The Chandigarh bench of the Customs, Excise & Service Tax Appellate Tribunal (CESTAT) has held that no service tax under Business Auxiliary Services on commission received from BSNL for dealing with recharge coupon/mobile connection.
M/s S. R. Medical Agencies, the appellant challenged the impugned order dated 15.09.2011 passed by the Commissioner whereby he has confirmed the demand alongwith interest and penalties. The appellant is a “Authorized distributor/Franchisee” of M/s Bharat Sanchar Nigam Ltd. (BSNL).
A show cause notice dated 21.10.2010 was issued to the appellant by the Commissioner of Central Excise, demanding service tax amounting to Rs. 1,15,08,277/- (Service Tax Rs. 1,11,99,118/-; Education Cess Rs. 2,23,982/- & Health and Service Education Cess Rs. 85,177/-) and for invoking the extended period of limitation along with interest under Section 75 of the Finance Act, 1994 and further penalty under Section 76, 77 and 78 of the Act be not imposed.
It was alleged to recover the aforesaid service tax on the total amount of commission of Rs.7,85,55,876.00 (Period 01.04.2005 to 31.03.2010) and discount of Rs.1,97,23,027.00 (Period 01.04.2008 to 31.03.2010) alleged to have been received by the appellant on the ground that the appellant “appears” to have provided services to “BSNL” which fell under the definition of “Business Auxiliary Service” as defined under Section 65 (19) of the Finance Act, 1994. After due process, the Commissioner has passed the impugned order dated 15.09.2011 confirming the following demands.
The appellant submitted that the impugned order passed by the Commissioner is not sustainable in law as the same has been passed without properly appreciating the facts and law. He further submitted that the appellant is not liable to pay service tax on the commission received by them.
It was stated that BSNL has discharged service tax liability on full value equal to MRP (maximum retail price) which was inclusive of the appellant’s discount/ /trade margin earned by the appellant on the sale of prepaid Mobile connections/recharge coupons. Further submitted that they have produced certificate on record which is issued by BSNL wherein they have certified that maximum retail price
of prepaid mobile connections/recharge coupons on which service tax has been discharged/paid by them are including of upfront discount/commission of the appellant who are their authorized distributors.
It was viewed that various benches of the Tribunal has consistently held that the assessee who is dealing with recharge coupon/mobile connection and getting commission from BSNL are not liable to pay service tax under the category of “Business Auxiliary Service”.
On the other hand, the Revenue defended the impugned order and submitted that on perusal of the agreement and the Sales and Distribution Policy under which the appellant was operating as franchisee/agent of BSNL reveals that the procedure relating to sale and accounting has been decided by the BSNL for their franchisees and that the appellant as franchisee/agent are not carrying out the sale of products/services as per the terms laid down by BSNL in the agreement and the Policy.
He further submitted that ultimate service in respect of the products/services is given to the customers in the name of BSNL only. Necessary activation of the services and acknowledgement to the customers is also done by BSNL after due commercial verification which clearly shows that all sales/services are done by the appellants as a franchisee/agent are on behalf of BSNL and BSNL remains de-facto owners of their products/services.
It was observed that the business transaction of the appellant with the BSNL is not on principle to principle basis as the overall control/supervision of the products/services remains with BSNL, even after the sale of product to the customer, as evident from the clauses of the agreement. A two member bench Mr S S Garg, Member (Judicial) and Mr. P Anjani Kumar, Member (Technical) held that “the impugned order is not sustainable in law and therefore, we set-aside the same by allowing the appeal of the appellant with consequential relief, if any, as per law.”
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