2018 (11) TMI 233 - AT - Service Tax

Levy of service tax or VAT/Sales tax - supply of SIM cards in the course of rendering services - telecommunication services - composite transaction - N/N. 12/2003-ST - appellant submitted that the SIM cards are sold as goods independent of any service element, hence VAT has been correctly paid by them - extended period of limitation - penalty - adjustment of the VAT paid towards the demand for Service Tax. Whether the value of SIM sold by the Appellants as an independent commodity be included in the assessable value of the taxable service under Section 65 (105)(zzzx) of the Finance Act, 1994 for the purpose of levy of service tax? Held that - The SIM Cards purchased by the Appellants from the vendors/ suppliers/ manufacturers of SIM card and those supplied by them are distinct. The ones procured by them are not mapped to their network and are capable of being programmed and mapped to any network. However the SIM s provided by the Appellant are programmed and mapped tow their network. Thus these SIM cards are now the part of the telecommunication network of the appellants and after activation are for the purpose of identifying the subscriber on their network so that he can make or receive the call through their network. Thus the claim of the appellant that the sale of SIM card by the appellant is an independent transaction of sale of goods simplicitor is not tenable, because the same SIM cannot be used for any other purpose other than identifying the consumer on appellants network for provision of telecommunication services. The real test laid down by the Apex Court in the case of IDEA MOBILE COMMUNICATION LTD. VERSUS CCE. & C., COCHIN 2011 (8) TMI 3 - SUPREME COURT OF INDIA is not vis a vis the transfer of SIM or the property in SIM, but the nature of use of the SIM. If the SIM is used for identification of the consumer on network of the mobile operator, then provisioning of SIM is incidental to the service being provided by the operator - there are no merit in the submissions made by the Appellant in respect of non inclusion of the value of SIM in the services provided by them. Benefit of the N/N. 12/2003-ST - Held that - The SIM as programmed and provided by the Appellant to the consumer is always the part of the tele-communication network of the appellant and has no other use other than to identify the consumer on the said network. Since the property in the said SIM in effect is not transferred to the consumer, and the said SIM is only used for activation, identification and provisioning of the telecommunication services to the consumer, the transaction in SIM cannot be said to be one of sale of goods - 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 - benefit of N/N. 12/2003-ST cannot be extended to appellant. Extended period of limitation - Held that - The act of appellant declaring on the CAF that property in the SIM Card is transferred is nothing but an act of misdeclaration, as the property in the part of the mobile network used to identify the consumer on network, their credit and other details, is always with the appellants and not transferred. In fact even the right to use the said SIM also is not being transferred. Hence by mis-declaring the same on same on CAF, appellants have claimed transaction in SIM cards as that of independent sale and thus suppressed the value of services provided by them - extended period rightly invoked. Penalty - Held that - The appellants have suppressed the facts with intention to evade payment of taxes penalty under Section 78 is justified against them. Demand of interest u/s 75 of FA - Held that - Demand of interest is a natural consequence on account of delay in payment of the tax. Since appellants have short paid the tax, interest is demandable from them under Section 75 of the Finance Act, 1994 - demand of interest upheld. Adjustment of the VAT paid towards the demand for Service Tax - 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. The demand of service tax needs to be recomputed after taking into account the service tax already paid by them. Since Commissioner has in his order not considered the said documents and the service tax already paid by the appellants in respect of these transactions, the matter will have to be remanded back for re-quantification of the demand of service tax. Appeal allowed by way of remand.

Summary

Issues Involved:

1. Inclusion of the value of SIM cards in the assessable value of taxable service.
2. Invocation of the extended period of limitation.
3. Imposition of penalties.
4. Adjustment of VAT paid towards the demand for Service Tax.
5. Re-quantification of demand considering service tax already paid.

Issue-wise Analysis:

1. Inclusion of the value of SIM cards in the assessable value of taxable service:

The appellants argued that the SIM cards were sold as goods, independent of any service element, and thus VAT was correctly paid. They contended that the SIM cards should not be included in the assessable value of the taxable service. However, the Tribunal found that the SIM cards procured by the appellants from vendors were distinct from those supplied to consumers. The SIM cards provided by the appellants were programmed and mapped to their network, making them integral to the telecommunication services provided. The Tribunal relied on the Apex Court's decision in BSNL and Idea Mobile Communication Ltd., which held that the value of SIM cards forms part of the activation charges and should be included in the taxable value of the service provided. Therefore, the Tribunal concluded that the supply of SIM cards was incidental to the telecommunication service, and their value should be included in the assessable value of the taxable service.

2. Invocation of the extended period of limitation:

The appellants argued that the extended period of limitation should not be invoked as the facts were known to the department during the audit conducted in 2009, and they acted under a bona fide belief. However, the Tribunal found that the appellants had changed their business practices and marketing strategies without informing the department, resulting in the short payment of taxes. The Tribunal held that the appellants' actions constituted suppression of facts with the intent to evade payment of taxes. The Tribunal referred to various case laws, including Lakhan Singh and Vodafone Digilink Ltd., to support its conclusion that the extended period of limitation was rightly invoked.

3. Imposition of penalties:

The Tribunal upheld the imposition of penalties under Section 78 of the Finance Act, 1994, as the appellants had suppressed facts with the intent to evade payment of taxes. The Tribunal referred to the Apex Court's decision in Vandana Art Prints Pvt Ltd., which held that penalties should be equal to the duty determined. The Tribunal also upheld the imposition of interest under Section 75 of the Finance Act, 1994, as it is compensatory in nature and required to be paid in case of default in payment of tax.

4. Adjustment of VAT paid towards the demand for Service Tax:

The appellants contended that the VAT paid should be adjusted against the demand for Service Tax. However, the Tribunal held that it could not permit such an adjustment as VAT is levied under the State Act and Service Tax under the Central Act. The Tribunal, being a creature of the Central Act, could not determine the transfer and adjustment of VAT paid under the State Act towards the tax liability under a Central Act.

5. Re-quantification of demand considering service tax already paid:

The appellants submitted that they had already paid service tax on the service value forming part of the MRP of the SIM cards for the period from April 2007 to November 2010. They also provided a CA certificate certifying the payment of service tax for the period from April 2012 to March 2013. The Tribunal found that the Commissioner had not considered these documents and the service tax already paid by the appellants. Therefore, the Tribunal remanded the matter to the adjudicating authority for re-quantification of the demand of service tax after allowing the benefit of service tax already paid by the appellants.

Conclusion:

The Tribunal upheld the inclusion of the value of SIM cards in the assessable value of the taxable service, the invocation of the extended period of limitation, and the imposition of penalties and interest. However, it remanded the matter for re-quantification of the demand of service tax after considering the service tax already paid by the appellants. The Tribunal also held that it could not permit the adjustment of VAT paid towards the demand for Service Tax.