No Service Tax on Providing Services of Sale And Purchase of SIM Cards on Behalf of BSNL: CESTAT [Read Order]

The Allahabad Bench of the Customs, Excise and Service Tax Appellate Tribunal(CESTAT) has held that no service tax is leviable for providing services of sale and purchase of SIM cards.  The department viewed that the appellant is providing ‘Business Auxiliary Service’ to BSNL.

Saraswati Gas Service, the appellants were appointed franchisees by M/s Bharat Sanchar Nigam Limited (BSNL) for providing services of sale and purchase of sim cards.  The department entertained a view that the appellant is providing ‘Business Auxiliary Service’ to BSNL and is liable to pay service tax on the business auxiliary service. 

A show cause notice was issued for invoking the extended period of limitation to demand of Service tax for the period from 2005-06 to 2007-08 amounting to Rs. 3,84,323/- alongwith interest and penalties under Section 76, 77 and 78 of the Act.  The appellant filed an appeal before the Commissioner (Appeals) who rejected their appeal. 

The appellant is a dealer of BSNL which is a public sector undertaking and has been appointed as dealer on the terms and conditions as contained in the agreement between the parties.  The activity is to effect the sale of BSNL products and income so earned is on account of effecting sales and not on account of rendering any service.

It was alleged that the services provided by the appellant are not covered under Business Auxiliary Service as their transaction with BSNL is on principle to principle basis and the terms commission/rebate/discount have been used interchangeably.  He further submits that the promotion and marketing is an activity in relation to the appellants' own business and as such activity cannot be taxed under any Section of the Act in terms of clauses 24.1, 13.4 and 22 of the agreement with BSNL. 

He also submitted that their agreement with BSNL is a Franchisee Agreement and w.e.f. 16.06.2005 any service provided is covered under franchisee service.  He also submitted that the entire demand is barred by limitation.  He further submits that before the impugned show cause notice dated 31.08.2009 was issued alleging that the appellant has provided Business Auxiliary Service to BSNL by sale to its sim cards and received commission therefore.  The appeal was allowed and the demand of tax, interest and penalty was dropped and the revenue did not challenge the same before the higher authorities. 

He further submitted the fact that the appellant is in the business of selling sim cards/recharge vouchers of BSNL was well within the knowledge of the department when the first show cause notice was issued and therefore, the suppression cannot be alleged in subsequent notices issued for the similar facts to invoke extended period of limitation. 

In the case of Kumar Electronics vs. Commissioner of Central Excise, it was held that “the appellant is providing services to the DTH operators and is getting a commission for such services. If the appellant had paid service tax on such commission, the main DTH operator could have availed Cenvat credit of the same thereby proportionately reducing the amount paid in cash by the DTH operator. Therefore the entire exercise is also revenue-neutral. In view of the above, we find that the issue is no longer res integra. On the SIM cards, recharge coupons etc., where the service tax has been paid on the M.R.P. by the main operator the commission agent/distributor need not pay service tax on the commission received by him because the commission also forms part of the M.R.P. on which service tax has already been discharged.”

A two-member bench comprising 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, set aside the same by allowing the appeal of the appellant with consequential relief.

To Read the full text of the Order CLICK HERE

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