2014 (12) TMI 1141 - AT - Service Tax

Valuation - Telephone connection service - telegraph authority - The respondent appointed M/s. Reliance Industries Ltd. (RIL) as an agent to market the TRAI approved Tariff Plans with respect to telephone connections services provided by it by means of various schemes floated by the agent in this regard. - These services were provided through Code Division Multiple Access (CDMA) technology and could be availed by the subscribers only on a handset specially programmed and designed. - the agent of the respondent (i.e. M/s. RIL) was allowed to combine certain products, services and privileges offered by it. - Other than an amount of ₹ 14,400/- per subscriber, which was for rental and usage charges of telephone connection service, all other charges collected by the agent from the subscribers of the respondent were retained by the agent as club membership and club privileges charges. - Inclusion of amounts collected from its subscribers towards club membership and club privileges charges in value of taxable services. Held that - any service which has not been provided by telegraph authority and that have no relationship with connecting telephone apparatus is not covered under telephone connection service. In this case allegation against the respondent is that through their agent, they have provided additional service such as club membership and pioneer offer. The Revenue wants to include the value of club membership and club privilege charges in the value of service relating to telephone connection. All the goods and services provided by the agents of the respondent are the goods and services that have been provided by a person other than the telegraph authority, hence one of the conditions of the definition of service of telephone connection is not fulfilled. On this ground alone the attempt to include the value of club membership and club privileges gets defeated. Inclusion of charges on account of Deceptive advertisements practice - Held that - The privilege at point (b) is one relating to the service of the telephone connection but its value had always been included in the value of the service provided by the respondent. The agents of the respondent were remitting ₹ 14,400/- per subscriber to the respondent. This amount was towards rent and usage charge of ₹ 400/- per month for 36 months. Out of the amount ₹ 400/-, an amount of ₹ 240/- was the rent of the service provided by the respondent and ₹ 160/- was towards the usage charges. Showing a paid service as a privilege of the DAP Club could at the worst be an alluring and illusory advertisement. Such an advertisement cannot change the real character of the service. The privilege at point (iii) free incoming calls, free unlimited SMS, free CLIP & call waiting service was also the part of Tariff Plan of the respondent. The agents of the respondent had shown it separately as a privilege of the DAP Club but it was part of the approved Tariff Plan of the respondent. The remedy against the deceptive advertisements is not under the Act. - Decided against Revenue. Inclusion of value of telephone instrument - Held that - The services relating to providing of the service of telephone connection is not only a transaction for providing a service but also involves sale of goods. - the allegation is that the handset is so designed that without it the service provided by the respondent could not have been be availed by their subscribers. The value of the telephone handset is discernable in this case and the sale tax has also been levied on such transactions. Inadequacy of the value on which the sale tax has been imposed cannot be the ground for inclusion of the value of goods in the value of the service. - Decided against Revenue. Whether the amount of goods and services can be vivisected - Held that - The agents have paid sale tax on the value declared by them in relation to the supply of goods. The remaining amounts are either for collection charges for financing of the scheme or for the privileges or services provided to the members of the DAP Club. In such a scenario, it is not correct to say that the transactions under which he agents sold the Tariff Plans along with their own goods and services cannot be vivisected and the entire value of such goods and services be added to the value of the services of the respondent. - Decided against Revenue. Whether the respondents are liable to pay penalty on account of due service tax collected from the subscriber on fixed wireless service by way of adjustment from the security deposits. - Following decision of CCE & ST., LTU, Bangalore Vs. Adecco Flexione Workforce Solutions Ltd. reported in 2011 (9) TMI 114 - KARNATAKA HIGH COURT - as entire amount of service tax and interest has been paid by the respondent before issuance of the show cause notice on pointing out by the revenue, the penalty are not imposable. - Decided against Revenue.

Summary

Issues Involved:
1. Inclusion of 'club membership' and 'club privileges' charges in the value of taxable services.
2. Penalty for non-payment of service tax on fixed wireless services.
3. Applicability of extended period of limitation for service tax recovery.

Detailed Analysis:

1. Inclusion of 'club membership' and 'club privileges' charges in the value of taxable services:

The Revenue appealed against the adjudicating authority's decision to exclude 'club membership' and 'club privileges' charges from the taxable value of telephone connection services. The respondent provided telephone connection services through an agent, who marketed the services under various schemes, including the Dhirubhai Ambani Pioneer Offer (DAPO). The schemes required subscribers to pay charges for club membership and privileges, which were retained by the agent.

The Revenue argued that these charges were incidental to the telephone service and should be included in the taxable value. They cited that the handsets provided under the schemes were designed to work only with the respondent's service, making the charges integral to the overall service.

The Tribunal, however, found that the services provided by the agent, including club membership and privileges, were separate from the telephone connection service. The respondent only received Rs. 14,400 per subscriber as rental and usage charges, on which service tax was duly paid. The Tribunal cited the Supreme Court's ruling in Bharat Sanchar Nigam Ltd. Vs. Union of India, which held that providing handsets is a supply of goods, and their value cannot be included in the service value. Thus, the Tribunal upheld the adjudicating authority's decision, stating that the club membership and privileges charges were not part of the taxable service of telephone connection.

2. Penalty for non-payment of service tax on fixed wireless services:

The Revenue also sought penalties for the respondent's non-payment of service tax on fixed wireless services. The respondent had adjusted certain outstanding dues from subscriber deposits without paying the applicable service tax. Upon being pointed out by the department, the respondent paid the due service tax along with interest.

The Tribunal referred to the Karnataka High Court's decision in CCE & ST., LTU, Bangalore Vs. Adecco Flexione Workforce Solutions Ltd., which held that if service tax and interest are paid before the issuance of a show cause notice, no penalty should be imposed. Consequently, the Tribunal found no mala fide intention on the respondent's part and upheld the adjudicating authority's decision to waive the penalty under Section 80 of the Finance Act, 1994.

3. Applicability of extended period of limitation for service tax recovery:

The Revenue argued that the respondent's failure to include 'club membership' and 'club privileges' charges in the taxable value and non-disclosure of these facts warranted the invocation of the extended period of limitation. The Tribunal, however, found that the services provided by the agent were distinct from the telephone connection service. Since the respondent had already paid service tax on the Rs. 14,400 received per subscriber, the Tribunal concluded that the extended period of limitation was not applicable.

Conclusion:

The Tribunal dismissed the Revenue's appeal, upholding the adjudicating authority's order. It ruled that the 'club membership' and 'club privileges' charges were not part of the taxable value of telephone connection services. It also confirmed that no penalties were imposable on the respondent for the non-payment of service tax on fixed wireless services, as the due amount was paid with interest upon being pointed out. The Tribunal found no grounds for invoking the extended period of limitation.