Narota Ram Goyal & Sons vs Chandigarh Ii

[Arising out of Order-in-Appeal No: 71-72/ST/APPL/CHD-II/2013 dated 11/03/2013 passed by the Commissioner of Central Excise (Appeals), Chandigarh  II.]

For approval and signature:

Honble Mr. Justice G. Raghuram, President

Honble Mr. C J Mathew, Member (Technical)

1. Whether Press Reporters may be allowed to see the Order for publication as per Rule 27 of the CESTAT (Procedure) Rules, 1982? : No 2. Whether it should be released under Rule 27 of CESTAT (Procedure) Rules, 1982 for publication in any authoritative report or not? : No 3. Whether Their Lordships wish to see the fair copy of the Order? : Seen 4. Whether Order is to be circulated to the Departmental authorities? : Yes

Goyal Automobiles

Narota Ram Goyal & Sons

Appellants Vs

Commissioner of Central Excise

Chandigarh  II

Respondent

Appearance:

Shri G.S. Sandhe, Advocate for the appellant

Shri K. Poddar, DR for the respondent

CORAM:

Honble Mr. Justice G. Raghuram, President

Honble Mr. C J Mathew, Member (Technical)

Date of hearing: 27/10/2015

Date of decision: 27/10/2015

Final ORDER NO: 53947-53948/2015

Per: C J Mathew:

The two appellants in these proceedings having filed applications for stay of the order-in-appeal no 71-72/ST/APPL/CHD-II/2013 dated 11th March 2013 of Commissioner of Central Excise (Appeals), Chandigarh  II, the stay petition is allowed with waiver of pre-deposit and the appeals are taken up for disposal.

2. The appellants are franchisee distributors of products of M/s Bharat Sanchar Nigam Ltd in which capacity they have entered into agreements with the principals for sale of SIM cards, recharge coupons and top-up coupons relating to mobile telephony. SIM cards sold to first-time customers require activation after the payments have been deposited with M/s Bharat Sanchar Nigam Ltd all of which are handled through the franchisee distributor. The other two products are sold to existing customers and do not involve any cumbersome procedures. The franchisee distributor is entitled to commission at the agreed rate on the SIM card sales while the principal transfers the other products at a discount which are then sold to customers at MRP rates.

3. In the original proceedings, M/s Goyal Automobiles was held liable to tax of Rs 15,08,924.30 on services related to SIM cards and Rs 3,78, 637 in relation to the other products and M/s Narota Ram Goyal & Sons was held liable to tax of Rs 8,64,785.01 on services related to SIM cards and Rs 3,17,819 in relation to the other products. In addition, the appellants were held liable to interest and penalties under section 77 and 78 of Finance Act, 1994. In the impugned order, Commissioner (Appeals) has confirmed the findings of the lower authorities in relation to tax on commission earned on SIM cards while dropping the demands relating to the recharge coupons and top-up cards.

4. In the grounds of appeal it is contended that the tax liabilities had been discharged by M/s Bharat Sanchar Nigam Ltd in full on the MRP value of SIM-cards and, therefore, there is no ground for recovery of tax from the appellant who are merely distributors.

5. We have heard the rival contentions placed before us by the Learned Counsel and Learned Authorized Representative. The proceedings were initiated against the appellants in relation to three products for which the principal compensates them through a commission format or discount format. Though the compensation scheme and the activities of the franchisees are alike in the marketing/sale of the three products with distinction between them being attributable to customer categorization, the impugned order has dichotomized them differently  in terms of taxable service for the SIM cards and in terms of products for the other two and thus contrived to take the former into the tax net.

6. We note that the impugned order has built its foundation on the assumption that appellants render business auxiliary service in relation to SIM cards and hence liable to tax on the commission earned by them. At the same time, the impugned order has considered the commission received as discount on sale of recharge and top-up coupons as not liable to tax following the decision of the Tribunal in Commissioner of Central Excise, Meerut vs. Moradabad Gas Service [2013 (31) STR 308 (Tri.-Del.)]. Our attention has also been drawn to the decisions of this Tribunal in the case of GR Movers vs. Commissioner of Central Excise, Lucknow [2013 (30) STR 634 (Tri.-Del.)] and Daya Shankar Kailash Chand vs. Commissioner of Central Excise & Service Tax, Lucknow [2013 (30) STR 428 (Tri.Del.)]. The Honble High Court of Allahabad has upheld these two decisions.

7. We find that this contrived distinction attempted in the impugned order by the first appellate authority does not conform to logic or to any commercial distinction. On the contrary, the three decisions cited above are clear in laying down the principle that the user of the telephony services is the service recipient and tax liability on the gross value charged from such customer, whether first-time purchaser of SIM card or subsequent purchaser of other cards, is collected from the customer and deposited to government account by the principal. An attempt has been made to catalogue the various activities that devolve on the appellants in relation to activation of SIM cards without appreciating the fact that the SIM cards are marked with an MRP on which tax is collected in full from the customer. Therefore, the commission paid to appellants is also included in the value on which tax has been collected from the customer. The customer is, consequently, the recipient of the full value of services from none other than M/s Bharat Sanchar Nigam Ltd; thus, it is no different from the other two products.

8. The rationale for non-leviability of tax in relation to recharge and top-up coupons in paragraph 26 in re GR Movers (supra) is as follows:

26.?Though the correct procedure for discharge of the service tax liability by the two parties is that the distributors raise bills for commissions that is due to them along with service tax and BSNL takes Cenvat credit of tax paid by distributors for discharging liability on the telecommunication service provided by BSNL, such procedure dos (sic) not result in extra realization of Revenue. Considering the special nature of the impugned activities and the fact that it can be easily verified that full taxable value of the service provided by BSNL to customers is subjected to tax, we are of the view that there is no case to undo decisions already taken by the Tribunal in this regard. A contrary approach will result in a difference in value that is taxed for mobile telecom service according to the decision of the Apex Court in the case of Commissioner v. BPL Mobile Cellular Ltd. - 2011 (24) STR J175 (S.C.). We also note that this issue has lost relevance for the future because of exemption under Notification 25/2012-ST-S. No. 29 for this type of service.

9. As commission system and sale methodology in relation to SIM cards is the same as the other two products, we, for the reason elaborated supra, set aside the impugned orders and allow both the appeals with consequential relief.

(Pronounced in Court)

(Justice G. Raghuram)

President

(C J Mathew)

Member (Technical)

*/as

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