TaxTMI 
TaxTMI 
2014 (2) TMI 531
X X X X Extracts X X X X
X X X X Extracts X X X X
....pear as amicus curiae with the assistance of Mr. Chirag Shah, Advocate. Since the petition has been drafted by a party in person, many of the issues which would arise for consideration have not been set out as succinctly as would be expected of a presentation by a legal draftsman. Hence, during the course of the hearing, the learned amicus curiae has formulated the issues which would arise, the factual background and the applicable provisions of law. We now proceed to summarize the gist of what has emerged before the Court. 2. The issues in the PIL pertain to recovery of taxes on account of - (i) Levy of Service Tax on providing of services by telecom operators to various customers; (ii) Tax deduction at source on the commission/brokerage paid by the Telecom Service Providers to distributors and by distributors to retailers. 3. The above issues are only in respect of what is known as "prepaid cellular connections". Insofar as postpaid connections are concerned, the Service Tax is recovered by the cellular operators by raising a bill and recovering the amount from the bill for a specified service period. The bill is required ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r purchases talk-time from the distributor and the credit of talk-time is reflected on the Mother-card of distributor as well as card of the retailer [Demo-card]. The customer purchases the talk time from the retailer by paying the exact amount. The retailer enters the details on his Demo-card and the data is fed to Mother-card of distributor. Then as soon as the retailer activates the connection, the same message is passed on to the distributor and after clearance from his Mother-card to the server, the connection of the customer is activated. In this process, the retailer's Demo-card balance is gifted with additional free talk-time, which the retailer sells to other customers. As per my estimation if a retailer purchases a talk-time of Rs. 2,00,000/-, he gets additional talk-time without any records amounting to Rs. 1,50,000/- approx. This Rs. 1,50,000/- additional talk-time received directly from the source of operator to the Mother-card of distributor and to the Demo-card of retailer is only reflected on the instrument/handset and the said additional talk-time is neither recorded nor considered for Services Tax payment. There are number of schemes were the cash c....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of taxable services. (3) Taxable services were defined under Section 65(105)(zzzx) to mean service rendered "to any person by the telegraph authority in relation to telecommunication services". (4) "Telegraph Authority" is defined under Section 65(111) of the Finance Act, 1994 as the authority under Section 3 of the Indian Telegraph Act, 1885. Section 3(6) of Telegraph Act reads thus : "'Telegraph authority' means the Director General of Posts and Telegraphs, and includes any officer empowered by him to perform all or any of the functions of the telegraph authority under this Act." (5) Section 4 of Indian Telegraph Act confers upon the Central Government exclusive privilege of providing telegraph. The Central Government can confer upon any other person the said privilege. The cellular telecom operators are licensees under Section 4 and, therefore, fall within the definition of "telegraph authority" as defined under Section 4 of Indian Telegraph Act, 1885 as well as Section 65(111) of Finance Act, 1994. (6) Telephone ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... for efficient transmission of data; and (viii) communication through facsimile, pager, telegraph and telex, but does not include service provided by - (a) any person in relation to on-line information and database access or retrieval or both referred to in sub-clause (zh) of Clause (105); (b) a broadcasting agency or organisation in relation to broadcasting referred to in sub-clause (zk) of clause (105); and (c) any person in relation to internet telecommunication service referred to in sub-clause (zzzu) of clause (105)" (7) Thus, the services provided by cellular operators by way of prepaid connection was a taxable service covered by Sections 65(105)(zzzx) and 65(109a) of the Finance Act, 1994. If the break-up in the charges recovered by cellular operators was not given, then in that case Section 67(2) would operate which provides that the gross amount charged by the Service Provider would be deemed to include the Service Tax as well and on that basis the Telecom Service Provider would be liable for assessment of Service Tax. 15. Post 2012 : The taxation regime f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....addition of Service Tax charged, is equivalent to the consideration; (iii) in a case where the provision of service is for a consideration which is not ascertainable, be the amount as may be determined in the prescribed manner. (2) Where the gross amount charged by a service provider, for the service provided or to be provided is inclusive of Service Tax payable, the value of such taxable service shall be such amount as, with the addition of tax payable, is equal to the gross amount charged. (3) The gross amount charged for the taxable service shall include any amount received towards the taxable service before, during or after provision of such service. (4) Subject to the provisions of sub-sections (1), (2) and (3), the value shall be determined in such manner as may be prescribed." 16. From the above, it is evident that - (i) the services provided by cellular operators are chargeable to service tax; Pre 2012 and Post 2012; (ii) the entire amount received by the cellular operators from the customer, including the price of SIM card, is th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he distributors/retailers is not disputed. (7) Whether tax is deducted at source on such amount or not is not clear and whether such TDS is reflected in the accounts of cellular operators as well as distributors, needs to be seen. (8) When the commission is paid by way of additional talk time, how the same has to be treated for the purposes of tax is another angle which needs to be looked into by the Income-Tax Authorities. 18. An affidavit in reply was filed in these proceedings by the Assistant Commissioner of Service Tax on 29 April, 2013. The affidavit states that by a letter dated 8 February, 2011 addressed to the Deputy Commissioner (AE), Service Tax-I, Mumbai, two envelopes (one containing the source information and the other containing the identify of the informant) was forwarded by the officer who recorded the source information. On the basis of the information recorded in form "AE-1 Intelligence Report" action was initiated and a copy of the AE-I was forwarded to the Director General, DGCEI and Commissioner of Service Tax among other authorities. It was proposed that further steps would be initiated by the Anti....