M/S. Vodafone Essar Ltd vs Commissioner Of Service Tax

IN THE CUSTOMS, EXCISE & SERVICE TAX APPELLATE TRIBUNAL, WEST ZONAL BENCH AT MUMBAI

COURT No. I

Appeal No. ST/111/09

(Arising out of Order-in-Original No. 50/STC/BR/08-09 dated 20.02.2009 passed by Commissioner of Service Tax, Mumbai)

For approval and signature:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. P.S. Pruthi, Member (Technical)

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1. Whether Press Reporters may be allowed to see : No the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982?

2. Whether it should be released under Rule 27 of the : No CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not?

3. Whether Their Lordships wish to see the fair copy : Seen of the Order?

4. Whether Order is to be circulated to the Departmental : Yes authorities?

M/s. Vodafone Essar Ltd.

Appellant Vs.

Commissioner of Service Tax, Mumbai Respondent

Appearance:

Shri Vinay Jain, C.A. for appellant Shri B.S. Meena, Addl. Commissioner (AR) for respondent

CORAM:

Honble Mr. M.V. Ravindran, Member (Judicial) Honble Mr. P.S. Pruthi, Member (Technical)

Date of Hearing: 28.05.2015 Date of Decision: 28.05.2015

ORDER NO

Per: M.V. Ravindran

This appeal is directed against No. 50/STC/BR/08-09 dated 20.02.2009.

2. The relevant facts that arise for consideration are the appellant herein are registered with the service tax authorities for providing telephone services and are discharging the service tax liability. It was noticed by Revenue that the appellant operates through various distributors/dealers appointed by them for distribution of their pre-paid and postpaid SIM Cards. The issue involved in this case is regarding prepaid SIM Cards, on which, the appellant discharges the service tax liability on the amount received by them from the dealers. The model of business is that the appellant sells the pre-paid SIM Cards to their dealers on the MRP/RSP mentioned on the SIM Cards and discharges the service tax liability as indicated on the SIM Cards. Appellant does not give any commission on the RSP/MRP mentioned on the SIM Cards, instead provides prepaid recharge vouchers, free of charge to the dealers as commission for the sale effected by them. The amount collected by selling these vouchers is fully retained by the dealers as commission and no amount is paid to appellant; it is the case of the Revenue that the service tax needs to be paid on such recharge vouchers distributed free by the appellant which also includes an element of service tax which has not been deposited in the Government treasury. After investigation and recording of the statements, show-cause notice dated 01.09.2008 was issued to the appellant demanding differential service tax, interest thereof and penalties were proposed on amount of recharge vouchers distributed free by them during the period 01.04.2003 to 30.09.2006. Appellant contested the show-cause notice before the adjudicating authority mainly on the ground that the provisions of Section 67 of the Finance Act, 1994, during the relevant period indicates the service tax liability to be discharged on the amount charged for the services rendered. Adjudicating authority did not accept the contentions, confirmed the demand raised along with interest and also imposed penalties.

3. Learned Counsel appearing for the appellant would take us through the records. He would submit that the adjudicating authority has erred in coming to the conclusion that the tax liability arises on the appellant. He would then take us through the provisions of Section 67, as was relevant during the period and submits that the said Section envisages the discharge of service tax liability on gross amount charged by the service provider for the services rendered. It is his submission that the distribution of free recharge voucher was amounting to commission given by them to the dealer; they have already discharged the service tax liability on the amount received from the dealer for the sale of SIM Cards which according to him is not in dispute. He would also submit that the provisions of Section 67 and the Explanation thereof did not include the value of any amount which has been given free of charge.

3.1 He would also take us through the Boards Circular No.62/11/2003-ST dated 21.08.2003 which would be relevant for the period in question and submit that the said Circular indicates that if the value charged is zero the tax will also be zero even if the service is taxable. Subsequently he would submit that in 2011 the Finance Act was amended and Point of Taxation Rules, 2011 was introduced. Subsequent to such introduction, the Board vide Circular No.334/3/2011-TRU dated 28.2.2011, has specifically clarified that the said valuation rules will be effective from 01.03.2011 and explanation added to Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 indicates that the value shall be the gross amount charged from the subscriber. It is his submission that since the clarification is effective from 01.03.2011 the question of applying the same for the period in question in this case will not arise.

3.2 He would rely upon the decision of this Tribunal in the case of BPL Mobile Cellular Ltd. v. CCE (ST)  2007 (8) STR 546, which has been affirmed by the Honble Supreme Court as reported at 2011 (24) STR J175 (SC); he would also rely upon the decision of this Tribunal in the case of Commr of Service Tax vs. Reliance Communication Ltd.  2008 (11) STR 258 (Tri.  Mum) for the proposition that the provisions of Section 67 envisaged the service tax liability to be discharged on gross amount received for the services rendered.

3.3 He would also rely upon the decision of this Tribunal in the case of Tata Tele Services Ltd.  2015-TIOL-775-CESTAT-MUM for the same proposition.

4. Learned D.R. on the other hand, would draw our attention to the findings recorded by the adjudicating authority.

4.1 It is his submission that the appellant herein has distributed recharge vouchers free to the dealers in lieu of commission payable. He would submit that the services provided by the appellant are to the subscriber. He would submit that the subscriber who had purchased this recharge voucher from the dealer would be paying the entire amount to the dealer. He would also emphasise that the amount paid by the ultimate subscriber / customer is inclusive of the service tax payable on such recharge voucher; which would amount that the dealers have recovered the service tax liability from the subscriber.

4.2 He would submit that since the service tax liability has been borne by the individuals, the appellant herein being a service provider should have discharged the service tax liability. He would emphasise that the impugned order be upheld.

5. We have considered the submissions made at length by both sides and perused the records.

6. It is an admitted fact that the appellant is discharging the service tax liability under the category of Telephone Services on an amount received by them from distributors/dealers for the sale of prepaid SIM Cards; the SIM Cards are sold to the distributors/dealers on MRP and in lieu of the commission payable to them, appellant issues recharge vouchers to that amount which is commission, as free of cost. It is also undisputed that the dealers have recovered the amount as sale of such recharge vouchers from the ultimate subscriber/customer.

6.1 We find that the main issue to be decided in this case is whether during April 2003 to September 2006 distribution of free of recharge voucher attracts service tax liability or otherwise despite the fact that the recharge voucher are given free of cost to the dealers as consideration for commission.

6.2 The provisions of Section 67 during the relevant period are as under:-

Section 67 (1) For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by the service provider for such service rendered by him. (2)  Explanation (1) - For the removal of doubts, it is hereby declared that the value of a taxable service as the case may be, includes, -

(a) the aggregate of commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock broker to any sub-broker.

(b) The adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager of facsimile or telegraph or telex or for leased circuit;

(c) The amount of premium charged by the insurer from the policy holder;

(d) The commission received by the air travel agent from the airline;

(e) The commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer,

(f) The reimbursement received by the authorized service station from manufacturer for carrying out any service of any motor car (light motor vehicle) or two wheeled motor vehicle manufactured by such manufacturer and

(g) The commission or any amount received by the rail travel agent from the Rail ways or the customer.

6.3 We find from the above reproduced provision that the value of any taxable service shall be gross amount charged by the service provider for such services rendered by him. In the case in hand, during the relevant period, the appellant herein being service provider has discharged the service tax liability on the prepaid SIM Cards sold by them to the distributors/dealers. The sale of such prepaid SIM Cards on the MRP value is undisputed and discharge of service tax liability for services rendered on such sale is also accepted by revenue. It is to be noted that the recharge voucher those distributed free of cost, appellant has not received any amount towards the recharge voucher, though the distributors/dealers have sold the recharge vouchers. In our view distribution of recharge voucher free of cost to the distributors/dealers would in a way amount of giving commission to the dealer for the transactions of sale of prepaid SIM Cards from the appellant. It can also be noticed that during the relevant period the Explanation as per the Section 67 of Finance Act, 1994 (herein above reproduced) also do not indicate inclusion in that gross value of any cost towards free distribution made by the service provider. 6.4 We find strong force in the contention raised by the learned Counsel that the provisions of Service Tax (Determination of Value) Rules, 2006, that came into effect from 19.04.2006; Rule 6 discuses about the inclusion/exclusion of commission, for determining the correct value of the services rendered. We perused the said provisions of Rule 6(1) of Service Tax (Determination of Value) Rules, 2006 and note does not include the Telephone Services by any stretch of imagination. For the brevity sake we reproduce the Rule 6 (1) of Service Tax (Determination of Value) Rules, 2006 which would be only relevance for us post 19.04.2006:-

Rule 6 (1) Subject to the provisions of section 67, the value of the taxable services shall include

(i) the commission or brokerage charged by a broker on the sale or purchase of securities including the commission or brokerage paid by the stock-broker to any sub-broker;

(ii) the adjustments made by the telegraph authority from any deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit;

(iii) the amount of premium charged by the insurer from the policy holder;

(iv) the commission received by the air travel agent from the airline;

(v) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer;

(vi) the reimbursement received by the authorised service station, from manufacturer for carrying out any service of any motor car, light motor vehicle or two wheeled motor vehicle manufactured by such manufacturer;

(vii) the commission or any amount received by the rail travel agent from the Railways or the customer;

(viii) the remuneration or commission, by whatever name called, paid to such agent by the client engaging such agent for the services provided by a clearing and forwarding agent to a client rendering services of clearing and forwarding operations in any manner; and

(ix) the commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent.

6.5 Subsequently the said Service Tax (Determination of Value) Rules, 2006 were amended or substituted with effect from 01.07.2012 and the provisions for inclusion/exclusion of the value under Rule 5 were further explained by an Explanation in respect of telecommunication services which reads as under:-

Explanation  For the removal of doubts it is herein clarified that for the value of telecommunication service shall be gross amount paid by the person to whom telecommunication service is actually provided.

(Emphasis ours) It can be seen from the above, the said explanation is now from 01.03.2011 states categorically that the gross amount paid by the person to whom telecommunication service is actually provided is the amount on which tax liability is to be discharged which would mean that prior to 01.03.2011, the amount received by telecommunication provider from the dealer is the amount received for the services provided by the service provider.

6.6 We also find the learned Counsel is correct to bring to our notice that the CBEC was of the same opinion as can be seen from para 5 of the Circular No.62/11/2003-ST dated 21.8.2003. We reproduce the same:-

Service rendered free of charge:

5.1 In the context of certain services, a doubt has been raised as to whether service tax will be payable if the service is provided free of charge.

5.2 As per charging section viz. section 66 of the Act, service tax is chargeable at the rate of 8% of the value of taxable service. Thus if the value is zero the tax will also be zero even though the service is taxable. 6.7 In our considered view the ratio of judgement of the Tribunal in the case of BPL Mobile Cellular (supra) on similar set of facts would be applicable. In the case of BPL Mobile Cellular the issue was regarding discharge of service tax on an amount received by the appellant therein for the sale of prepaid SIM Cards to the dealers and distributors; in that case the appellant therein discharge the service tax liability on actual amount received from the distributors after adjustment of commission payable to them. The Bench recorded as under:-

5.?After giving careful consideration to the submissions, we note that ld. Commissioner (Appeals) misdirected himself by quoting from the text of Section 67 as this provision stood prior to the period of dispute. According to the amended provisions of Section 67, the value of any taxable service shall be the gross amount charged by the service-provider for such service rendered by him. In instant case, the amount charged by the assessee (service-provider) is the amount received by them from dealers/distributors and nothing extra was charged by the appellants. Admittedly, Service tax was paid on this amount. There are a few elements specified in the Explanation to Section 67, as includible in the value of taxable service. The Revenue has no case that any of these elements is applicable to the appellants. The Tribunals decision in Tempest Advertising (supra) is clearly in support of the appellants. 6.8 The Honble Apex Court, on an appeal, after condoning the delay dismissed the civil appeal filed by the Revenue. In that case, the period involved is July 2003 to February 2004 as can be ascertained from paragraph 2 of the said order of the Tribunal. The above reproduced ratio would be applicable in the case in hand as the claim of the appellant that they have not received any amount for the recharge voucher is undisputed.

6.9 The analysis as has been recorded by the Bench in the case of Tata Tele Services Ltd. (supra) is also applicable in the case in hand. In the said case this Bench has held that the telecom provider has to discharge the service tax liability on the actual amount received by them from the distributor and the dealer for the sale of SIM Cards and recharge voucher. As we have already recorded in the case in hand, appellant has not received any amount from the distributors/dealers for the free of cost recharge vouchers, the ratio in the case of Tata Tele Services Ltd. (supra) will be applicable.

6.10 In view of the foregoing and the authoritative judicial pronouncements, we hold that the impugned order is unsustainable and is liable to be set aside and we do so.

7. Impugned order is set aside and the appeal is allowed.

(Operative part of the order pronounced in Court)

(P.S. Pruthi) Member (Technical) (M.V. Ravindran) Member (Judicial)

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