ST - Telecom Service - During April 2003 to Sept 2006, distribution of prepaid recharge vouchers, free of charge to dealers as commission for sale effected by them, does not attract ST liability: CESTAT
By TIOL News Service
MUMBAI, JUNE 18, 2015: THE appellants are registered for providing "telephone services".
The model of business is that the appellant sells the pre-paid SIM Cards to their dealers on the MRP/RSP mentioned on the SIM Cards and discharges the service tax liability as indicated on the SIM Cards.
Appellant does not give any commission on the RSP/MRP mentioned on the SIM Cards, instead provides prepaid recharge vouchers, free of charge to the dealers as commission for the sale effected by them. The amount collected by selling these vouchers is fully retained by the dealers as commission and no amount is paid to appellant.
It is the case of the Revenue that the service tax needs to be paid on such recharge vouchers distributed free by the appellant which also includes an element of service tax which has not been deposited in the Government treasury.
A SCN dated 01.09.2008 was issued to the appellant demanding differential service tax, interest thereof and penalties were proposed on amount of recharge vouchers distributed free by them during the period 01.04.2003 to 30.09.2006.
As the demand was confirmed by the CST, Mumbai the appellant is before the CESTAT.
It is submitted that the provisions of Section 67 relevant during the period envisaged the discharge of service tax liability on gross amount charged by the service provider for the services rendered; that the distribution of free recharge voucher was amounting to commission given by them to the dealer; they have already discharged the service tax liability on the amount received from the dealer for the sale of SIM Cards which according to them is not in dispute; that the provisions of Section 67 and the Explanation thereof did not include the value of any amount which has been given free of charge.
Board's Circular No. 62/11/2003-ST dated 21.08.2003 indicates that if the value charged is "zero" the tax will also be "zero" even if the service is taxable, submitted the appellant.
It is also submitted that subsequent to introduction of Point of Taxation Rules, 2011, the Board vide Circular No. 334/3/2011-TRU dated 28.2.2011, specifically clarified that the said valuation rules will be effective from 01.03.2011 and explanation added to Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 indicates that the value shall be the gross amount charged from the subscriber; that since the clarification is effective from 01.03.2011 the question of applying the same for the period in question will not arise.
Reliance is placed on the decisions in BPL Mobile Cellular Ltd. - 2007-TIOL-1108-CESTAT-MAD (affirmed by the Supreme Court), Reliance Communication Ltd. - 2008-TIOL-1511-CESTAT-MUM, Tata Tele Services Ltd. - 2015-TIOL-775-CESTAT-MUM.
The AR stood by the findings recorded by the adjudicating authority.
The Bench after extracting the provisions of s.67 of FA, 1994 as existing during the relevant period inter alia observed -
++ It is to be noted that the recharge voucher are distributed free of cost, appellant has not received any amount towards the recharge voucher, though the distributors/dealers have sold the recharge vouchers. In our view distribution of recharge voucher fee of cost to the distributors/dealerswould in a way amount to giving commission to the dealer for the transactions of sale of prepaid SIM Cards for the appellant.It can also be noticed that during the relevant period the Explanation as per the Section 67 of Finance Act, 1994 (herein above reproduced) also do not indicate inclusion in that gross value of any cost towards free distribution made by the service provider.
++ We perused the said provisions of Rule 6(1) of Service Tax (Determination of Value) Rules, 2006 [w.e.f 19.04.2006] and note that it does not include the "Telephone Services" by any stretch of imagination.
++ Subsequently the said Service Tax (Determination of Value) Rules, 2006 were amended or substituted with effect from 01.07.2012 and the provisions for inclusion/exclusion of the value under Rule 5 were further explained by an Explanation in respect of telecommunication services which reads as under:-
"Explanation.- For the removal of doubts, it is hereby clarified that for the value of telecommunication service shall be gross amount paid by the person to whom telecommunication service is actually provided".
(Emphasis ours)
++ It can be seen from the above, the said explanation is now from 01.03.2011 states categorically that the gross amount paid by the person to whom telecommunication service is actually provided is the amount on which tax liability is to be discharged which would mean that prior to 01.03.2011, the amount received by telecommunication provider from the dealer is the amount received for the services provided by the service provider.
Noting that the Board Circulars and the case laws cited by the appellant are applicable to the case on hand, the CESTAT held the o-in-o was not sustainable and, therefore, set aside the same.
The appeal was allowed.
(See 2015-TIOL-1173-CESTAT-MUM )
