2015 (11) TMI 979 - AT - Service Tax

Business Auxiliary service - profit margin earned by the appellant during the course of trading of sim cards and recharge coupon of Bharat Sanchar Nigam Ltd - Penalty u/s 77 & 78 - Held that - In this case, BSNL had already paid service tax on the sim cards and recharge coupons sold to the franchisee and again demanding service tax from the franchisee would amount to double taxation which is not permissible in law. Secondly, we find that the appellant is only engaged in purchase and sale of sim cards and recharge coupons and his relationship with BSNL is of principal-to-principal basis. The appellant cannot be termed as an agent of BSNL. In view of this, the finding of the learned Commissioner that the appellant is promoting the business of sale or service of BSNL is misconceived. The impugned order is therefore not consistent with law and the catena of judgments delivered by the Tribunal and High Court. The judgment cited above by the learned counsel for the appellant squarely cover the case of the appellant to the fact that the appellant is only engaged in trading activity and does not render any taxable service in the category of business auxiliary service . - Decided in favour of assessee.

Summary

Issues:
1. Whether service tax is payable on the profit margin earned by the appellant during trading of sim cards and recharge coupons of BSNL.
2. Whether the appellant is providing Business Auxiliary Service to BSNL.
3. Whether the appellant is liable to pay service tax on the profit margin.

Analysis:

Issue 1:
The appeal challenged the Order-in-Original holding that service tax is payable on the profit margin earned by the appellant from trading sim cards and recharge coupons of BSNL. The appellant contended that the relationship with BSNL was on a principal-to-principal basis, and the appellant did not provide any services to BSNL. The appellant relied on a letter from the Chief General Manager of BSNL clarifying the nature of the relationship. The appellant argued that the activity falls under sale of goods attracting sales tax, not service tax.

Issue 2:
The Revenue argued that the appellant's activities, as per the agreement clauses, constituted Business Auxiliary Service provided to BSNL. The Revenue highlighted clauses indicating the distributor's obligations, customer care responsibilities, and marketing and distribution scope. The Revenue contended that the tax paid by BSNL was for telecommunication services, while the tax demanded from the appellant was for Business Auxiliary Service, avoiding double taxation.

Issue 3:
The Tribunal analyzed previous judgments, including one where the Allahabad High Court dismissed an appeal stating that the purchase and sale of SIM cards by BSNL did not amount to Business Auxiliary Service. The Tribunal found that BSNL had already paid service tax on the sim cards and recharge coupons sold to the appellant. Demanding service tax from the appellant would result in double taxation, which is impermissible. The Tribunal concluded that the appellant was engaged in trading activities, not providing taxable services, and set aside the impugned order in favor of the appellant.

In conclusion, the Tribunal allowed the appeal, stating that the appellant's relationship with BSNL was on a principal-to-principal basis, and the appellant's activities did not amount to Business Auxiliary Service. The judgment emphasized that demanding service tax from the appellant after BSNL had already paid tax on the same transactions would lead to double taxation, which is not permissible. The decision was based on a thorough analysis of the contractual relationship and relevant legal precedents.