2013 (6) TMI 339 - AT - Service Tax

Levy of ST on sale of SIM Cards of BSNL - extended period of limitation - Held that - Interestingly the services of selling agent or a distributor of SIM cards or recharge coupon vouchers have been exempted from service tax vide entry No. 29 in Notification 25/2012-ST dated 20-06-12. So the special nature of services in such cases is recognized though only recently. Though the correct procedure for discharge of the service tax liability by the two parties is that the distributors raise bills for commissions that is due to them along with service tax and BSNL takes Cenvat credit of tax paid by distributors for discharging liability on the telecommunication service provided by BSNL such procedure dos not result in extra realization of Revenue. Considering the special nature of the impugned activities and the fact that it can be easily verified that full taxable value of the service provided by BSNL to customers is subjected to tax we are of the view that there is no case to undo decisions already taken by the Tribunal in this regard This issue has lost relevance for the future because of exemption under Notification 25/2012-ST-S. No. 29 for this type of service. - Demand set aside - Decided in favor of assessee.

Issues Involved:
1. Double taxation on commission received by distributors.
2. Nature of the transaction: sale or service.
3. Applicability of Business Auxiliary Service tax.
4. Previous Tribunal decisions and their relevance post-Apex Court ruling.
5. BSNL's instructions to distributors regarding service tax compliance.
6. Verification of full taxable value and its implications.
7. Exemption under Notification 25/2012-ST.

Issue-wise Detailed Analysis:

1. Double Taxation on Commission Received by Distributors:
The appellants argued that demanding service tax on the commission paid by BSNL to the distributors amounts to double taxation since BSNL already pays service tax on the full value of the sim cards and recharge coupons. The Tribunal acknowledged that taxing the commission separately, after BSNL has paid service tax on the entire value, places the parties at a disadvantage compared to similar cases like BPL Mobile Cellular Ltd., where tax was paid only on the discounted price.

2. Nature of the Transaction: Sale or Service:
The Tribunal noted that the Apex Court in Idea Mobile Communications Ltd. v. CCE clarified that the transaction involving sim cards is a service rather than a sale. The Tribunal recognized that while the transaction might appear as a sale due to the involvement of sim cards, the essential nature is a service provided by BSNL, with the distributor facilitating this service.

3. Applicability of Business Auxiliary Service Tax:
The Tribunal examined whether the distributors' activities fall under "Business Auxiliary Service" as defined in section 65(19)(ii) of the Finance Act, 1994. It concluded that the distributors were promoting and marketing BSNL's services and thus were providing a business auxiliary service to BSNL, making them liable for service tax on the commission received.

4. Previous Tribunal Decisions and Their Relevance Post-Apex Court Ruling:
The Tribunal considered past decisions where demands for tax on commissions were dropped on the grounds of double taxation and the nature of the transaction being a sale. However, the Apex Court's ruling in Idea Mobile Communications Ltd. rendered these decisions less reliable, as it established that the transaction is a service.

5. BSNL's Instructions to Distributors Regarding Service Tax Compliance:
The Tribunal referred to BSNL's Circular No. 1001/26/2002/Taxation/BSNL/568, which directed distributors to register for service tax and comply with relevant provisions. This highlighted BSNL's stance that distributors should independently handle their service tax liabilities.

6. Verification of Full Taxable Value and Its Implications:
The Tribunal emphasized that BSNL pays service tax on the full value of the sim cards and recharge coupons. Therefore, demanding additional tax on the commission paid to distributors, who are essentially part of the same transaction, would result in double taxation. The Tribunal noted that the full taxable value of the service provided by BSNL is easily verifiable.

7. Exemption Under Notification 25/2012-ST:
The Tribunal observed that services provided by sub-brokers, mutual fund agents, and distributors of sim cards or recharge coupons were exempted from service tax under Notification 25/2012-ST dated 20-06-12. This exemption recognized the special nature of these services, though it was introduced after the period in question.

Conclusion:
The Tribunal set aside the impugned order and allowed the appeals, concluding that there was no case to demand service tax on the commission paid to distributors by BSNL, considering the special nature of the transactions and the fact that BSNL had already paid service tax on the full value of the services provided.

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