2018 (7) TMI 1291 - AT - Service Tax

Liability of Service Tax - SIM Cards given free of cost to the distributors without any consideration - telecommunication services - Rule 5(1) of Determination of Value Rules Held that - Rule 5(1) and the explanation thereof were practically disjoint, these were used as independent Rules and thus the explanation does not attain any clarificatory nature. It is difficult to consider it retrospectively applicable. The fact for the present case still remains is that the SIM Cards which the distributor received as free, has been sold on MRP, and since the MRP is inclusive of prices, therefore, demand has to be calculated by taking MRP as cum tax value in terms of Section 67(2) of the Finance Act, 1994 - demand upheld. Demand of Interest and penalties - extended period of limitation - Held that - The adjudicating authority has rightly observed noticee to have already been registered with the Department and as such to already been well aware of the provisions of Service Tax, still not disclosing the taxable value of the SIM Cards supplied free of cost to the distributors in their returns nor paying the tax thereupon without seeking any clarification to that effect is sufficiently a positive act which constitutes suppression of facts - the Department was well entitled to invoke the extended period of limitation - demand of interest and penalties also upheld. Appeal dismissed - decided against appellant.

Summary

Issues:
1. Service tax liability on free SIM cards provided to distributors.
2. Interpretation of Rule 5 of the Service Tax Rules and its retrospective effect.
3. Applicability of case laws in determining tax liability.
4. Imposition of interest and penalties for non-disclosure of taxable value.

Issue 1: Service tax liability on free SIM cards provided to distributors:
The appeal challenged an Order-in-Original upholding a service tax liability of ?66,54,629 on free SIM cards given to distributors. The appellant contended that since no consideration was received for these cards, no service tax was due. However, the Department argued that even non-monetary consideration with a true value should be taxed. The Tribunal noted that the SIM cards were sold at the printed MRP by distributors to subscribers, making them service recipients of the appellant. The Tribunal held that the demand should be calculated based on the MRP as per Section 67(2) of the Finance Act, 1994.

Issue 2: Interpretation of Rule 5 of the Service Tax Rules and its retrospective effect:
The appellant argued against the retrospective application of the explanation attached to Rule 5, citing case laws like BPL Mobile Cellular Ltd. and Vodafone Essar. The Department maintained that the explanation clarified the taxable value rules and should be applied. The Tribunal found the explanation and Rule 5 to be disjoint, making retrospective application challenging. It referenced the Martin Lottery case to distinguish between substantive changes and clarifications, indicating a need for further interpretation regarding the retrospective effect of the explanation.

Issue 3: Applicability of case laws in determining tax liability:
The Tribunal discussed previous judgments like BSNL Vs. CCE and Idea Mobile Communication Ltd. to determine the taxability of SIM cards. It highlighted the 2011 amendment to valuation rules and the addition of the explanation to Rule 5, emphasizing the need for clarity on the retrospective nature of such changes. Reference was made to a recent Supreme Court judgment regarding the ultra vires nature of Rule 5(1), raising questions about the validity of the explanation in light of the main legislation.

Issue 4: Imposition of interest and penalties for non-disclosure of taxable value:
Regarding the imposition of interest and penalties, the Tribunal found that the appellant, being registered with the Department, failed to disclose the taxable value of free SIM cards provided to distributors. This non-disclosure constituted suppression of facts, justifying the imposition of interest and penalties. The Tribunal upheld the extended period of limitation invoked by the Department and dismissed the appeal based on the findings related to tax liability, non-disclosure, and the application of penalties.

This judgment addressed the complexities surrounding the taxation of free SIM cards, the interpretation of Rule 5, the retrospective effect of amendments, and the consequences of non-disclosure on interest and penalties. The Tribunal's analysis of relevant case laws and legislative provisions provided a comprehensive understanding of the issues at hand, ultimately leading to the dismissal of the appeal based on the findings related to tax liability and non-disclosure.