2025 (1) TMI 1204 - AT - Service Tax

Tribunal Rules Vodafone Dealer Not Liable for Service Tax on Commissions; Avoids Double Taxation Under Finance Act, 1994.

M/s. Agarwal Traders Versus Commissioner (Appeals) Central Excise & CGST, Jaipur

The Tribunal ruled that the appellant, a dealer for Vodafone, was not liable to pay service tax on commissions or incentives received for selling and ... Levy of service tax - discount/commission/incentives received from M/s. Vodafone Digilink by way of marketing, selling and distribution of Vodafone products - HELD THAT:- In Chote Lal Radhey Shyam [2015 (11) TMI 979 - CESTAT ALLAHABAD], a Division Bench of this Tribunal while examining this issue, held that 'in this case, BSNL had already paid service tax on the sim cards and recharge coupons sold to the franchisee and again demanding service tax from the franchisee would amount to double taxation which is not permissible in law. Secondly, we find that the appellant is only engaged in purchase and sale of sim cards and recharge coupons and his relationship with BSNL is of principal-to-principal basis. The appellant cannot be termed as an agent of BSNL.' Conclusion - The appellant was not liable for service tax on the commissions or incentives received from Vodafone. Appeal allowed. ISSUES PRESENTED and CONSIDEREDThe core legal issue considered in this judgment was whether the appellant, acting as a dealer for M/s. Vodafone Digilink Ltd., was liable to pay service tax on the commission or incentives received for the sale and distribution of Vodafone products. Specifically, the question was whether such activities fell under the category of 'Business Auxiliary Services' as defined under Section 65 of the Finance Act, 1994, thereby attracting service tax liability.ISSUE-WISE DETAILED ANALYSISRelevant Legal Framework and PrecedentsThe legal framework involved the interpretation of 'Business Auxiliary Services' under Section 65 of the Finance Act, 1994. The definition includes services related to promoting or marketing goods or services on behalf of a client. The Tribunal also referenced precedents, notably the decisions in Chotey Lal Radhey Shyam vs. Commissioner of Central Excise and Service Tax, Lucknow, which were upheld by the Allahabad High Court, and subsequent Tribunal decisions in M/s. True Telecom vs. CST, Raipur and M/s. Ascent Poly Films Pvt Ltd. vs. CCE, Delhi.Court's Interpretation and ReasoningThe Tribunal's reasoning centered on the nature of the relationship between the appellant and Vodafone. The Commissioner (Appeals) had previously determined that the appellant acted as an agent, thereby falling within the scope of 'Business Auxiliary Services.' However, the Tribunal found that this interpretation was inconsistent with the established legal precedents, which clarified that such relationships were of a principal-to-principal nature rather than principal-agent.Key Evidence and FindingsThe Tribunal noted the absence of evidence indicating that the appellant acted as an agent capable of creating a legal relationship between Vodafone and third parties. The Tribunal emphasized that the appellant's activities were limited to the purchase and sale of sim cards and recharge coupons, which did not constitute the provision of a taxable service under the 'Business Auxiliary Services' category.Application of Law to FactsApplying the law to the facts, the Tribunal concluded that the appellant's activities did not attract service tax liability. The Tribunal highlighted that demanding service tax from the appellant, when Vodafone had already paid service tax on the sim cards and recharge coupons, would result in impermissible double taxation.Treatment of Competing ArgumentsThe Tribunal addressed the department's argument that the appellant was promoting Vodafone's business. It countered this by referencing the Tribunal's previous decisions, which established that the appellant's activities were purely trading in nature and did not involve the provision of auxiliary services. The Tribunal dismissed the department's position as inconsistent with both the law and established judicial precedents.ConclusionsThe Tribunal concluded that the appellant was not liable for service tax under the category of 'Business Auxiliary Services' for the commission or incentives received from Vodafone. The Tribunal found that the Commissioner (Appeals) erred in upholding the service tax demand and penalties against the appellant.SIGNIFICANT HOLDINGSThe Tribunal's significant holding was the reaffirmation of the principle that the sale and distribution of sim cards and recharge coupons by dealers do not constitute 'Business Auxiliary Services' when the relationship is of a principal-to-principal nature. This holding aligns with the precedent set in Chotey Lal Radhey Shyam, which was upheld by the Allahabad High Court.Preserve Verbatim Quotes of Crucial Legal ReasoningThe Tribunal quoted the decision in Chotey Lal Radhey Shyam: 'BSNL had already paid service tax on the sim cards and recharge coupons sold to the franchisee and again demanding service tax from the franchisee would amount to double taxation which is not permissible in law.'Core Principles EstablishedThe core principles established by the Tribunal include the prohibition of double taxation and the clarification that trading activities, conducted on a principal-to-principal basis, do not fall under 'Business Auxiliary Services.'Final Determinations on Each IssueThe Tribunal determined that the appellant was not liable for service tax on the commissions or incentives received from Vodafone, setting aside the order of the Commissioner (Appeals) and allowing the appeal. The Tribunal's decision was firmly grounded in legal precedents and the interpretation of the relevant statutory provisions.