TRIBUNAL HAS NO POWER TO ADJUST VAT PAYMENT AGAINST SERVICE TAX

[Mr. M. GOVINDARAJAN]

                        When adjudication is decided against an assessee he has liberty to file appeal against the Adjudicating Authority to appellate authority/Tribunal.   On filing appeal it is obligatory on the part of the assessee to deposit the service tax, interest demanded and confirmed by the Adjudicating Authority along with penalty, if any imposed.  The assessee while filing appeal may file an application before the Appellate Authority/Tribunal with a prayer to dispense with the pre deposit establishing the prima facie case for dispensing with pre deposit. 

                        In ‘Vodafone Essar Limited V. Commissioner of Service Tax, Mumbai’ – 2012 (7) TMI 567 - (CESTAT, MUMBAI) a peculiar situation arises.    In this case the applicant is a service provider providing telecommunication services.  In the course of their business the applicant provides SIM cards to their customers through their dealers.   When the applicant is clearing SIM cards to their dealers which are charged VAT and for providing telecommunication services they charge activation charges on which they are paying service tax.

                        The Department was of the view that the SIM card is an instrument which provides only activation of mobile phone without which the mobile phone could not function.   Therefore the Department came to the conclusion that the sale of SIM card is a part of service.  The Department, therefore, issued show cause notices periodically to the applicant to include the value of the SIM card in the assessable value of the service tax.    The demand was confirmed by the Department.

                        The applicant filed an appeal before the Tribunal  against the above said impugned order passed by the Commissioner of Service Tax, Mumbai.   For entertaining the appeal the applicant is to pay Rs.6.18 crore of service tax along with interest.   The applicant contended that during the pendency of the stay application, the department has already recovered Rs.3.8 crores.   The applicant has already paid Rs.4 crores as VAT for the sale of SIM card.  The applicant contended that the payment of service tax to the Service Tax Department and payment of VAT to the Commercial Tax Department may be treated as sufficient in compliance with the provisions of Section 35F of the Central Excise Act, 1944 read with Section 83 of the Finance Act, 1994.  The applicant further contended that in their own case for the earlier period, the Tribunal has allowed their appeal holding that the amount on sale of SIM card, the service tax is not leviable.   The said decision is pending before the High Court on the appeal filed by the Department. taxmanagementindia.com

                        The Department contended that the Supreme Court in ‘Idea Mobile Communication Limited V. Commissioner of Central Excise and Customs, Cochin’ – 2011 (8) TMI 3 – (SUPREME COURT OF INDIA) was of the view that the SIM card is having no intrinsic sale value and also held that the sale of SIM card is merely incidental to the service being provided and only facility is identification of the subscribers, their credit and other details it would not be assessable to sale tax.  Therefore the applicant is liable to deposit the entire amount for consideration of the appeal by the Tribunal.

                        The Tribunal held after considering the judgment of Supreme Court in the above said case, that the Tribunal was not convinced with the contention of the appellant that the amount paid towards sales tax be considered as sufficient compliance of Section 35F of the Central Excise Act, read with Section 83 of the Finance Act, 1994.  Since the Central Excise Act and the Finance Act, 1994 are special Acts, the Tribunal held that the Tribunal is having no power to adjust the VAT paid against the service tax.   The Tribunal held that the applicant has failed to make out a case for 100% waiver of pre deposit.  The Tribunal directed the applicant to pay the balance amount of service tax with interest to entertain the appeal.