2023 (1) TMI 936 - AT - Service Tax

Tribunal rules in favor of appellant, sets aside service tax demand notice due to limitation issue

M/s J.K. Enterprises Versus Principal Commissioner, Central Excise Commissionerate, Alwar

The Tribunal set aside the show cause notice based on the limitation issue alone, ruling that the extended period of limitation for service tax demand was ... Levy of Service Tax - Business Auxiliary Service - providing service to M/s Vodaphone Essar Digilink Ltd. as their franchisee for sale/distribution and marketing of the SIM cards and recharge coupons - demand of service tax alongwith the penalties - Extended period of limitation. Whether extended period of limitation has been correctly invoked in the show cause when on an identical issue a show cause notice was earlier issued to the appellant by the Department? - HELD THAT:- As per Section 73 of the Finance Act, 1994 demand invoking the extended period of limitation can be issued where service tax was not paid by reason of (a) fraud or (b) collusion (c) wilful mis-statement (d) suppression of facts or (e) violation of act or rules with an intent to evade payment of duty. It is a well settled legal principle that “suppression” does not mean mere omission but a positive act of suppressing information with an intent to evade payment of service tax. It is undisputed that in this case, the Department was fully aware of the activities of the appellant and had issued a show cause notice on 26.04.2011. Therefore, the Department cannot allege that it was not aware of the activities of the appellant and that the appellant had suppressed any information - the entire demand in this case is beyond the normal period of limitation. According to the appellant it is trading in SIM cards and recharge coupons and, is not rendering any service to the principal. It is buying the SIM cards from it and selling them to others. Such arrangements are made by various telecom operators whereby they appoint distributors to buy and sell their SIM cards. The case of the Revenue is that since the Supreme Court has held in the case of IDEA MOBILE COMMUNICATION LTD. VERSUS CCE. & C., COCHIN [2011 (8) TMI 3 - SUPREME COURT], that SIM card is not goods and its value is includible to the value of the service provided by the telecom operator, buying and selling of SIM cards can be considered as rendering business auxiliary service to the principal - it is found that this Tribunal has consistently held that buying and selling of SIM cards and recharge coupons does not amount to providing business auxiliary service to the principal in several cases. In the case of M/S. DEVANGI COMMUNICATIONS, M/S. BOOPALAM ELECTRONICS, INDEPENDENT ASSOCIATES, M/S. SOMAYA MARKETING, M/S. VINAYAKA AGENCIES, M/S. MAGNUM VISION, M/S. BHOOPALAM MARKETING SERVICES PVT. LTD. VERSUS THE COMMISSIONER OF SERVICE TAX, & THE COMMISSIONER OF CENTRAL EXCISE BANGALORE-II AND CCE VERSUS SHRI V.M. NAYAK BENNE [2018 (8) TMI 960 - CESTAT BANGALORE], CESTAT has continuously held that telecom operators discharging service tax on the whole MRP value of SIM cards and recharge cards there could be no further service tax liability on the persons who are dealing / selling the said SIM cards or recharge cards to the public. The impugned order cannot be sustained either on merits or on the limitation - Appeal allowed. Issues Involved:- Invocation of extended period of limitation for service tax demand- Whether sale and purchase of SIM cards amount to providing business auxiliary service- Imposition of penalties under Sections 78 and 77 of the Finance Act, 1994Extended Period of Limitation:The appellant argued that the demand was beyond the normal limitation period and the extended period should not have been invoked since a previous show cause notice was issued on the same issue. The Tribunal agreed, citing the Nizam Sugar Factory case and emphasizing that suppression requires a positive act to evade tax, which was not evident here. Consequently, the show cause notice was set aside based on the limitation issue alone.Nature of Service Provided:The central question was whether the sale and purchase of SIM cards constituted a service to the principal company or was merely a trading activity. The Revenue contended that as per the Supreme Court's ruling in Idea Mobile Communication Ltd., SIM cards were not goods but a form of service. However, the Tribunal referred to various precedents and held that buying and selling SIM cards did not amount to providing business auxiliary service. Notably, the Tribunal cited specific cases where similar issues were decided in favor of the appellants, emphasizing that incentives and discounts received did not attract service tax liability.Judicial Precedents and High Court Decision:The Tribunal referenced previous cases where it was established that dealing in SIM cards did not constitute business auxiliary service. Additionally, the High Court's decision in a related matter supported the view that the demand for service tax on the commission received from the principal company was not justified. The High Court's substantial questions of law were answered against the Revenue, further strengthening the appellant's position.Conclusion:The Tribunal concluded that the impugned order was unsustainable both on the merits and the limitation aspect. Therefore, the order was set aside, and the appeal was allowed in favor of the appellant, providing consequential relief. The decision was pronounced on 19/01/2023 by the Tribunal in open court.