2015 (10) TMI 1111 - HC - Service Tax

Buying and selling of BSNL cards - sale activity or not - whether only commission was paid by the BSNL to the franchisees or not and decision given by the Bangalore Tribunal should be followed or not. Held That - Similar questions have been considered by the CESTAT Principal Bench, New Delhi and the same is answered in favour of the assessee and against the Revenue Decision made in the case of G.R. Movers vs. Commissioner of Central Excise, Lucknow 2013 (6) TMI 339 - CESTAT NEW DELHI followed Decided in favour of the assessee.

Summary

Issues:
1. Interpretation of service tax liability on commission received by a franchisee from BSNL for selling prepaid cards.
2. Applicability of a decision by the Bangalore Tribunal in deciding a similar case.

Issue 1: Interpretation of Service Tax Liability
The case involved a franchisee of BSNL, authorized to trade in prepaid BSNL cards, receiving commissions as per an agreement with BSNL. The franchisee was found liable to pay service tax on the commissions received, categorized as "Business Auxiliary Services." Despite centralized registration for service tax, the franchisee had not paid service tax on the commissions received for prepaid cards, leading to a show cause notice being issued. The Adjudicating Authority confirmed the demand for service tax and imposed penalties under the Finance Act, 1994. On appeal, the Commissioner of Central Excise (Appeals) allowed the appeal, leading to the Department filing an appeal before the Tribunal, which was rejected, prompting the present appeal.

Issue 2: Applicability of Bangalore Tribunal Decision
During the hearing, it was brought to the Court's notice that a similar issue had been considered by the CESTAT Principal Bench, New Delhi, in a case involving G.R. Movers. The CESTAT order highlighted that the distributor, in this case, acted as an intermediary between BSNL and customers, with BSNL selling cards through the distributor and collecting money from customers to pay the distributor. The order emphasized that the transactions of both parties were interconnected, with BSNL discharging service tax on the full value of services provided. Notably, services like selling agent or distributor of SIM cards were exempt from service tax. The order emphasized the verifiability of tax payments and the absence of extra revenue realization from the correct procedure of tax discharge by distributors and BSNL. The order concluded that the issue had lost relevance due to an exemption under Notification 25/2012-S.T., No. 29, for such services.

In conclusion, the High Court dismissed the civil miscellaneous appeal, ruling in favor of the franchisee/respondent and against the Revenue/appellant based on the principles established in the CESTAT order. The Court highlighted the interconnected nature of transactions between BSNL and the franchisee, emphasizing the discharge of service tax by BSNL on the full value of services provided. The judgment underscored the exemption for certain services from service tax and the importance of following correct procedures for tax discharge without resulting in extra revenue realization.