2014 (1) TMI 199 - AT - Service Tax

Demand of service tax - Assessee are franchises of M/s. BSNL for sale of their SIM cards and recharge coupons - Demand u/s 65(105)(zzb) for Business Auxiliary Services - BSNL already paid entire service tax on full amount including the commission amount earned by them - Assessee contends that confirmation of service tax again on the value of commission would amount to double taxation - Revenue contends that payment of service tax by BSNL was under the category of telecommunication services whereas the demand against the respondents was under the category of BAS - Held that - apart from Board s Circular laying down that to avoid double taxation payment of service tax by the principal should be taken into account while settling the responsibility of franchise - where the principal has already paid service tax on the full value of the SIM cards franchise cannot be called upon to pay tax again on the same transaction on the ground that his activity is separately liable to service tax under the category of BAS - Inasmuch as there is no dispute about the fact of payment of entire service tax by BSNL on the full value of SIM cards/recharge coupons we are of the view that Commissioner (Appeals) has rightly set aside the confirmation of demand - Following decision of South East Corporation reported in 2007 (5) TMI 111 - CESTAT BANGALORE Chetan Traders reported as 2008 (7) TMI 46 - CESTAT NEW DELHI and in the case of Karakkattu Communications reported as 2007 (6) TMI 209 - CESTAT BANGALORE - Decided against Revenue.

Issues Involved:
1. Classification of the sale of SIM cards and recharge coupons as 'Business Auxiliary Services' (BAS).
2. Double taxation concerns.
3. Limitation period for the demand of service tax.
4. Applicability of Board's Circulars and precedent decisions.
5. Nature of transactions involving SIM cards and recharge coupons.
6. Taxability of commission received by distributors.

Detailed Analysis:

1. Classification of the sale of SIM cards and recharge coupons as 'Business Auxiliary Services' (BAS):
The Revenue initiated proceedings against the respondents, who are franchises of BSNL, under the view that the sale of SIM cards and recharge coupons amounted to providing services categorized as 'Business Auxiliary Services' (BAS) under section 65(105)(zzb) of the Finance Act, 1994. The respondents contended that this was a business transaction of purchase and sale, not a service provision.

2. Double taxation concerns:
The respondents argued that BSNL had already paid the service tax on the full value of the SIM cards and recharge coupons, including the commission amount earned by the respondents. Therefore, demanding service tax again on the commission would result in double taxation. The Commissioner (Appeals) agreed, citing Board's Circulars and precedent decisions, which state that service tax should not be charged again if it has already been paid by another person to avoid double taxation.

3. Limitation period for the demand of service tax:
The respondents also contested the demand on the grounds of time-bar, but the Commissioner (Appeals) did not find favor with this argument. However, the primary focus remained on the issue of double taxation and the nature of the transaction.

4. Applicability of Board's Circulars and precedent decisions:
The Commissioner (Appeals) considered Board's Circular No. 23/3/97-S.T., dated 13-10-1997, and Circular No. ST-51/13/2002, dated 7-1-2003, which clarified that service tax should not be charged twice on the same service to avoid double taxation. Precedent decisions from the Tribunal, such as in the cases of South East Corporation, Chetan Traders, and Karakkattu Communications, supported the view that if the principal (BSNL) has paid service tax on the full value, the franchisee should not be taxed again under BAS.

5. Nature of transactions involving SIM cards and recharge coupons:
The Tribunal examined whether the sale of SIM cards and recharge coupons by the respondents constituted a service or a business transaction. The agreements between BSNL and the respondents indicated that the respondents were promoting and marketing BSNL's services and receiving commissions, which suggested that they were providing 'Business Auxiliary Services'. However, since BSNL paid service tax on the entire value of the SIM cards, demanding additional tax from the respondents was deemed double taxation.

6. Taxability of commission received by distributors:
The Tribunal noted that BSNL paid service tax on the full value of the SIM cards, including the commission paid to the distributors. Therefore, taxing the commission again under BAS would effectively result in double taxation. The Tribunal referenced the Supreme Court decision in the case of Idea Mobile Communications Ltd. v. CCE, which clarified that the transaction involving SIM cards is a service provision, not a sale. The Tribunal upheld the view that the respondents were not liable to pay service tax again on the commission received from BSNL.

Conclusion:
The Tribunal concluded that the Commissioner (Appeals) rightly set aside the confirmation of demand against the respondents, as BSNL had already paid the service tax on the full value of the SIM cards and recharge coupons. The appeals filed by the Revenue were rejected, and it was affirmed that double taxation should be avoided. The Tribunal also acknowledged that the issue had become less relevant due to subsequent exemptions provided under Notification 25/2012-ST-S. No. 29 for such services.

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