BSNL distributor not liable for service tax on profit margins from prepaid/postpaid SIM cards and vouchers sales

CESTAT Kolkata held that distributor of BSNL prepaid/postpaid SIM cards and vouchers was not liable for service tax on profit margins received. The relationship between appellant and BSNL was buyer-seller, not service provider-receiver. BSNL already paid service tax on wholesale price including distributor margin, making additional demand double taxation. The tribunal followed its earlier decision in identical case involving same appellant. Additionally, show cause notice issued on 30-12-2020 for 2015-16 period exceeded normal limitation period of 30 months under Section 73(1), warranting dismissal on limitation grounds. Appeal allowed, impugned order set aside.

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Issues involved:
The issue involves determination of liability to pay service tax on the income received by the Appellant from the sale of BSNL products, the applicability of Mega Exemption Notification, the nature of the transaction between the Appellant and BSNL, and the period of limitation for demanding service tax.

Details of the Judgment:

1. Nature of Transaction and Liability for Service Tax:
The Appellant, a distributor of BSNL's cellular products, contended that their relationship with BSNL is that of a buyer and seller, with no service provider/service receiver relationship. They argued that the distributor profit margin received by them is not subject to service tax as BSNL already pays service tax on the wholesale price. The Tribunal referred to a previous case where it was held that demanding service tax from the distributor would amount to double taxation, as the transactions are purely trading activities.

2. Applicability of Mega Exemption Notification:
The Appellant claimed exemption under Sl. No.29(f) of the Mega Exemption Notification, which covers selling agents or distributors of SIM cards or recharge coupon vouchers. They argued that no service tax is leviable on the sale of BSNL products as it is a trading activity. The Tribunal found that the Appellant's case fell within the exemption and that the Ld. Commissioner erred in taxing the entire sale value of SIM cards and vouchers.

3. Period of Limitation:
The Appellant contended that the demand for service tax was beyond the normal period of limitation under Section 73(1) of the Act. The Tribunal agreed that the demand was time-barred as the Show Cause Notice was issued after the lapse of 4 years and 9 months from the relevant date. Therefore, the demand was set aside on the ground of limitation.

4. Decision and Conclusion:
Relying on previous decisions and the specific facts of the case, the Tribunal held that the demand for service tax was not sustainable on merits. The impugned order was set aside, and the appeal filed by the Appellant was allowed. Since the demand itself was deemed unsustainable, there was no requirement to impose interest or penalty.

In conclusion, the Tribunal ruled in favor of the Appellant, setting aside the demand for service tax based on the nature of the transaction, the applicability of the Mega Exemption Notification, and the period of limitation for making such a demand.

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