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2013 (11) TMI 918 - AT - Service TaxDemand of service tax - Inclusion of value of SIM cards in the taxable value of telecommunication services - Held that - SIM cards/ Recharge Coupons are not goods but service and service tax alone can be levied on the supply of such cards/coupons. While considering the case of Vodafone India Ltd. by the hon ble Bombay High Court, these decisions of the Kerala and A.P. High Court was not brought to the notice of the Court and therefore, the said decision has to be considered as per incuriam . In view of the above factual and legal position, we hold that the benefit of Notification NO.12/2003-ST will not be available to the appellant and service tax has to be paid on the gross amount charged for the supply of SIM cards. Therefore, the demand of Service Tax confirmed by the adjudicating authority is sustainable in law and we hold accordingly - Following decision of Commissioner of Central Excise & Customs, Cochin Versus Idea Mobile Communication Ltd. 2008 (9) TMI 292 - KERALA HIGH COURT , THE STATE OF ANDHRA PRADESH Versus M/s BHARAT SANCHAR NIGAM LTD, HYDERABAD 2011 (9) TMI 216 - Andhra Pradesh High Court - Decided against assessee. What is the rate of tax that should apply, that is, whether the rate prevalent at the time of rendering of the service or the rate prevalent at the time of receipt of payment for the services rendered, especially in a case when payment is received in advance - Held that - rate of tax that should apply in respect of service tax is the rate prevalent at the time of rendering of the service and not the rate prevalent at the time of receipt of consideration or the rate prevalent on the date of payment of tax as that would create uncertainties. The basic feature of a tax system is its certainty. Therefore, any interpretation that leads to uncertainties should be eschewed - Following decision of Maharashtra Chamber of Housing Industry vs. U.O.I. 2012 (1) TMI 98 - BOMBAY HIGH COURT - Decided against assessee. Whether the extended period of time could have been invoked for demand of service tax - Held that - Adjudicating authority has held that only normal period of time would apply in respect of demand of service tax on the gross amount charged as the records of the appellant had been audited by the Department and no suppression could be alleged. If that be so, in respect of application of rate of tax on the balance of talk time available in respect of pre-paid SIM cards/re-chare coupons and the rental advance, the same logic should apply. Therefore, we hold that in respect of these demands also, the normal period of time shall only apply and not the extended period of time. Demand of service tax on the gross amount charged for the supply of SIM cards/re-charge coupons. We also hold that such supply does not constitute supply of goods and the provisions of Notification No.12/2003-ST has no application. We also uphold the demand of differential service tax on advance rentals received and balance of talk time available at the enhanced rates w.e.f. from 13-5-2003 and 10-9-2004. However, the demands shall be sustainable only for the normal period of limitation and the service tax shall be recomputed for the normal period. On such recomputed demand, interest liability would accrue. Penalty under section 76 shall also apply on such recomputed demand.
Issues Involved:
1. Inclusion of the value of SIM cards in the taxable value of telecommunication services. 2. Applicability of differential service tax rates on advance rentals and balance talk time. 3. Invocation of the extended period for demanding service tax. 4. Imposition of penalties under sections 76 and 78 of the Finance Act, 1994. Detailed Analysis: 1. Inclusion of the Value of SIM Cards in the Taxable Value of Telecommunication Services: The primary issue was whether the value of SIM cards should be included in the taxable value of telecommunication services. The appellant argued that they had discharged service tax on activation charges and that the value of SIM cards, which they considered goods, should be excluded from the taxable value. They relied on Notification No. 12/2003-ST and the Bombay High Court decision in Vodafone India Ltd. However, the Tribunal referred to the Kerala High Court's decision in Idea Mobile Communication Ltd. and the Andhra Pradesh High Court's decision in Bharat Sanchar Nigam Ltd., which held that SIM cards are not goods but part of the telecommunication service. The Tribunal concluded that the value of SIM cards forms part of the taxable service and thus, the benefit of Notification No. 12/2003-ST is not applicable. Consequently, the demand for service tax on the gross amount charged for SIM cards was upheld. 2. Applicability of Differential Service Tax Rates on Advance Rentals and Balance Talk Time: The appellant contended that service tax should be discharged at the rates prevalent on the date of receipt of consideration, not at the enhanced rates effective from later dates. They relied on Rule 6 of the Service Tax Rules, 1994, and the Tribunal's decision in Vigyan Gurukul. The Tribunal, however, clarified that the taxable event is the rendering of the service, not the receipt of consideration. It emphasized that Rule 6 is a machinery provision for collection and cannot override the levy provision in Section 66 of the Finance Act, 1994. The Tribunal cited several High Court and Supreme Court decisions, including the Gujarat High Court in CCE vs. Schott Glass India Pvt. Ltd., which supported the view that the rate of tax applicable is the one prevalent at the time of rendering the service. Therefore, the Tribunal upheld the demand for differential service tax at the enhanced rates. 3. Invocation of the Extended Period for Demanding Service Tax: The Tribunal noted that the Adjudicating Authority had restricted the demand to the normal period for the main demand due to the absence of suppression of facts, as the appellant's records had been audited. The Tribunal extended this logic to the other demands (advance rentals and balance talk time) and held that the extended period of time should not apply. Therefore, the demands were sustainable only for the normal period of limitation. 4. Imposition of Penalties Under Sections 76 and 78 of the Finance Act, 1994: The Tribunal distinguished between penalties under sections 76 and 78. Penalty under section 76, which is for the default in payment of tax by the due date, was upheld as it does not require mens rea and is based on the period of delay. However, the penalty under section 78, which requires suppression or willful misstatement, was set aside due to the absence of suppression of facts by the appellant. Conclusion: The Tribunal upheld the demand for service tax on the gross amount charged for SIM cards/recharge coupons, rejecting the applicability of Notification No. 12/2003-ST. It also upheld the demand for differential service tax on advance rentals and balance talk time at the enhanced rates, but limited the demands to the normal period of limitation. Penalty under section 76 was sustained, while penalty under section 78 was set aside. The appeal was disposed of accordingly.
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