2014 (1) TMI 713 - AT - Service Tax

Waiver of pre deposit - Franchisee agreement - Receipt of SIM cards/recharge coupons with specified face value; while delivering such SIM cards/recharge coupons BSNL has undisputedly paid Service Tax on the face value - Held that - The BSNL documents and communications from BSNL to the applicant prima facie indicate that it is a case of rendering of services by BSNL to subscribers and the applicant is an intermediary in reaching the services to the subscribers. Undisputedly the entire amount including the amount given as discount/commission to the applicant stands taxed at the hands of BSNL. In view of the above we hold that the applicant has made out a prima facie case for waiver of the dues as per the impugned order. Accordingly we waive pre-deposit of dues and stay recovery thereof till the disposal of the appeal - Stay granted.

Summary

Issues:
Interpretation of franchisee agreement in relation to Service Tax liability, applicability of Valuation Rules for Service Tax, invocation of extended period of limitation for demand of Service Tax.

Analysis:

Interpretation of Franchisee Agreement:
The case involved an applicant who had a franchisee agreement with BSNL for cell phone services, leading to a dispute over the payment of Service Tax on the amount retained by the applicant, described as discount/commission. The Tribunal examined the nature of the agreement and the role of the applicant as an intermediary in providing services to subscribers. The Tribunal noted that BSNL had already paid Service Tax on the entire amount, including the portion given as discount/commission to the applicant. Based on the documents and communications from BSNL, the Tribunal concluded that the applicant acted as an intermediary in facilitating services to subscribers, thereby holding that the applicant had a prima facie case for waiver of dues and stayed the recovery of the amount in question pending appeal.

Applicability of Valuation Rules for Service Tax:
The advocate for the applicant relied on the Valuation Rules for Service Tax, specifically referring to a circular amending the rules to treat the gross amount paid by subscribers as the taxable value for telecommunication services. This argument aimed to establish that since BSNL had already paid Service Tax on the gross amount, there should be no further demand on the portion retained by the applicant as discount/commission. The Tribunal considered this submission along with the previous orders and found merit in the contention, leading to the decision to waive the pre-deposit of dues.

Invocation of Extended Period of Limitation:
The applicant's advocate contested the invocation of the extended period of limitation for demanding Service Tax, highlighting that similar issues had been raised earlier by the department and proceedings were dropped. The Tribunal took note of this argument but primarily focused on the interpretation of the franchisee agreement and the applicability of the Valuation Rules. While the issue of the extended period of limitation was raised, the Tribunal's decision to grant a waiver of dues was primarily based on the interpretation of the agreement and the tax treatment by BSNL.

In conclusion, the judgment by the Appellate Tribunal CESTAT Bangalore addressed the complexities of the franchisee agreement in the context of Service Tax liability, considered the impact of Valuation Rules for Service Tax, and deliberated on the invocation of the extended period of limitation for demanding Service Tax. The decision to waive the pre-deposit of dues and stay the recovery highlighted the Tribunal's assessment of the applicant's role as an intermediary and the tax treatment already undertaken by BSNL.