2015 (12) TMI 1495 - AT - Service Tax

Valuation of goods - Free issue of SIM Cards - Telephone Services - 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 - Held that - 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 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 are 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 fee of cost to the distributors/dealers would in a way amount to giving commission to the dealer for the transactions of sale of prepaid SIM Cards for 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. 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 - ratio of judgement of the Tribunal in the case of BPL Mobile Cellular (2007 (6) TMI 107 - CESTAT, CHENNAI) 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 or prepaid SIM Cards to the dealers and distributors; in that case the appellant threrein discharge the service tax liability on actual amount received from the distributors after adjustment of commission payable to them - Impugned order is unsustainable and is liable to be set aside - Decided in favour of assessee.

Summary

Issues Involved:
1. Valuation dispute regarding the inclusion of the gross amount charged for free of cost SIM Cards in the taxable value for the purpose of levy of Service Tax.

Issue-wise Detailed Analysis:

Valuation Dispute:
The main issue in this case revolves around the valuation dispute concerning the inclusion of the gross amount charged for free of cost SIM Cards in the taxable value for the purpose of levy of Service Tax. The adjudicating authority's findings are summarized as follows:

1. Adjudicating Authority's Findings:
- The recipients of services, i.e., subscribers/customers, pay the full MRP value on the purchase of SIM Cards, even if these SIM Cards are issued free of cost to distributors/retailers/dealers.
- Section 67 of the Finance Act, 1994, states that the value of taxable service for the purpose of levy of Service Tax shall be the "gross amount charged" as consideration.
- The full price of such SIM Cards is recovered from the recipient of the services, establishing a linkage between the service provided and the gross amount charged.
- Consequently, the gross amount paid by the subscribers for such SIM Cards must be included in the taxable value for the purpose of Service Tax, and the Service Tax must be discharged on such an amount.

2. Tribunal's Previous Judgment:
- The issue was previously settled by the Tribunal in the appellant's own case (Appeal No. ST/111/09), where the Tribunal ruled in favor of the appellant regarding free recharge coupons given to clients.
- The Tribunal found no dissimilarity in facts between the previous case and the current case concerning the free issue of SIM Cards.

3. Appellant's Arguments:
- The appellant argued that the service tax liability should be discharged on the amount received from the dealers for the sale of SIM Cards.
- The distribution of free recharge vouchers was considered as commission to the dealers, and no additional amount was received for these vouchers.
- The appellant relied on Section 67, which during the relevant period, did not include the value of any amount given free of charge.
- The appellant also cited various judicial precedents and CBEC Circulars supporting their stance that if the value charged is "zero," the tax will also be "zero."

4. Revenue's Arguments:
- The Revenue contended that the appellant should have discharged the service tax liability on the recharge vouchers distributed free to the dealers, as the ultimate subscriber paid the full amount, inclusive of service tax.
- The Revenue emphasized that since the service tax liability was borne by the individuals, the appellant, being the service provider, should have discharged the service tax liability.

5. Tribunal's Analysis:
- The Tribunal found that the appellant discharged the service tax liability on the prepaid SIM Cards sold to distributors/dealers at MRP.
- The recharge vouchers distributed free of cost to the dealers were considered as commission.
- The Tribunal noted that during the relevant period, the provisions of Section 67 did not include the value of free distribution in the gross value.
- The Tribunal relied on previous judgments, including BPL Mobile Cellular Ltd. and Tata Tele Services Ltd., which supported the appellant's stance.
- The Tribunal concluded that the impugned order was unsustainable and set it aside, allowing the appeal with consequential relief.

Conclusion:
The Tribunal ruled in favor of the appellant, setting aside the impugned order and allowing the appeal with consequential relief. The Tribunal's decision was based on the interpretation of Section 67 of the Finance Act, 1994, and judicial precedents that supported the appellant's argument that the service tax liability should be discharged on the amount received from the dealers for the sale of SIM Cards, excluding the value of free recharge vouchers distributed as commission.