2024 (9) TMI 239 - AT - Service Tax

Scope of SCN - activity of provision of telecommunication services by the appellants, during the disputed period, involved receipt of any consideration; or was any service provided without any consideration/ free of charge - activities undertaken by the appellants for provision of telecommunication service - exempted service , in terms of Explanation 3 to Rule 6(1) of the CCR, when read with the definition of service under Section 65B(44) of the Act of 1994 or otherwise - telecommunication service provided by the appellants through M/s RRL, as Master Distributor - services are not provided to the subscribers and only provided to such distributor - Explanation 3 to Rule 6(1) of the CCR - ignoring the provisions of the Point of Taxation Rules, 2011 while determining the issue whether services had been provided without consideration - extended period of limitation invoked u/s 73 of the Act of 1994 read with Rule 14 of the CCR - interest and penalty. HELD THAT - In the present case, the facts are not in dispute that the appellants have appointed M/s. RRL, as the Master distributor, who in turn, manages the entire supply chain of distribution of services, provided by the appellants. Telecommunication service can only be provided by Unified License holder(s), who have been issued with the license by the Department of Telecommunication (DoT), Government of India, under the Indian Telegraph Act, 1885. The persons/agencies (more particularly, M/s RRL) involved in the supply chain, were only for the purpose of facilitating ultimate usage of such service by the consumers, with whom the appellants have the contractual agreement. Thus, mere involvement of the agencies in the supply chain cannot change the nature of telecommunication service, which are being provided by the appellants to their subscribers and for that purpose, were also duly recognised by the Regulatory Authorities. The contract (CAF) has to be examined for determining the point of time, when the service is deemed to be provided. On going through the CAF and taken note of the clauses therein to the effect that the subscribers have agreed to pay all charges raised on account of services provided and that they have also agreed to the variation in the tariff charges. Insofar as the subscribers who are within the specified threshold of 100 SMS and 4 GB data are concerned, the point of taxation is the point of time when such subscribers become contractually obliged to pay for the services. It is relevant to note qua the subscribers whom the point of taxation did not arise till 31.03.2017, the same arose under the new tariff plans as applicable from 01.04.2017, which mandated every subscriber to pay for a minimum recharge amount. An element of consideration was always present in the provision of telecommunication service, as a continuous supply of service, during the disputed period. Therefore, the observations of the learned adjudicating authority that the telecommunication service provided by the appellants free of charge/without consideration to the subscribers, during the period 05.09.2016 to 31.03.2017, falls under the category of exempted service , is not proper and justified. Even if a view is taken that an activity without consideration is an exempt service by virtue of Explanation 3, such a view will not help the case of Revenue in any manner inasmuch as, the value of such an exempted service would have to be necessarily nil , in view of Explanation 4. The said Explanation 4 stipulates that the value of the exempt service shall be the invoice/agreement/contract value, which undisputedly as per the Revenue s own say is NIL , in the facts of the present case. Whether, the learned Commissioner was justified in disallowing the entire amount of CENVAT credit availed on input, input services and capital goods, by applying the provisions of Rule 6(3)(i) of the CCR? - HELD THAT - Though the learned Commissioner does not dispute that disallowance under Rule 6 of the CCR cannot cover capital goods, he has held that the appellants had incorrectly considered certain inputs as capital goods. According to the learned Commissioner, the capital goods whose value were below Rs.10,000/- per piece were required to be treated as inputs and not as capital goods. Instead of quantifying the quantum of such instances, the learned Commissioner has treated all CENVAT credits taken on capital goods, as pertaining to inputs. It is found that such an approach is perverse, in absence of any specific provisions contained in the statute to such extent. According to the appellants, the quantum of CENVAT credit on the capital goods, whose value was less than Rs.10,000/- per piece, was Rs.6,90,70,509/-. The quantification of demand of the disallowance amount under Rule 6(3)(b) of the CCR is therefore, inflated to the extent of Rs.4724,77,29,885/- and accordingly, the impugned order, to the extent it has denied the CENVAT credit on the entire capital goods is without any legal basis. Time Limitation - HELD THAT - The entire dispute had arisen from verification of the details submitted by the appellants and it is an issue of interpretation by the departmental authorities that such services provided during the disputed period has to be considered as an exempted service , in terms of Explanation 3 appended to Rule 6(1) of the CCR - The department, in the present case, had not relied upon any evidence, other than those furnished by the appellants under the cover of the periodic returns and that submitted during the course of investigation proceedings. Thus, it cannot be said that there is element of suppression of fact, mis-statement etc., which justify invocation of the extended period of limitation. It has also been contended by the learned ASG that the appellants have requested TRAI not to share information, we find that this submission besides being irrelevant is incorrect, as it is TRAI, which has under cover of its letter 19.08.2021, while being requested to furnish copy of Accounting Separation Report (ASR) filed with them informed the department that the covering letter under cover of which the same was filed by the appellants had a request to the authority to maintain confidentiality. This cannot be a basis to contend that TRAI did not share information at the behest of the appellants - the ruse of the so-called information not having been furnished at the behest of the appellants is not a submission available to the Revenue. Therefore, there is no legal basis for invoking the extended period of limitation provided in the proviso to Section 73(1) of the Act of 1994, for confirmation of the adjudged demands on the appellants. Interest and penalty - HELD THAT - Since the service tax demand is not sustainable in view of the discussions made in the foregoing paragraphs, the demand for interest and penalty are also not sustainable. Even otherwise, there was no justification of ordering for recovery of interest on the amount determined as payable under Rule 6(3)(b) of the CCR, since the appellant had CENVAT credit balances far exceeding amounts determined as payable. There are no substance in the impugned order dated 10.12.2022, insofar as it has confirmed the adjudged demands on the appellants. Therefore, the impugned order is set aside - appeal allowed.

Summary

Issues Involved:
1. Whether the order passed by the learned Commissioner has traversed beyond the scope of the Show Cause Notice (SCN)?
2. Whether the activity of provision of telecommunication services by the appellants, during the disputed period, involved receipt of any consideration; or was any service provided without any consideration/free of charge?
3. Whether the activities undertaken by the appellants for provision of telecommunication service can be regarded as 'exempted service' in terms of Explanation 3 to Rule 6(1) of the CENVAT Credit Rules (CCR) when read with the definition of 'service' under Section 65B(44) of the Finance Act, 1994?
4. When the telecommunication service provided by the appellants through M/s RRL, as Master Distributor, can it be said that the services are not provided to the subscribers and only provided to such distributor?
5. Whether, for the purposes of Explanation 3 to Rule 6(1) of the CCR, an activity which is not specifically listed in the exclusion portion of the definition of 'service' in Section 65B(44) of the Finance Act, 1994, can be regarded as an 'exempted service' for the purposes of Rule 6 of the CCR, merely by reason of the fact that no consideration was specifically and separately charged for such an activity?
6. Assuming that the activity specified in (5) above is an exempted service by virtue of Explanation 3, what would be the value of such an exempted service for the purpose of Rule 6(3)(i) of the CCR, particularly in view of Explanation 4 appended to such rule?
7. Whether the learned Commissioner was correct in completely ignoring the provisions of the Point of Taxation Rules, 2011 while determining the issue whether services had been provided without consideration?
8. Can the extended period of limitation be invoked under Section 73 of the Finance Act, 1994 read with Rule 14 of the CCR for confirmation of the adjudged demands on the appellants?

Issue-wise Detailed Analysis:

1. Scope of the Show Cause Notice:
The Tribunal found that the order passed by the learned Commissioner had indeed traversed beyond the scope of the SCN. The SCN alleged that telecommunication services provided to subscribers were partly non-exempt (Interconnection usage charges and prepaid vouchers) and partly exempted (activities provided free of charge without consideration to the subscribers). However, the Commissioner concluded that revenues from the sale of prepaid vouchers were not consideration for telecommunication services to subscribers but to RRL. This reasoning was not part of the SCN, rendering the order unsustainable.

2. Receipt of Consideration:
The Tribunal held that the telecommunication services provided by the appellants involved receipt of consideration. The appellants had earned revenue from Interconnection Usage Charges (IUC) and sale of vouchers during the relevant period. The Point of Taxation Rules, 2011, which treat telecommunication services as continuous supply of service, were ignored by the Commissioner. The Tribunal concluded that the services provided were not free of charge.

3. Exempted Service:
The Tribunal concluded that the telecommunication services provided by the appellants do not fall under the category of 'exempted service' as per Explanation 3 to Rule 6(1) of the CCR. The services were provided for consideration, and the IUC charges were part of this consideration. Therefore, the services cannot be deemed exempted.

4. Services Provided to Subscribers vs. Distributor:
The Tribunal held that the services were provided to subscribers and not to the distributor (RRL). The role of RRL was merely to facilitate the distribution of services to the subscribers. The Commissioner's conclusion that services were provided to RRL was found to be incorrect.

5. Activity Without Consideration:
The Tribunal held that activities without consideration are not covered by Explanation 3 to Rule 6(1) of the CCR. The definition of 'service' under Section 65B(44) of the Finance Act, 1994, includes activities for consideration. Therefore, activities without consideration cannot be deemed exempt services.

6. Valuation of Exempted Service:
The Tribunal held that even if an activity without consideration is deemed an exempt service, its value would be 'nil' as per Explanation 4 to Rule 6(1) of the CCR. Therefore, the appellants would not be liable to pay 7% of the value of exempted services.

7. Point of Taxation Rules:
The Tribunal found that the Commissioner completely ignored the Point of Taxation Rules, 2011, which treat telecommunication services as continuous supply of service. This was a significant oversight, as these rules determine when the service is deemed to be provided and when the consideration becomes due.

8. Extended Period of Limitation:
The Tribunal held that the extended period of limitation under Section 73 of the Finance Act, 1994, could not be invoked. The appellants had disclosed all relevant information in their periodic returns and during the investigation. There was no evidence of fraud, collusion, or suppression of facts with intent to evade tax. Therefore, the demand was time-barred.

Conclusion:
The Tribunal set aside the impugned order dated 10.12.2022, finding it unsustainable on both merits and limitation. The appeal was allowed in favor of the appellants, and the demands for service tax, interest, and penalties were quashed.