The said service is a taxable service under Section 65 (105) (zzzx) of the said Act. The Appellant provides "Interconnection Usage" to other telecommunication service providers for „Short Message Service"
(SMS) which means that SMS originating in the network of other telecommunication service providers terminate in the network of the Appellant.
3. Under the Telecommunication Interconnection Usage Charges Regulations 2003 there was provision for charging Interconnection Usage termination charges only in respect of telephone calls. The said Regulations did not specify and provide for charging interconnection usage termination charges in respect of SMS. Therefore, in respect of interconnection usage provided to other telecommunication service providers whereby SMS originating in their network terminated in the Appellant‟s network, no consideration was charged for such service. Since there was no consideration for the interconnection usage provided in respect of SMS, no service tax was being paid.
4. The said Telecommunication Interconnection Usage Charges Regulations were amended with effect from 9th March 2009 and by the said amendment it was provided that Interconnection usage charge for SMS would be under "forbearance" (i.e. would not be fixed by TRAI) and it would be left to be arrived at by agreement between the telecom service providers in a manner which is "Transparent, reciprocal and non-discriminatory".
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5. After the said Regulations were so amended, the Appellant was able to arrive at agreements with the following telecom service providers as regards the interconnection usage charges for SMS, and the Appellant paid service tax on such agreed charges:
- Bharti Airtel Limited
- Idea Cellular Limited
- Unitech Wireless and
- Videocon Telecommunications Ltd. In terms of the agreements with the aforesaid Telecom service providers, the Appellant raised Invoices for the agreed Interconnection usage charges for SMS and discharged service in respect of such charges.
6. However, apart from the aforesaid Telecom service providers, no agreement with regard to the interconnection usage charges for SMS could be arrived upon between the Appellant and the following 6 telecom service providers:
- Tata Teleservices
- Aircel Cellular
- Reliance Communications
- Loop Mobile
- Sistema Shyam Teleservices Ltd
- MTNL.
7. Therefore, in respect of interconnection usage for SMS provided by the Appellant to the aforesaid 6 telecom service providers, no consideration for the same was agreed upon and hence the same was not charged. Since there was no agreement/contract arrived at and executed with the aforesaid 6 Telecom service providers with regard to charges for interconnection usage for SMS, no Invoices were raised by the Appellant on the said 6 Telecom service providers. 4 Consequently no service tax was also paid by the Appellant in respect of the interconnection usage for SMS provided by the Appellant to the said 6 telecom service providers.
8. The Appellant addressed various letters to the said 6 Telecom service providers calling upon them to arrive at and execute agreements/ contracts specifying the Interconnection usage charges for SMS and to pay the same. The said 6 Telecom service providers, however, did not accede to such requests of the Appellant.
9. Since the said Telecom service providers did not agree to pay any charges/ consideration for the service of interconnection usage for SMS provided by the Appellant, the Appellant addressed letters to them threatening to discontinue the Interconnection usage for SMS, provided to them. The said Telecom service providers then approached the „Telecom Disputes Settlement & Appellate Tribunal (TDSAT)‟, New Delhi, which by Interim orders passed in November 2012, directed the Appellant not to disconnect the Interconnection usage for SMS provided that the said Telecom service providers start paying 50% of the charges proposed by the Appellant for the future.
10. After the interim order of TDSAT, the said other Telecom service providers started paying to the Appellant from November 2012, 50% of the charges proposed by the Appellant and in respect of such receipts, the Appellant has paid service tax.
11. Thereafter, in February 2013, the DGCEI commenced investigations against the Appellant in respect of the service tax not 5 paid for the period April 2011 to September 2012. The DGCEI recorded statements of the Appellant‟s Deputy General Manager (Jasroop Sandhu), Associate Vice President (Amitabh Khemka) and Executive Vice president (Rohit Agarwal), all of whom have in their statements maintained that no agreement/ contract was arrived at and executed with the said 6 Telecom service providers and that in absence of any agreement as to the consideration, the interconnection usage was provided to those 6 Telecom operators without any consideration, and it was for this reason that in respect of the Interconnection usage for SMS provided by the Appellant to them, no service tax was paid during the said period April 2011 to September 2012.
12. A Show cause notice dated 31-3-2014 was thereafter issued to the Appellant demanding service tax of Rs.1,85,40,232/- for the period April 2011 to September 2012 by invoking the extended period of limitation.
13. After considering the Appellant‟s reply dated 2-7-2014, the Commissioner of Central Excise, Jaipur has passed the impugned Order dated 5-3-2015, confirming the demand for service tax with interest and imposing penalty as aforesaid.
14. It is the Appellant‟s submission that during the period April 2011 to September 2012, the said 6 Telecom operators did not agree to pay any charges/ consideration for the Interconnection usage for SMS provided to them and no agreement specifying such charges/ consideration could be arrived at with them. The said 6 Telecom 6 operators have not paid any charges/ consideration for the service of Interconnection usage for SMS provided to them by the Appellant. It is submitted by the Appellant that since the service was not rendered for consideration, there was no taxable service. The definition of service given in Section 65B (44) of the Finance Act 1994 requires, that to constitute a service, the activity carried out by a person for another should be for consideration. In the present case, the 6 telecom operators in question, declined to enter into agreements providing for charging of consideration for the interconnection usage for SMS and there was no consideration charged for the interconnection usage for SMS. In absence of consideration, the activity of the Appellant cannot constitute service.
15. It is further submitted by the Appellant that in any event, the Point of Taxation when the service is deemed to have been provided did not occur in terms of the Point of Taxation Rules 2011 and hence the liability to pay service tax had not arisen. The point of taxation under Rule 3(a) of the said Rules did not occur since no Invoice had been issued by the Appellant in the absence of there being any (agreed price/charge) consideration.
16. Further, it is submitted that the Proviso to Rule 3(a) stipulates that, when no Invoice is issued, the point of taxation shall be the date of completion of service and as per the Second Proviso, in case of continuous supply of service, the date of completion of service shall be the date of completion of the periodical event specified in the contract when the receiver of service is required to make any 7 payment to the service provider. In the present case there is no contract providing for payment to be made by the service receiver to the Appellant on the happening of a periodical event. Thus the completion of service as contemplated by the Rules, has not occurred and therefore point of taxation has not occurred even in terms of the Proviso to Rule 3(a).
17. On the other hand, it is the case of the department that the Appellant had addressed various letters to the said 6 Telecom operators calling upon them to enter into agreement/contract specifying the consideration/ charge of 10 paise per SMS and to pay the same to the Appellant. According to the department, the said letters addressed by the Appellant amount to issue of Invoices, and hence the Point of taxation had occurred in accordance with Rule 3(a) of the said Rules. Reliance is placed by the department in this behalf on the decision of the Tribunal in the case of Vodafone Cellular Ltd., vs. CCE - 2016 (42) STR 1048.
18. In the aforesaid background, the primary issue which arises for consideration is whether in the absence of any consideration/ charges having been agreed upon between the Appellant and the said 6 Telecom operators and without any such consideration/ amount being charged by the Appellant for the interconnection usage for SMS, there was any taxable service rendered by the Appellant for disputed period.
19. It is not in dispute that in the statements recorded by the DGCEI, of the Appellant‟s Deputy General Manager (Jasroop Sandhu), 8 Associate Vice President (Amitabh Khemka) and Executive Vice president (Rohit Agarwal), they have all maintained that the interconnection usage for SMS was provided by the Appellant to the said 6 telecom operators free of charge since they had declined to enter into an agreement and to pay the charges. When the Appellant threatened to discontinue the service, the said 6 Telecom operators approached the Telecom Disputes Settlement & Appellate Tribunal (TDSAT), New Delhi, which by Interim orders passed in November 2012, directed the Appellant not to disconnect the Interconnection usage for SMS, provided that the said Telecom service providers start paying 50% of the charges proposed by the Appellant for the future. After the interim order of TDSAT, the said other Telecom service providers started paying to the Appellant from November 2012, 50% of the charges proposed by the Appellant and in respect of the same the Appellant has paid service tax.
20. The issue is whether for the period prior to November 2012, i.e. April 2011 to September 2012, when no charges were agreed upon and no amount was charged and paid, can it be said that the Appellant had rendered taxable service and were liable to pay service tax. The settled legal position is that where a service is rendered free without charging any consideration, the same does not attract service tax. This is laid down in the following decisions:
Indus Motor Company v CCE - 2008 (9) STR 18 CCE v Automotive Manufactures Ltd - 2016 (42) STR 448 Apitco Ltd v CST- 2010 (20) STR 475 (affirmed in 2011 (23) STR J94 (SC)).9
It must therefore follow that as admittedly during the period April 2011 to September 2012, no amount was charged and paid for providing Interconnection usage for SMS, there was no taxable service.
21. The aforesaid conclusion must also follow from the definition of service given in Section 65B (44) of the Finance Act 1994 which requires that to constitute a service, the activity carried out by a person for another should be for consideration. In the present case, the telecom service providers in question declined to enter into agreements providing for charging of consideration for the interconnection usage for SMS and no amount was charged and paid for the interconnection usage for SMS.
22. In the decision of the Tribunal in Vodafone Cellular Ltd vs. CCE - 2016 (42) STR 1048, the issue whether in the absence of their being consideration on account of absence of agreement between the parties as to the amount to be charged and admittedly when no amount was charged and paid, was not raised and accordingly the Tribunal did not have occasion to consider and decide the said issue. The said decision therefore, cannot be a precedent on that issue.
23. Further, the issue whether in the absence of there being an agreed price, there can be issuance of any Invoice was also not raised before the Tribunal in the said decision in Vodafone Cellular Ltd., vs. CCE - 2016 (42) STR 1048. It would be evident from the following material relied upon by the Appellant that an Invoice is a 10 commercial document issued for debiting the recipient of goods/ service with the agreed price:
a) Wikipedia: as per which an invoice is a commercial document issued by a seller to a buyer, relating to a sale transaction and indicating the products, quantities and agreed prices for products or services the seller had provided to the buyer,
b) https://www.thebalancesmb.com/what-is-invoice-
398303: As per this an Invoice is a document sent by a provider of a product or service to the purchaser which establishes an obligation on the part of the purchaser to pay creating an account receivable. In other words the invoice is a written verification of the agreement between the buyer and seller of the goods or services.
c) Wiktionary: as per which an Invoice is a commercial document indicating inter alia agreed prices for products or services and which indicates that unless paid in advance, payment is due by the buyer to the seller according to the agreed terms.
d) Halsbury‟s Laws of England: as per which the Invoice debits the buyer with the agreed price.
24. It would therefore follow that the issuance of an Invoice pre- supposes and requires the existence of an agreement/ contract between the parties under which the parties have agreed upon a consideration/ charge/ price for a sale or service. An Invoice is a commercial document issued for debiting the recipient of goods/ service with the agreed price. This, in the first place, requires the existence of an agreed price. When there is no contract/ agreement, as in the present case and hence no price/ consideration is agreed 11 upon, the question of issuing an Invoice for the same does not arise. Accordingly, in absence of such an agreement, the mere writing of letters by the Appellant calling upon the said 6 Telecom operators to arrive at an agreement for a charge of 10 paise per SMS, and to pay the same, cannot constitute an Invoice.
25. Since there was no issue of Invoice, the point of taxation under Rule 3(a) of the Point of Taxation Rules, 2011, has not occurred. The Proviso to Rule 3(a) stipulates that when no Invoice is issued, the point of taxation shall be the date of completion of service and as per the Second Proviso, in case of continuous supply of service, the date of completion of service shall be the date of completion of the periodical event specified in the contract, when the receiver of service is required to make any payment to the service provider. „Continuous supply of service‟ is defined in Rule 2 (c) of the Point of Taxation Rules 2011 to include a service prescribed by the Central Government by Notification, to be a continuous supply of service. By Notifications No. 28/11-ST dated 1-4-2011 and 38/2012-ST dated 20-6-2012, the Government has specified telecommunication service as Continuous supply of service.
26. Accordingly, in the present case, the completion of service would occur on the happening of the periodical event specified in the contract, when the receiver of service is required to make any payment to the service provider. In the present case there is no contract providing for payment to be made by the service receiver to the Appellant on the happening of a periodical event. Thus the 12 completion of service as contemplated by the Rules has not occurred and therefore point of taxation has not occurred even in terms of the Proviso to Rule 3(a).
27. Rule 3(b) of the Point of Taxation Rules 2011, provides that where the service provider receives a payment before the time specified in Rule 3(a), the point of taxation occurs when he receives the payment. Admittedly, the Appellant has not received payment and hence the point of taxation has not occurred even under Rule 3(b).
28. Since the point of taxation has not occurred under any of the clauses of the said Rule 3, the liability to pay service tax has not arisen.
29. If in the future, the issue between the Appellant and the said 6 Telecom operators about the charges stands resolved and the Appellant thereupon issues invoices or receives payment, the point of taxation will then occur and thereupon the liability to service tax will arise. As the matter stands at present, no amount is agreed upon and charged for the interconnection usage for SMS and consequently neither is there a taxable service nor the point of taxation has occurred.
30. Learned Authorised Representative for the Revenue has relied on the impugned order.
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31. Upon considering the rival contention, we find that there is absence of consideration for the period under dispute. In absence of consideration in terms of Section 65B(44) of the Finance Act, 1994 there is no service rendered. For a service to qualify as service for the purposes of Chapter-V of the Finance Act, 1994 it has to be an activity of service carried out by a person for another for consideration. Further, under the facts and circumstances of the case, we find that the point of taxation have not occurred in terms of Point of Taxation Rules, 2011 and hence no liability to pay service tax arises as raising of an invoice is a condition precedent under Rule 3(a) of the said rules. Admittedly, in the facts of the present case no invoice has been raised by the appellant on the alleged service receiver. Further, admittedly there was no contract of service entered into by the parties providing for any periodical obligation requiring the receiver of alleged service to make any payment. It was only after the matter of „usage charges‟ went before the Telecom Disputes Settlement & Appellate Tribunal (TDSAT), New Delhi and interim orders were passed in November, 2012 creating obligation on the receiver of the alleged service to make payment of 50% of the proposed charges, thereafter appellant have raised invoice charging service tax and thereafter on receipt of such consideration have complied with and paid the service tax. Further, in the facts and circumstances, we find that the show cause notice is also bad for invoking extended period of limitation as enquiry in the transaction under dispute had started in February, 2013 whereas the show cause notice was issued only on 31.03.2014 for the period under dispute 14 April, 2011 to September, 2012. Further, it is settled legal position that where service is rendered free without charging any consideration the same does not attract service tax as upheld by Hon‟ble Supreme Court in Aptico Limited vs. CST - 2010 (20) STR 475 (affirmed in 2011 (23) STR J94 (SC)]. Accordingly, we allow this appeal and set aside the impugned order. The appellant is entitled for consequential benefits, in accordance with law.
(Pronounced on 09.07.2019).
(Anil Choudhary)
Member (Judicial)
(Bijay Kumar)
Member (Technical)
Pant