By TIOL News Service

MUMBAI, APRIL 30, 2018: VIDE SCN dt. 18.10.2013 issued on the basis of EA-2000 audit conducted, the Appellant were called upon to pay service tax alongwith interest and penalty on the ground that the sale of SIM cards is a taxable communication service provided to the customer as said service has been provided on behalf of M/s RCOM.

The demand was confirmed by the CST, Mumbai with interest and penalty.

Before the CESTAT, the appellant inter alia submitted that the Appellant are not telecom service providers but are merely engaged in supply of SIM cards; that sale of SIM cards to distributor is an independent transaction and separate from marketing and distribution services to RCOM as sale of SIM cards is sale of goods; that the State Government has levied VAT on sale of SIM cards; that distribution of SIM cards is a separate discernible sale transaction liable to sales tax/VAT and no finding was given by the adjudicating authority on this point.

The AR submitted that in view of the apex Court judgment in case of IDEA MOBILE COMMUNICATION LTD - 2011-TIOL-71-SC-ST the issue is squarely settled that the sale of SIM cards is liable for Service Tax.

The Bench observed -

+ 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. No evidence is on record which can show that the sale of SIM card is related to telecommunication services of RCOM. The sale of SIM card is an independent activity without any relation to any other service hence the same cannot be made liable to service tax.

+ The consideration received from sale of SIM cards is retained by the Appellant themselves and not being remitted to M/s RCOM who is telecom operator which shows that the sale of SIM cards is not part of telecommunication service . We thus find that the Appellant is engaged in two separate activities viz. first rendering marketing services to M/s RCOM or billing services and second, sale of SIM cards. These two separate activities not being related to each other does not fall into category of telecommunication service so as to charge service tax from the Appellant on sale of SIM cards on which appropriate VAT has been paid.

+ Pertinently the payment of VAT has been assessed by the VAT authorities and accepted as valid payment.

+ We find that SIM cards are sold by the Appellant to the distributors who in turn sell it to the customers and unless interfaced and integrated with the RCOM's telecom network activated after sale by the distributors to the customers the Telecommunication services do not commence.

+ Further the Appellant is not providing any telecommunication service but only Business Support Service to M/s RCOM under which it is marketing the services of M/s RCOM and is collecting bill payments from its subscribers. In such case even if the Appellant concern may be associate concern of M/s RCOM but cannot be considered as Telecommunication service provider.

+ SIM card is never owned by M/s RCOM. The Appellant is not even holding telecom licence to provide telecom services. 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”.

Distinguishing the apex court decision cited (supra) by the AR, the CESTAT noted that in the said case M/s Idea was themselves the telecom service provider who issued SIM cards to their customer; that the SIM cards were made liable to service tax being part of telecommunication services and in the present case as per the facts narrated the Appellant themselves are not any telecommunication service provider and even the SIM cards have been assessed to VAT which leads to the conclusion that no service tax can be levied on such sale of SIM cards.

Limitation:

++ The Appellant are already registered and were paying service tax under the category of “Business Support Service” on marketing and collection charges received by them from M/s RCOM. Further all the transactions of sale of SIM card stands recorded in books of accounts and have been assessed to VAT. Even the audit party conducted EA-2000 audit found the alleged non-payment of service tax during audit of the records which clearly shows that there is no suppression of facts.

Concluding that the demand and penalties are not sustainable on merits as well as on time bar, the impugned order was set aside and the appeal was allowed.

(See 2018-TIOL-1383-CESTAT-MUM)