2016 (2) TMI 725 - AT - Service Tax

Demand of service tax on commission received for sale of SIM cards and top-up cards - t 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. Held that - 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. 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. - Decided in favor of assessee.

Issues:
1. Stay of order-in-appeal with waiver of pre-deposit for franchisee distributors.
2. Tax liability on services related to SIM cards and other products.
3. Appeal against tax liabilities discharged by the principal.
4. Dichotomization of taxable services for SIM cards and other products.
5. Tax liability on commission earned by franchisee distributors.
6. Contrived distinction in the impugned order.
7. Logic and commercial distinction in tax liability.
8. Rationale for non-leviability of tax on recharge and top-up coupons.
9. Similarity in commission system and sale methodology for SIM cards and other products.

Analysis:
The judgment by the Appellate Tribunal CESTAT New Delhi involved franchisee distributors appealing against tax liabilities imposed on them for services related to SIM cards and other products. The appellants sought a stay of the order-in-appeal, which was granted with a waiver of pre-deposit. The primary contention was that the tax liabilities had already been discharged by the principal, M/s Bharat Sanchar Nigam Ltd, on the MRP value of SIM cards, making the recovery of tax from the distributors unjustified. The impugned order had distinguished between taxable services for SIM cards and products for other items, leading to a dichotomy in tax treatment.

The Tribunal noted that the impugned order considered the commission earned by the distributors as taxable in the case of SIM cards but not for recharge and top-up coupons. This distinction was found to be illogical and lacking commercial basis. The Tribunal referenced previous decisions and highlighted that the user of telephony services, being the customer, is the ultimate service recipient, and tax liability should be based on the gross value charged from the customer. The commission paid to distributors should be included in the value on which tax has been collected from the customer, regardless of the product.

The rationale for non-leviability of tax on recharge and top-up coupons was explained, emphasizing that the special nature of activities and the full taxable value of services provided to customers should be subjected to tax. The judgment concluded that since the commission system and sale methodology for SIM cards were similar to other products, the impugned orders were set aside, and both appeals were allowed with consequential relief. The decision highlighted the importance of consistency in tax treatment and the need to consider the full value of services provided to customers in determining tax liabilities.

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