2017 (7) TMI 1457 - AT - Service Tax

Levy of service tax - business auxiliary service or not - distribution for recharge vouchers electronic coupons and starter packs of M/s. VCL - Department was of the opinion that the income earned on resale of recharge vouchers and electronic coupons starter packs is a discount or commission provided by M/s. VCL - HELD THAT - The issue whether the sale and purchase of SIM cards recharge coupons starter packs would amount to business auxiliary service has been settled by the judgment in the case of THE COMMISSIONER OF CENTRAL EXCISE VERSUS M/S. BHARAT CELL 2015 (10) TMI 1111 - MADRAS HIGH COURT wherein the ratio of the decision laid down in GR. MOVERS AND MARTEND FOOD AND DEHYDRATES PVT. LTD. VERSUS COMMISSIONER OF CENTRAL EXCISE LUCKNOW 2013 (6) TMI 339 - CESTAT NEW DELHI was referred. The other decisions of the honourable High Courts of Allahabad as well as Kerala have taken similar view. The demand also includes the amount reflected in the credit notes issued by M/s. VCL to appellant. The demand is also made on the margin earned by the appellant for outright purchase and sale of pepsico products. It is not disputed that the appellants in these appeals have discharged VAT on the products sold by them. Therefore the Department cannot demand service tax basing upon the distribution agreement entered into with M/s. Pepsico Holdings (India) Pvt. Ltd. The judgment relied upon by the learned counsel for the appellant in the case of BHARAT PETROLEUM CORPN. LTD AND HINDUSTAN PETROLEUM CORPN. LTD VERSUS COMMISSIONER OF SERVICE TAX 2014 (7) TMI 159 - CESTAT MUMBAI is squarely applicable to the said issue. The demand is unsustainable - The impugned orders are set aside - Appeal allowed.

Summary

Issues:
1. Demand of service tax on the margin earned by appellants on resale of recharge vouchers and electronic coupons.
2. Taxability of credit notes issued by M/s. VCL to the appellants.
3. Demand of service tax on the margin earned in the sale of Pepsico products.

Analysis:
1. The appellants were distributors appointed by M/s. Vodafone Cellular Limited (M/s. VCL) for selling recharge vouchers and starter packs. The Department alleged that the income earned on resale of these products constituted a discount or commission provided by M/s. VCL, leading to a demand for service tax. The original authority and Commissioner (Appeals) confirmed the demand, although penalties were modified. The appellant argued that the margin earned was not a commission or discount, contending that they were not providing business auxiliary services to M/s. VCL. Reference was made to relevant case laws to support this argument. The Tribunal found the demand unsustainable, setting aside the impugned orders and allowing the appeals.

2. In specific appeals related to credit notes issued by M/s. VCL to the appellants, the demand was based on these credit notes being considered as discounts received by the appellants. The appellants clarified that the credit notes were reimbursement for various expenses incurred, such as CAF expenses, pick up charges, and salary payments. They argued that these reimbursable expenses should not be included in the taxable value, citing a relevant judgment. The Tribunal agreed with the appellant's position, stating that such expenses cannot be taxed, and ruled in favor of the appellants.

3. Regarding the demand of service tax on the margin earned from the sale of Pepsico products, the appellants had already paid VAT on these products. The appellant contended that since VAT had been discharged, the demand for service tax was unsustainable. The Tribunal referred to a relevant decision in a similar case and concluded that the demand was not valid. Consequently, the impugned orders were set aside, and the appeals were allowed, providing consequential relief if necessary.