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2018 (11) TMI 232 - AT - Service TaxValuation - includibility - value of SIM supplied by the Appellant for activation and providing the mobile telephony services to its customer - benefit of N/N. 12/2003-ST - benefit of cum tax price - demand of interest - penalty u/s 76 and 78 - adjustment of VAT paid on sale of SIM to its consumers. Whether the value of SIM supplied by the Appellant for activation and providing the mobile telephony services to its customer includible in taxable value of services provided by him? - Held that - The issue is decided by apex court in the case of BHARAT SANCHAR NIGAM LTD. (BSNL) VERSUS UNION OF INDIA 2006 (3) TMI 1 - SUPREME COURT , where it was held that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers - thus, if SIM Cards are sold then their value can t be included in the value of the service and no service tax can be charged. If the value of such SIM s is includible in the taxable value of the services provided by them whether the benefit of exemption under notification No 12/2003-ST can be extended to them - Held that - The supply of SIM cards is integral with provision of the taxable service and without the said SIM cards the provisioning of this taxable service is impossible. Accordingly the benefit of Notification No 12/2003-ST cannot be extended to the Appellants. Whether the benefit of cum tax price needs to be extended to the appellant for determining the service tax leviable? - Held that - Hon ble Supreme Court has in the case Dugar Tetenal Ltd 2008 (3) TMI 50 - SUPREME COURT has held in favor of allowing such benefit. Whether interest is demandable and recoverable from the appellants? - Held that - The interest is compensatory in nature and is required to be paid by the tax payer in case of any default in payment of tax for the period of default - demand of interest upheld. Whether in facts and circumstances of this case penalty under Section 76 and Section 78 of the Finance Act, 1994 are justified? - Held that - Penalty under Section 76 is for the delay in payment of service tax - penalties imposed under Section 76 of the Finance Act, 1994 are justified - Since the penalties imposed under Section 76 are upheld, we do not find justification in separate penalties imposed under Section 78. Whether the adjustment of VAT paid on sale of SIM to its consumers is allowed? - Held that - We are not in position to permit or allow for such adjustment or uphold such contention. VAT is levied under the State Act and Service Tax under the Central Act. Since both the authorities, under which Service Tax and VAT are levied are not the same, the tribunal being creature of the Central Act, would not be in position to determine such transfer and adjustment of VAT paid under State Act, towards the tax liability under a Central Act. Appeal disposed off.
Issues involved:
1. Inclusion of SIM card value in taxable service value. 2. Applicability of Notification No. 12/2003-ST for exemption. 3. Consideration of cum tax price for tax computation. 4. Demand and recovery of interest. 5. Justification of penalties under Sections 76 and 78 of the Finance Act, 1994. 6. Adjustment of VAT paid against service tax liability. Detailed Analysis: 1. Inclusion of SIM card value in taxable service value: The Tribunal affirmed that the value of SIM cards should be included in the taxable value of services provided by the appellant. The Supreme Court in the case of Idea Mobile Communication Ltd. v. CCE held that SIM cards are part of the service rendered by the service provider and are not sold as independent goods. The Kerala High Court also supported this view, stating that SIM cards have no intrinsic value apart from their use in providing mobile services. Therefore, the value of SIM cards forms part of the activation charges and is subject to service tax. 2. Applicability of Notification No. 12/2003-ST for exemption: The Tribunal rejected the appellant's claim for exemption under Notification No. 12/2003-ST. The appellant argued that the SIM cards were sold as goods, fulfilling the conditions for exemption. However, the Tribunal found that there was no transfer of property in the SIM cards to the customers, as evidenced by the invoices stating that the property in SIM cards remained with the appellant. The Tribunal concluded that the SIM cards were only a medium for providing services and did not qualify as goods sold independently. Thus, the exemption under Notification No. 12/2003-ST was not applicable. 3. Consideration of cum tax price for tax computation: The Tribunal agreed with the appellant's contention that the value of SIM cards should be treated as cum tax price. The Supreme Court in the case of Maruti Udyog Ltd. held that when cum-duty price is charged, the excisable value should exclude the element of duty. The Tribunal remanded the matter to the adjudicating authority to reconsider the tax liability by treating the value of SIM cards as cum tax price and determining the correct amount of service tax payable. 4. Demand and recovery of interest: The Tribunal upheld the demand for interest on the delayed payment of service tax. It stated that interest is compensatory in nature and is required to be paid for the period of default. The Bombay High Court in the case of Commissioner Of Central Excise v. Padmashri V.V. Patil Sahakari confirmed that interest under Section 75 of the Finance Act, 1994 is mandatory and not discretionary. Therefore, the interest demand was justified. 5. Justification of penalties under Sections 76 and 78 of the Finance Act, 1994: The Tribunal upheld the penalties imposed under Section 76 for the delay in payment of service tax, citing the Kerala High Court's decision in Commissioner of Central Excise v. Krishna Poduval. However, it set aside the penalties under Section 78, as all demands for taxes were made within the normal period. The Tribunal followed the precedent set by the High Court in Idea Mobile Communication Ltd., which held that simultaneous penalties under Sections 76 and 78 are not justified. 6. Adjustment of VAT paid against service tax liability: The Tribunal rejected the appellant's request to adjust VAT paid against the service tax liability. It stated that VAT and service tax are levied under different authorities (State and Central Acts, respectively), and the Tribunal, being a creature of the Central Act, cannot determine such adjustments. Therefore, the adjustment of VAT paid against service tax was not permissible. Conclusion: The Tribunal remanded the matter to the adjudicating authority for reconsideration of the service tax liability by treating the value of SIM cards as cum tax price. It waived the penalties under Section 78 but upheld the penalties under Section 76 and the demand for interest. The Tribunal rejected the appellant's claims for exemption under Notification No. 12/2003-ST and adjustment of VAT paid against service tax liability. The appeal was disposed of accordingly.
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