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TMI Blog1998 (7) TMI 1X X X X Extracts X X X X X X X X Extracts X X X X ..... r the foregoing reasons and for being a "person responsible for collecting the service tax" in terms of provisions of Rule 2(d)(I)(c) of Service Tax Rules, 1994, was required to comply with the provisions of the service tax law. The company, accordingly, obtained a service tax registration in respect of establishment mentioned above under Section 69 ibid and submitted the quarterly returns in the prescribed form ST-3 in accordance with the provisions of Section 70 ibid. 3. Intelligence revealed that the company has been collecting a part of activation charges in the form of price of SIM (Subscriber Identification Module) Card but was neither collecting nor paying the service tax chargeable thereon. The provisions relevant to this case for determining the value of taxable service as envisaged in Clause (b) of Section 67 ibid were examined; and for the reasons discussed hereinafter, it was viewed that the amount collected by the company should form, the part of value of taxable service for the purpose of service tax. Therefore, a team of the officers of the Anti-Evasion branch, headed by a Superintendent, of this Commissionerate visited the establishment of the company on 18th Decem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fter examining the records. 7. The Company vide their dated 22-12-1997 informed that : - (i) 2995 Nos. of Insta Cash Card recharge coupons of Rs. 1000/-each and 1192 Nos. of Insta Cash Cards of Rs. 3000/- each were supplied free of cost to the distributors. (ii) Rs. 5,22,000/- have been collected by the company by way of deductions from the initial deposit from the subscribers who were given SIM cards free of cost prior to June, 1996, and (iii) The company had issued 98480 Nos. of SIM cards to the subscribers against the payment of Rs. 1000/- each, upto 18-12-1997. 8. The collective amount in respect of (i), (ii) & (iii) above and the amount of service tax @ 5% calculated thereon work out to Rs. 10,54,02,544/- and Rs. 52,70,127/- respectively. 9. As the company has been providing the service through the distributors as well, the names and addresses of the distributors were called from the company who made the same available to this office vides their letter dated 20-3-1998. A copy of the list of distributors was enclosed as Annexure-III to the notice. The distributors named against Serials 2, 6 and 9 in the list were summoned in order to enquire into their working pattern and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cash cards was supplied free of cost. 13. He further admitted that the cash cards received free of cost were further sold to the subscribers against the usual payments. 14. In respect of cash coupons, Shri Gupta stated that against the purchase of cash coupons 500 Nos., the company used to supply 90 cash coupons free of cost and that the cash coupons received free of cost were sold further to the subscribers against the usual price of Rs. 1050/- per coupon (value = Rs. 1000/- + service tax = Rs. 50/-) to the subscribers. 15. Shri Deepak Agarwal, Manager M/s. DNA Marketing and Shri Pradeep Jain of M/s. Jaina Marketing Company also appeared in response to summons on 27-3-1998 and gave the statements as appended to Annexure-IV to the Show Cause Notice and as enclosed as Annexure-V to the notice respectively. Both of them admitted their status of being franchise of the company and stated that the statement given by Shri Ashok Kumar Gupta in respect of SIM cards, cash cards and cash coupons was true in their cases also. Shri Deepak Agarwal produced a copy of written agreement also. 16. A scrutiny of the written agreement signed between the company and M/s. DNA Marketing (enclosed a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat the cash cards and cash coupons, supplied by the company free of cost, reach the subscribers in exchange of usual prices thereof and the amount so received from the subscribers is allowed by the company to be retained by a franchise with him on account of commission. 21. The value of taxable service for the purpose of service tax has to be determined and assessed in terms of provisions of Section 67 ibid of which the relevant portion reads as following :- 67-For the purpose of this chapter, the value of taxable services. (a)................................................................. (b) in relation to telephone connection provided to the subscribers, shall be the GROSS TOTAL AMOUNT (including adjustments made by the telegraph authority from any deposits made by the subscribers at the time of application for telephone connection) received by the telegraph authority from the subscribers. Explanation: - For the removal of doubts, it is hereby declared that the value of taxable service in this clause shall not include the initial deposits made by the subscribers at the time of application for telephone connection. 22. The above provisions are explicit to depict that it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce tax, the service tax collectively amounting to Rs. 2,41,805/- against the value of 1192 cash card and the activation charges thereof, has been collected from the subscribers but not credited to the government exchequer. C.No. CE/ST/Bharti/08/98/2526, dated 3-6-1998 issued by the Commissioner, C. Ex. Delhi-I, New Delhi. 26.For the foregoing reasons, a notice was served on the company i.e. M/s. Bharti Cellular Ltd., D-184, Okhla Industrial Area, Phase-I, New Delhi in terms of provisions of Section 73 ibid to require them to furnish quarter-wise returns in respect of amount discussed hereinafter, within 30 days. In terms of provisions of Section 73 read with Section 74(4) ibid, M/s. Bharti Cellular Ltd. were also called upon to show cause to the Commissioner, Central Excise Commissionerate, Delhi-I, as to why: (i) the amount of Rs. 10,68,32,944/-, as explained and calculated hereinafter, should not be treated the value of taxable service, of the quarters covered by the period of 27-9-1995 to 18-12-1997 in addition to the value mentioned in their ST-3 returns of that period, which escaped the assessment and the service tax @ 50% thereof amounting to Rs. 53,41,647/- charged thereo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r that a person is not a subscriber before he gets a telephone connection. They argued that the status of a person prior to his getting a telephone connection can at best and legally be said to be of an applicant only and not of a subscriber. They thus contended that the amounts charged from a person for any service or thing provided to him before his acquiring the status of subscriber shall not fall within the scope of value of taxable service "provided under Section 67(b) of the Finance Act, 1994. They added that the initial deposits are made by a person as an applicant and not as a subscriber and it is only for this reason that legislative expressly excluded the initial deposits from the scope of value taxable service". Had the cellular phones been in operation at the time of enactment's of the Finance Act, 1994, the value of SIM card would also have been expressly excluded by the legislative like the initial deposits. 30. The company further referred to their written statement and stated that after a person approaches for a telephone connection, his identity is ascertained and if found eligible according to the criterion, he is informed accordingly. The purchase of SIM card by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... E.C. Circular No. 23/3/97-ST, dated 13-10-1997 bears testimony to the effect that the facts relating to the non-collection and payment of Service Tax on the value of SIM card were fully disclosed to the department rights up to the level of C.B.E.C. Therefore invocation of Section 73(a) and the extended time limit are not legally fortified as the department was unable to decide whether the service tax on the value of SIM card is to be collected or not. Thus the proposed demand of service tax for the period prior to the date of issue of the circular is unlawful because such circulars can have only a prospective effect and not retrospective. 34. The party also requested to be heard in person before the adjudication of the case. The personal hearing of the case was fixed for 15-7-1998. 35. Shri Nilamber Marwah, Consultant along with Shri Suman Kumar, Manager (Taxation) of M/s. Bharti Cellular Ltd. appeared for personal hearing. The learned Consultant states that the case of Department is for inclusion of the value of SIM card in the assessable value for the purpose of levy of service tax. In this context he stated that in so far as liability of service tax is concerned, it is as per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of PH today. He also requested for an early decision in the matter. Discussion and findings : 37. I have carefully gone through the records of the case, the company's reply to the show cause notice and the submissions made by them at the time of personal hearing. I observe that SIM card is a computerised chip having its own SIM number on which a cellular telephone number can be activated. SIM card is essential for obtaining a telephone connection. The SIM card as such does not have a significant intrinsic value, as it is simply a plastic card on which IC chip has been embedded. I also find that the SIM card has necessarily, to be the one supplied by the cellular telephone operator from whom the connection is obtained. The SIM card obtained from elsewhere will not work with his net work. Thus in my view, the SIM card is essentially an activation device necessary for operation of the cellular phone I also observe that as per provisions of Section 67 of the Finance Act, 1994 the value of taxable services in relation to telephone connection provided to the subscribers shall be the gross total amount (including adjustments made by the telegraph authority from any deposits made by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ranchise in the form of discount and also by supplying certain quantities of cash card free of costs. In case of cash coupons, the company passes on the amount of commission to a franchise in the form of free of cost supply of certain numbers of cash coupons. I therefore hold that the amount received by the company towards cash cards and cash coupons from the subscribers either directly or through their distributors or franchises shall also form part of taxable value for the purpose of levy of Service Tax. 40. I further find that the company has not been including the value of SIM cards, cash cards and cash coupons in the value of taxable service in their quarterly ST-3 returns submitted under Section 70 of the Act. Also they never disclosed these figures to the department at any stage. Therefore, I find that for the quarters covered under the period 27-9-1995 to 18-12-1997 the company has failed to disclose wholly and truly all-material facts necessary for assessment of ST-3 returns. Therefore, I hold that value of taxable service amounting to Rs. 10,68,32,944/- (including the activation charges of 1192 numbers of cash cards i.e. Rs. 14,30,400/-) as worked out in the notice invol ..... X X X X Extracts X X X X X X X X Extracts X X X X
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