TaxTMI 
TaxTMI 
TaxTMI 
2013 (1) TMI 480
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....epartment of Telecommunications (DOT). 3. To market its products and services the assessee appoints persons who are called "Channel Partners" ['CP' for short]. The CPs are appointed for specified geographical areas. The terms of the Agreement between the assessee and CP need to be specified as the same is of importance for deciding the issues that arise for consideration in these appeals. A copy of Channel Partner Agreement [CPA] dated 16-4-2008 between assessee and one M/s. Aastha Distributors represented by Prop. Mr. Muneer Ahmed was filed before us and it was submitted that the said Agreement is a standard form adopted in the case of all CPs. The terms of the CPA, in so far as it is relevant for the present case, are as follows: (a) CPs are appointed to market products and services of the assessee. (b) Products and services are defined in clause 1(n) as follows: 'Products' and/or 'Service' shall mean one or more of the telecom products and services provided by TTSL either directly or through its distributors, in the Service Area, which includes distribution of mobile handsets, telephone instruments, telecom equipment, network interface uni....
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....tion and periodic Products and Service features which in TTSL's opinion will assist Channel Partner in the performance of its/his/her obligations hereunder. 7.2 Use its best efforts to provide good coverage and grade of Service consistent with market requirements. 7.3 Endeavour to make available and provide to Channel Partner, Products and Service consultations and brochures and other aids, as have been published by TFSL. The quantities will be established by TTSL. 7.4 Make the Consideration to Channel Partner, as contemplated in the Schedule B of this Agreement. 7.5 Communicate/inform Channel Partner on an ongoing basis of all changes in the rates, conditions and Service Areas, as soon as practicable after any such change. 7.6 Assign a representative of contact in TTSL to assist Channel Partner for resolving problems, to support Channel Partner's service efforts or to provide Channel Partner with information pertinent to the Products and Service or other information that 'TTSL would deem necessary/important. 8. Responsibilities, Duties and Obligations of Channel Partner 8.1 Channel Partner shall be responsible for various duties and obligations set forth in this....
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....h or violate any of the terms and conditions of this Agreement and shall also honors and follow such instructions as may be issued by TFSL from time to time; (iv) Accept and abide by any change in the terms and conditions of this Agreement including but not limited to the scope of service, which may in the absolute discretion of TTSL become necessary due to any change in law, rules and regulations or due to market dynamics, or due to any change in the terms or conditions of the said licenses granted by the DOT including any change in- the tariff or which change may be necessary to ensure that the Subscribers, general public get better Service and range of Products; (v) For all times to come, keep strictly confidential all information, data, details, customer lists, Manuals and all other documents, which Channel Partner may receive or acquire from TTSL, by virtue of it/him/her being appointed as TTSL channel partner; (vi) Appoint dealers /retailers /operators to work under it/him/her in the Service Area depending upon the requirements and/or as may be instructed/advised by TTSL from time to time; (vii) Have complete control over such dealers/retailers/operators and ensure ....
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....port promptly to TTSL within 24 hours of any information, which may come to Channel Partner's notice regarding customer complaints or claims or feedback with respect to the Products and Services, Customer needs and interests and local market conditions and shall maintain a separate registers in respect of the same and the communications to TFSL. (viii) Provide a interest free security deposit as may be decided by TTSL from time to time, as a security for due performance and observance of all the terms and conditions of this Agreement, all the instructions from TTSL relating to the rules and regulations governing the Products and Services and any orders in connection therewith by the statutory authorities; (ix) Immediately inform TTSL, if at any point of time in future, any relative of Channel Partner/persons in charge/control of Channel Partner/partners/associates of Channel Partner engaged in any Competing Service. Channel Partner has assured TTSL that at present no such person of Channel Partner is engaged in any business or activity in Competing Service; (x) Be responsible for the rent, rates, taxes and other expenses pertaining to the maintenance of the Outlets and....
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.... (i) Make/s or give/s directly or indirectly, orally or in writing, any guarantees, representations or warranties, express or implied, with respect to the Products and Services, rate packages in the Products and Services, to the Customers or any Person, save and except as may have been expressly authorized by TTSL. (ii) Offer the Products and Service to anyone at rates or prices other than those specified by TTSL or provides incentives or subsidies, which have the effect of doing so. (iii) Engage or do or cause to be done or be a party to any unfair or unethical trade practices or any other business practice with respect to the distribution service or indulge in any illegal or unlawful activities. (iv) Carry on or allow anyone to carry on, at any time in its/his Outlets or any part thereof any other business including the business of any Competing Service or otherwise howsoever associating with any Competing Service. 8.8 Channel Partner expressly agrees that in view of rapidly changing market dynamics, TTSL shall have the right and option to revise the scope of the services to be rendered by Channel Partner from time to time based on the ope....
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....ovides that CP is liable to pay State and local taxes including Sales-tax in relation to the Agreement. (j) Clause 15.2 provides that assessee shall have no obligation to take back products sold to CP. 4. As far as the present appeals are concerned, we are concerned only with mobile telephone services provided by the assessee to its customers through CP. In particular, we are concerned with the Starter Kits and RCVs that are provided by the assessee to CP who, in turn, provide them to the customers to enable them to use the mobile telephone services provided by the assessee. The nature of these services provided by the Assessee needs to be explained. A mobile phone (also known as a cellular phone, cell phone and a hand phone) is a device that can make and receive telephone calls over a radio link while moving around a wide geographic area. It does so by connecting to a cellular network provided by a mobile phone operator, allowing access to the public telephone network. 5. A common component found on all phones is a Subscriber Identity Module SIM card and Removable User Identity Module (RUIM). The SIM has information like the phone number and payment account and this is needed t....
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....ntains the terms and conditions subject to which the services will be provided and availed by the customer. It also contains the SIM card and the telephone number correlating to a particular SIM card number. 10. When the customer avails of prepaid mobile telephone services, he can purchase recharge vouchers from the CPs. The recharge vouchers will enable the customer to use the mobile telephone services equivalent to the value of the recharge vouchers. 11. Apart from Starter packs and Recharge vouchers, the CP also renders services whereby the mobile telephone services are activated, i.e., the customer is linked to the network of the Assessee and can also use the network of other mobile telephone service providers as well as telephone service providers. There is no dispute in these appeals that the charges paid by the Assessee to CP for services rendered for activating the SIM card is in the nature of commission paid by the Assessee attracting the provisions of Sec.l94-H of the Act. 12. The assessee to enable its customers to use its services gives Starter packs as well as recharge vouchers to its CPs. The Assessee raises commercial invoices in respect of each and every sale of ....
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....sessee in consideration for the assessee making payment of fee to the bank. The assessee does not make any payment to banks. When a customer makes payment by credit card of a bank, the bank processes payment to the assessee after retaining for it the fees for processing the payment and remits the remaining sum to the assessee. According to the Revenue the fee retained by the bank is also in the nature of commission and therefore the assessee ought to have deducted tax at source on such payment u/s 194H of the Act. An order u/s 201(1) and 201(1A) of the Act was passed by the AO for assessment years 2005-06 to 2008-09 treating the assessee as assessee in default for not deducting tax at source on the tax so not deducted and levying interest thereon from the date on which tax sought to have been deducted till actual payment of such taxes to the Government. 15. On appeal by the assessee, the CIT(Appeals) held that provisions of section 194H of the Act were not attracted in respect of such payments. The relevant observations of the CIT (Appeals) were as follows: "7. The next ground of appeal is with regard to TDS on credit card payments. The A.O noticed that the appellant company was ....
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....bsp; Assessment Year : 2005-06 Demand raised U/S 201(1) Rs. 38,940/- Interest U/S 201(1A) Rs. 18,922/- Total Rs. 57,862/- Assessment Year : 2006-07 Demand raised U/S 201(1) Rs. 69,449/- Interest U/S 201(1A) Rs. 2 6,016/- Total Rs. 95,465/- Assessment Year : 2007-08 Demand raised U/S 201(1) Rs. 58,253/- Interest U/S 201(1A) Rs. 14,808/- Total Rs. 73,061/- Assessment Year : 2008-09 Demand raised U/S 201(1) Rs. 77,111/- Interest U/S 201(1A) Rs. 10,130/- Total Rs. 87,241/-" 16. Aggrieved by the order of the CIT (Appeals) in holding that provisions of sec.l94H of the Act are not applicable to Credit card payments to banks, the Revenue has filed appeals before the Tribunal being ITA Nos.393 to 396/Bang/2011 for assessment years 2005-06 to 2008-09. 17. When the above appeals of the assessee and the revenue came up for hearing, it was pointed out by the Bench that separate appeals have to be filed in respect of liability arising out of order u/s 201(1) and levy of interest u/s 201(1A) of the Act, though common orders have been passed by the AO as well as the CIT(Appeals) u/s 201(1) and 201(1A) of the Act. Consequent to such directions of the Tribun....
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....ent received or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered (not being professional services) or for any services in the course of buying or selling of goods or in relation to any transaction relating to any asset, valuable article or thing; (ii) "Professional services" means services rendered by a person in the course of carrying on a legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or such other profession as is notified by the Board for the purposes of section 44AA; (iii) Where any income is credited to any account, whether called "Suspense account" or by any other name, in the books of account of the person liable to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly." 20. It is clear from the aforesaid provision that taxes have to be deducted at source by a person responsible for paying any income by way of commission or brokerage. The expression "commission" or "brokerage" has been defined in the explanat....
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....he invoice clearly declares that the goods are being sold by the assessee to CP. It was pointed out that on delivery of RCV (recharge vouchers) starter kit, there is a transfer of ownership in goods from the assessee to the CP. It was also submitted that SIM card is specific and ascertained goods and on delivery to the CP, ownership in SIM card is transfer to the CP. The learned counsel for the assessee placed reliance on the decision of the Hon'ble Supreme Court in the case of CIT v. Ahmedabad Stamp Vendors Association [2012], wherein the decision of the Hon'ble Gujarat High Court was affirmed. The decision of the Hon'ble Gujarat High Court is reported in Ahmedabad Stamp Vendors Association v. UOI [2002] 257 ITR 202. The question before the Hon'ble Gujarat High Court was as to whether the difference between the face value of the stamps and the price at which the licensed stamp vendors get stamps from the Government is commission. On the question as to whether the difference between face value of the stamp and the price at which the Government gives the same to the stamp vendor was commission within the meaning of section 194H of the Act, it was held that there was ....
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.... goods. He placed strong reliance on the decision of the Hon'ble Delhi High Court in the case of IDEA Cellullor Ltd. (supra), Vodafone Essar Cellular Ltd. (Ker.). His submission was that the attempt by the learned counsel for the assessee to distinguish those cases on the ground that the business model in those cases was different, cannot be accepted. In this regard, it was his submission that one has to see the substance of the transaction over the form in which the transaction is sought to be projected. According to him, the substance of the transaction for sale of SIM card and RCV is nothing but a medium through which the customer can avail the services provided by a telecom service provider. Except such use, SIM card and RCV have no intrinsic value and the distributor purchasing the same from the Telecom operator will have no use whatsoever of the SIM card and RCV. It was the learned DR's submission that the agreement between the parties cannot be conclusive in such matters. In substance, difference between the MRP and the price at which the SIM card and RCV are sold to the distributor is only a commission for services rendered by the distributor to enable the Telecom s....
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....uently, the Supreme Court held that both taxes could not possibly apply to the transaction in question and based on the above determination of intent, only one or the other tax would apply. Accordingly, the Supreme Court remanded the matter in the above decision in the BSNL case to the sales tax authorities. M/s. Idea Mobile Communication Ltd., a telecom service provider was also party to the proceedings in the case of BSNL (supra). They challenged the levy of service tax including the value of the SIM card before the Hon'ble Supreme Court. They had also filed appeals before the Central Excise and Service Tax Tribunal (Tribunal) challenging the levy of service tax which were pending when the Hon'ble Supreme Court decided the case of BSNL (supra). After the order of the Hon'ble Supreme Court in the case of BSNL (supra), the Central Excise and Service Tax Tribunal (Tribunal) set aside the imposition of the service tax which decision was, in turn, set aside by the Kerala High Court, which reinstated the original service tax demand. Against the order of the Hon'ble Kerala High Court, M/S. Idea Mobile Communication filed appeal before Hon'ble Supreme Court. In the me....
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.... by a legislation relatable to entry 54 of List II of Seventh Schedule, the tax on the aspect of "services" rendered not being relatable to any entry in the State List, would be within the legislative competence of Parliament under Article 248 read with entry 97 of List I of the Seventh Schedule to the Constitution. We are, therefore, unable to accept the contention of Mr. Ravindranatha Menon that there is any possibility of constitutional invalidity arising due to legislative incompetence by taking the view that "sale" of SIM card is simultaneously exigible to sales tax as well as service tax. Once the "aspect theory" is kept in focus, it would be clear that the same transaction could be exigible to different taxes in its different aspects. Thus, we see no reason to read down the legislation as suggested by Mr. Menon. ** ** ** 47. Conclusions: (a) The transaction of sale of SIM Card is without doubt exigible to sales tax under the KGST Act. The activation charges paid are in the ....
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....t, the amount of tax paid by the assessee could be refunded as the case may be or, the assessee has to follow the law as may be applicable. But we cannot accept a position in law that even if tax is wrongly remitted that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee. The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card. 19. There cannot be any dispute to the aforesaid position as the appellant itself subsequently has been paying service tax for the entire collection as processing charges for activating cellular phone and paying the service tax on the activation. The appellant also accepts the position that activation is a taxable service. The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and p....
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....ter decision of the Hon'ble Supreme Court, those decisions can no longer be considered as binding. We are of the view that the decision of the Hon'ble Delhi High Court in the case of Jai Drinks (P.) Ltd. (supra) as well as the decision of the Hon'ble Gujarat High Court in the case of Ahmedabad Stamp Vendors Association (supra) stand on a different footing. Inasmuch as in both the aforesaid cases, there was a tangible asset which was subject matter of sale. As we have already seen, the Hon'ble Supreme Court has held that SIM card has no tangible value and it is merely a medium through which the customer enjoys the services provided by a telecom service provider. The Hon'ble Supreme Court has taken a view that there is no element of sale involved. In view of the aforesaid decision of the Hon'ble Supreme Court, we do not think that the decisions relied upon by the learned counsel for the assessee and arguments based on the terms of CP Agreement, will be of any assistance. We, therefore have, no hesitation in upholding the order of the CIT (Appeals). 33. The learned counsel for the assessee had made a submission before us that in any event, determination of tax....