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TMI Blog2014 (12) TMI 1141X X X X Extracts X X X X X X X X Extracts X X X X ..... t:- any service which has not been provided by telegraph authority and that have no relationship with connecting telephone apparatus is not covered under telephone connection service. In this case allegation against the respondent is that through their agent, they have provided additional service such as club membership and pioneer offer. The Revenue wants to include the value of club membership and club privilege charges in the value of service relating to telephone connection. All the goods and services provided by the agents of the respondent are the goods and services that have been provided by a person other than the telegraph authority, hence one of the conditions of the definition of service of telephone connection is not fulfilled. On this ground alone the attempt to include the value of 'club membership' and 'club privileges' gets defeated. Inclusion of charges on account of Deceptive advertisements practice - Held that:- The privilege at point (b) is one relating to the service of the telephone connection but its value had always been included in the value of the service provided by the respondent. The agents of the respondent were remitting ₹ 14,400/- per sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TU, Bangalore Vs. Adecco Flexione Workforce Solutions Ltd. reported in [2011 (9) TMI 114 - KARNATAKA HIGH COURT] - as entire amount of service tax and interest has been paid by the respondent before issuance of the show cause notice on pointing out by the revenue, the penalty are not imposable. - Decided against Revenue. - Appeal No. ST/199/2008-Mum - Final Order No. A/1757/2014-WZB/C-I(CSTB) - Dated:- 2-12-2014 - Ashok Jindal and P S Pruthi, JJ. For the Appellant : Shri K M Mondal, Spl. Counsel For the Respondent : Shri V S Nankani, Sr. Adv. Shri Gopal Mundra, CA ORDER Per: Ashok Jindal: The Revenue is in appeal against the impugned order wherein the Ld. adjudicating authority has set aside the demands sought to be confirmed by issuing show cause notice to the respondent and also dropped the penalty against the respondents. 2. The brief facts of the case are that the respondents are engaged in providing telephone connection service covered under Section 65(105)(b) of the Finance Act, 1994. The respondent appointed M/s. Reliance Industries Ltd. (RIL) as an agent to market the TRAI approved Tariff Plans with respect to telephone connections services p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ree incoming calls, free unlimited SMS, free CLIP call waiting services. d. Free subscription to R world. e. Eligible to GSM handset exchange scheme. f. 25% discounts on Web World membership. g. Discount coupon worth ₹ 1,00,000/- on wide range of commonly used products and services. 2.3 Other than an amount of ₹ 14,400/- per subscriber, which was for rental and usage charges of telephone connection service, all other charges collected by the agent from the subscribers of the respondent were retained by the agent as 'club membership' and 'club privileges' charges. 2.4 The respondent to whom an amount of ₹ 14,400/- per subscriber was remitted by its agent as rental and usage charges of telephone connection service, has paid service tax on the said amount during the period March, 2003 to March, 2004. (III) In addition to the above services provided through CDMA technology, the respondent was also providing fixed wireless services, for which it charged ₹ 1,800/- (Rs.800/- towards installation charges and ₹ 1,000/- towards deposit which was refundable only under certain conditions). The respondent a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ross receipts for the services provided by it to their subscribers. Accordingly, the respondent was charged with violations of the provisions of Sections 68 70 of the Finance Act, 1994 and Rules 6 7 of the Service Tax Rules, 1994. The show cause notice, therefore, sought to recover service tax amounting to ₹ 69,14,87,724/- for the period March, 2003 to March, 2004 towards 'club membership' and 'club privileges' charges and ₹ 75,92,541/- for the period June, 2003 to November, 2005 towards non-payment of service tax for the services provided in respect of fixed wireless phones. It was also proposed to appropriate the amount of ₹ 70,76,975/- paid in relation to the said fixed wireless telephone services. The show cause notice also proposed to impose penalties on the respondent under Sections 76, 77 78 and interest under Section 75 of the said Finance Act, 1994. 2.7 In adjudication of the aforesaid show cause notice, the Commissioner vide his order dtd. 13/6/2008 has dropped the demand of ₹ 69,14,87,724/- raised on 'club membership' and 'club privileges' charges both on merits as well as on limitation. The Commissioner ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lected was utilized for providing the said privileges to the subscribers. As per Section 65(7) of the Act. The Assessee means a person liable to pay the service and includes his agent. The marketing agent of the Respondent was providing the telephone connection services including provision of free handsets and other privileges to the subscribes of the respondent. Therefore, the gross amount collected by M/s. RIL was collected on behalf of the respondent only and the same ought to be the taxable value for the purpose of payment of service tax by the respondent. The attempts made by the respondent to isolate the amount collected from the subscribers towards DAP club charges from the purview of service tax would not be legally tenable, more so, as the DAP club charges are integral part of the DAPO scheme which was floated only to garner the subscribers for the taxable services rendered by the respondent. Therefore, the DAP club membership charges and DAP club privilege charges are the part of taxable value of the service provided by the respondent. From the perusal of the DAPO scheme clearly shows that it is a composite scheme of service and supply of free handsets provided to the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t schemes were not the part of the service provided by the respondent. Moreover, the respondent charges were fixed by TRAI and the respondent was not entitled to charge the any amount over and above, the charges were fixed by the TRAI. It is further submitted that the DAP club membership, the agent has provided free handset and on the same he has paid VAT on the notional amount of free handset and as per the decision of Bharat Sanchar Nigam Ltd. Vs. Union of India reported in 2006 (2) STR 161 (S.C.). The Hon'ble Apex Court has examined the nature of transaction involved in providing telephone connection and thereafter made clear that providing of handset by service provider to telephone connection service is the supply of goods and thereby have right to use the goods in providing service telephone connection, the Hon'ble Court held that the nature of transaction involved in providing telephone connection may be a composite contract of service and sale and it was held that price of goods cannot be added to the value of service. In these circumstances, the adjudicating authority has rightly held that the scheme launched by the agent i.e. DAP club and DAP privilege scheme are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mely, DAPO Normal and DAPO-Finance. The details of the Offer are as under: (I) DAPO -Normal:- Customer pays ₹ 21,000/- upfront. The charges collected were for:- i. ₹ 3,000/- as one time club membership charges. ii. ₹ 14,400/- as rental usage charges for telephone service (for 36 months @ ₹ 400/- P.M. Out of ₹ 400/-, ₹ 240/- were for rental charges and ₹ 160/- were for usage charges). iii. ₹ 3,600/- as Club Privilege charges (36 months @ of ₹ 100/- p.m.). (II) DAPO-Finance:- Customer pays ₹ 3,000/- upfront, as 'club membership charges' and 12 postdated cheques, each of ₹ 1,800/- per quarter for three years (aggregating to ₹ 24,600/-) for following purposes: i. ₹ 14,400/- as rental usage charges for telephone service (for 36 months @ ₹ 400/- P.M. Out of ₹ 400/-, ₹ 240/- were for rental charges and ₹ 160/- were for usage charges). ii. ₹ 3,600/- as Club Privilege charges (for 36 months @ of ₹ 100/- p.m.) iii. ₹ 3,600/- as Finance Charges ( for 36 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parlance means connecting two telephone apparatus so as to enable the caller to avail the speech transmission facility with desired person as per the decision of the Hon'ble High Court of Karnataka in the case of N. Krishna Devaraya and others Vs. Union of India AIR 1996 Kant 189. Therefore, any service provided to a subscriber by a telephone authority is taxable services under the ambit of service of telephone connection if that service enables telephone connection of two telephone apparatus so as to enable the caller to avail the speech transmission with the desired person. From the above discussion, it is very much clear that any service which has not been provided by telegraph authority and that have no relationship with connecting telephone apparatus is not covered under telephone connection service. In this case allegation against the respondent is that through their agent, they have provided additional service such as club membership and pioneer offer. The Revenue wants to include the value of club membership and club privilege charges in the value of service relating to telephone connection. 8.1 For taxing any service under the category of telephone connection servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8.2. Section 67 of the Act lays down the law relating to the valuation of taxable services for charging service tax. At the relevant time the main provisions of the said Section read as under:- For the purposes of this Chapter, the value of any taxable service shall be the gross amount charged by a service provider for such service provided or to be provided by him . The laws lays down that the value of the taxable service is the gross value charged for the service provided by the service provider. 8.3 The Marketing Agreement dated 26.12.2002 allowed the agents of the respondent to market the TRAI approved Tariff Plans of the respondent. The Agreement also permitted agents to bundle the Tariff Plans of the respondent with other products and service as the agent deemed fit and offer composite schemes to the subscribers. The agents were also allowed to collect the charges relating the Tariff Plans of the respondent. The agents were, however, not allowed to collect any amount from the subscribers for the services of the respondent other than the amount representing the amount of TRAI approved Tariff Plans of the respondent. The facts of the case clearly show the gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bling the States to levy sales tax on the same transaction in respect of which the Union Government levies service tax. Thereafter the Hon'ble Court examined the provisions of the law and various judicial pronouncements on these questions and in paragraph 85 has given the following answers to the aforesaid five questions. 85 For the reasons aforesaid, we answer the questions formulated by us earlier in the following manner: (A) Goods do not include electromagnetic waves or radio frequencies of the purpose of Article 366 (29A) (d). The goods in telecommunication are limited to the handsets supplied by the service provider. As far as the SIM cards are concerned, the issue is left for determination by the assessing officer. (B) There may be a transfer of right to use gods as defined in answer to the previous question by giving a telephone connection. (C) The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the States to tax the sale element provided there is discernible sale and only to the extent relatable to such sale. (D) The issue is left answered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith the service being provided by the service providers. It makes no difference if the handset is of landline connection or GSM service or CDMA service. The handset has to be compatible with the service being provided by the service provider. Simply because a handset is specifically designed to receive services from a particular service provider would not make it a part of the service rather than the goods involved in a composite transaction in providing the telephone connection. This is more so when the value of such handset is clearly distinguishable from the value of the service of telephone connection being provided by the service provider. The products and services sold by the agents at the time of the marketing the Tariff Plans of the respondent distinguishably showed the value of the Tariff Plans of the respondent and the value of other products and services of the agents. It is not the allegation in the Notice that the value of the telephone is not ascertainable. On the contrary, the allegation is that the handset is so designed that without it the service provided by the respondent could not have been be availed by their subscribers. The value of the telephone handset is d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eration for services and for work done. In such a case, there are really two agreements, though there is a single instrument embodying them and the power of the State to separate the agreement to sell from the agreement to do wok and render service and to impose tax there on cannot be questioned and would stand untouched by the instance judgment . In the present case, under a single contract the services to be provided by the respondent have been sold along with the products and services of the agents. The value of the services of the respondent on the one hand and the value of the services and the goods sold by the agents on the other hand are distinguishable. Service tax has been paid on the value of the services of the respondent. The value of the services of the agents and the value of the goods supplied is also distinctly discernible from the transaction. The agents have paid sale tax on the value declared by them in relation to the supply of goods. The remaining amounts are either for collection charges for financing of the scheme or for the privileges or services provided to the members of the DAP Club. In such a scenario, it is not correct to say that the transactions un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... te proceedings against defaulters who have not paid service tax and interest in spite of service of notice calling upon them to make payment and certainly not to harass and initiate proceedings against persons who are paying tax with interest for delayed payment. It is high time, the authorities will change their attitude towards these tax payers, understanding the object with which this enactment is passed and also keep in mind the express provision as contained in sub-Sec. (3) of Sec. 73. The Parliament has expressly stated that against persons who have paid tax with interest, no notice shall be served. If notices are issued contrary to the said Section, the person to be punished is the person who has issued notice and not the person to whom it is issued. We take that, in ignorance of law, the authorities are indulging in this extravaganza and wasting their precious time and also the time of the Tribunal and this Court. It is high time that the authorities shall issue appropriate directions to see that such tax payers are not harassed. If such instances are noticed by this Court here after, certainly it will be a case for taking proper action against those law breakers. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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