2018 (5) TMI 410 - AT - Service Tax

Nature of activity - sale or service? - business of purchase/ sale of Sim Cards to various distributors across the country under an agreement with such persons - Appellant were called upon to pay service tax alongwith interest and penalty on the ground that the sale of Sim cards is taxable communication services provided to the customer as said service has been provided on behalf of M/s RCOM. Held that - the Appellant are engaged in the activity of providing Business Support Service to M/s RCOM under which it is providing billing and collection services to RCOM under an agreement. In addition to same they are also engaged in separate activity of selling of SIM cards and other hardware to the distributors who are selling it onwards to customers - the Appellant is not providing any telecommunication service to any person or subscribers. Hence in such case there is no principal service or dominant service to which the sale of sim card can be related. In the present case the Appellant has separately sold the Sim cards to the distributors and therefore cannot be considered as rendering of services to subscribers of RCOM. Further such transactions having been accepted to be liable for VAT cannot be subjected to service tax under the category of Telecommunication Services . The adjudicating authority has not given any findings as to how the sale of sim cards by the Appellant is part of the telecommunication services of RCOM when the sale of sim cards is a separate transaction. In such case we find that in absence of any cogent reasons the demands is not sustainable. Time limitation - penalty - Held that - there is no deliberate attempt on the part of Appellant to evade payment of tax - extended period of limitation and penalty cannot be invoked. Appeal allowed - decided in favor of appellant.

Issues Involved:
1. Classification of services provided by the Appellant.
2. Taxability of sale of SIM cards.
3. Applicability of VAT versus Service Tax.
4. Invocation of extended period of limitation.
5. Imposition of penalties.

Detailed Analysis:

1. Classification of Services Provided by the Appellant:
The Appellant is engaged in providing various services including Online Database or Information Access & Retrieval Services, Business Auxiliary Services, Business Support Service, and Maintenance & Repair Service. Specifically, the Appellant provides marketing, distribution, billing, and collection services for Reliance Communication Ltd. (RCOM) and classifies these services under "Business Support Service." The Appellant argues that their role is limited to marketing and billing services for RCOM and does not extend to providing telecommunication services.

2. Taxability of Sale of SIM Cards:
The core issue is whether the sale of SIM cards by the Appellant is taxable as part of telecommunication services. The adjudicating authority argued that the sale of SIM cards is an integral part of telecommunication services provided by RCOM and thus taxable. However, the Appellant contends that the sale of SIM cards is a separate, independent transaction subject to VAT, not service tax. The Tribunal found that the Appellant is not providing telecommunication services but is engaged in two distinct activities: marketing services for RCOM and the sale of SIM cards to distributors. The sale of SIM cards is considered an independent transaction unrelated to the provision of telecommunication services, and thus not liable for service tax.

3. Applicability of VAT versus Service Tax:
The Appellant paid VAT on the sale of SIM cards, which was assessed and accepted by VAT authorities. The Tribunal noted that the sale of SIM cards is an independent activity, and the consideration received from the sale is retained by the Appellant, not remitted to RCOM. The Tribunal emphasized that the sale of SIM cards is a transaction of goods, not services, and thus falls under the purview of VAT, not service tax. The Tribunal referenced the Supreme Court's decision in BSNL Vs. UOI and M/s Imagic Creative Pvt. Ltd. vs. Commissioner of Commercial Taxes, which support the mutual exclusivity of VAT and service tax.

4. Invocation of Extended Period of Limitation:
The adjudicating authority invoked an extended period of limitation to confirm the demand and impose penalties. The Tribunal found no deliberate attempt by the Appellant to evade tax. The Appellant was already registered and paying service tax under "Business Support Service" for other activities. The transactions of SIM card sales were recorded in the books and assessed to VAT. The alleged non-payment of service tax was discovered during an EA 2000 audit, indicating no suppression of facts. Therefore, the Tribunal held that the extended period of limitation was not applicable.

5. Imposition of Penalties:
Given the findings on the merits and the inapplicability of the extended period of limitation, the Tribunal also found no grounds for imposing penalties. The Appellant's activities were transparent, and there was no evidence of tax evasion or suppression of facts.

Conclusion:
The Tribunal concluded that the demand and penalties were not sustainable on merits or on the grounds of time bar. The impugned order was set aside, and the appeal was allowed. The Tribunal emphasized that the sale of SIM cards is an independent transaction subject to VAT and not service tax, and the Appellant's activities were distinct and separate from the provision of telecommunication services.

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