TaxTMI 
TaxTMI 
2014 (12) TMI 1141
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....d through Code Division Multiple Access (CDMA) technology and could be availed by the subscribers only on a handset specially programmed and designed. 2.1 While marketing the Tariff Plans in relation to the telephone connection services to be provided by the respondent, the agent of the respondent (i.e. M/s. RIL) was allowed to combine certain products, services and privileges offered by it. The agent introduced certain schemes while selling the services of the respondent. The subscribers of the respondent under those schemes had to become members of a club called Dhirubhai Ambani Pioneer Club (DAPC). The agent floated a scheme called Dhirubhai Ambani Pioneer Offer. There were two limbs of this scheme, namely, DAPO Normal and DAPO- Finance. The details of the Offer are as under: (I) DAPO-Normal:- Customer pays Rs. 21,000/- upfront. The charges collected were for:- i. Rs. 3,000/- as one time club membership charges ii. Rs. 14,400/- as rental & usage charges for telephone service (for 36 months @ Rs. 400/- P.M. Out of Rs. 400/-, Rs. 240/- were for rental ch....
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....1,800/- (Rs.800/- towards installation charges and Rs. 1,000/- towards deposit which was refundable only under certain conditions). The respondent adjusted certain outstanding dues of the subscribers from the aforesaid deposit but no service tax was paid on the same during the period June, 2003 to November, 2005. 2.5 Based on an intelligence that the respondent was not paying due service tax on certain amounts collected from its subscribers, the respondent was investigated by the DGCEI followed by a Show cause notice dtd. 12/7/2007 alleging that the amounts collected from its subscribers towards 'club membership' and 'club privileges' charges ought to have formed value of taxable services provided by it to its subscribers. The service tax is payable on such services. The show cause notice, therefore, proposed to include the value of 'club membership' and 'club privileges' charges in the value of the services provided by the respondent mainly on the following grounds: (i) these charges are only incidental to the service of telephone connection, (ii) the services provided by the agent are cov....
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....s dropped the demand of Rs. 69,14,87,724/- raised on 'club membership' and 'club privileges' charges both on merits as well as on limitation. The Commissioner has, however, held that the respondent is liable to pay a sum of Rs. 70,76,975/- on account of fixed wireless services. Accordingly, the Commissioner has appropriated the said amount together with the amount of Rs. 6,81,661/- as interest which were paid earlier by the department. The Commissioner has not imposed any penalty under Sections 76, 77 and 78 of the Act on the ground that the respondent had no mala fide intention to evade any tax. In this connection, the Commissioner has also observed that even otherwise, he is competent to waive penalty on the respondent under Section 80 of the Act. Aggrieved by this order of the Commissioner, the Department has come in appeal. 2.8 At the outset, relevant provisions of the Finance Act, 1994 may be noticed: (I) As per Section 65(7), "respondent" means a person liable to pay the service tax and includes his agent. (II) As per Section 65 (105)(b), "taxable service" means any service provided or to be provided to a subscrib....
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....b privilege charges are the part of taxable value of the service provided by the respondent. From the perusal of the DAPO scheme clearly shows that it is a composite scheme of service and supply of free handsets provided to the subscribers of the respondent. Therefore, there was no sale of handsets and the value of DAP club membership charges and DAP club privilege charges could not be isolated from the value of other taxable services provided by the respondent to its subscribers. It is further submitted CDMA phones provided to the subscribers of the respondent were programmed to respond only to the services provided by the respondent and the same could not be used to avail of the services of any other telephone operators. Therefore, the supply of free handsets to the subscribers was merely incidental to the services provided by the respondent. Therefore, the respondents are liable to pay service tax on the gross amount charged by their agent from the subscribers. 4. With regard to the other issue fixed wireless phones it is submitted that the respondent paid the service tax on outstanding dues of the subscribers after adjusting from the deposit amounts. On pointing by the depar....
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....nd it was held that price of goods cannot be added to the value of service. In these circumstances, the adjudicating authority has rightly held that the scheme launched by the agent i.e. DAP club and DAP privilege scheme are not the part of taxable service of telephone connection provided by the respondent. In these circumstances, it is prayed that on this ground impugned order is to be upheld. It is further submitted that although, the respondent failed to make the payment of outstanding dues adjusted from security deposit of the subscriber to which on pointing out by the department and resulting their mistake, they paid entire amount of service tax along with interest. In these circumstances, there is no intention by the respondent not to pay service tax accordingly, the penalty on the respondent is not imposable. With these terms, it is prayed that the impugned order is required to be upheld. 7. Heard both sides and considered the submissions in detail. 8. We find that in this case the respondent is engaged in providing telephone connection services and the tariff plans were fixed by Telecom Regulatory Authority of India i.e. 14,400/-. They entered into an agreement with t....
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....rs (aggregating to Rs. 24,600/-) for following purposes: i. Rs. 14,400/- as rental & usage charges for telephone service (for 36 months @ Rs. 400/- P.M. Out of Rs. 400/-, Rs. 240/- were for rental charges and Rs. 160/- were for usage charges). ii. Rs. 3,600/- as Club Privilege charges (for 36 months @ of Rs. 100/- p.m.) iii. Rs. 3,600/- as Finance Charges ( for 36 months @ of Rs. 100 p.m.)." On becoming a member of this scheme the subscriber will be entitled as under: "a. A sleek, feature rich digital handset (MRP Rs. 10,500/-) absolutely free or a colour screen handset (MRP Rs. 25,500/-) at a highly discounted rate of Rs. 15,000/- with 1 year warranty and 3 years insurance. b. 400 minutes of outgoing calls per month @40 paise per minute c. Free incoming calls, free unlimited SMS, free CLIP & call waiting services. d. Free subscription to R world e. Eligible to GSM....
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....wo telephone apparatus so as to enable the caller to avail the speech transmission with the desired person. From the above discussion, it is very much clear that any service which has not been provided by telegraph authority and that have no relationship with connecting telephone apparatus is not covered under telephone connection service. In this case allegation against the respondent is that through their agent, they have provided additional service such as club membership and pioneer offer. The Revenue wants to include the value of club membership and club privilege charges in the value of service relating to telephone connection. 8.1 For taxing any service under the category of telephone connection service, the service should have been provided by a telegraph authority to the subscribers in relation to telephone connection. All the goods and services provided by the agents of the respondent are the goods and services that have been provided by a person other than the telegraph authority, hence one of the conditions of the definition of service of telephone connection is not fulfilled. On this ground alone the attempt to include the value of 'club membership' and '....
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.... provided by the service provider. 8.3 The "Marketing Agreement" dated 26.12.2002 allowed the agents of the respondent to market the TRAI approved Tariff Plans of the respondent. The Agreement also permitted agents to bundle the Tariff Plans of the respondent with other products and service as the agent deemed fit and offer composite schemes to the subscribers. The agents were also allowed to collect the charges relating the Tariff Plans of the respondent. The agents were, however, not allowed to collect any amount from the subscribers for the services of the respondent other than the amount representing the amount of TRAI approved Tariff Plans of the respondent. The facts of the case clearly show the gross amount remitted by the agents of the respondent to the respondent in relation to the Tariff Plans of the respondent and value of 'club membership' and 'club privileges' charges retained by the agents of the respondent. There is no dispute that only the respondent are the service providers of the taxable service of telephone connection. According to the provisions of Section 67 of the Act only the gross amount charged by a service provider has to be taken as va....
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.... the questions formulated by us earlier in the following manner: (A) Goods do not include electromagnetic waves or radio frequencies of the purpose of Article 366 (29A) (d). The goods in telecommunication are limited to the handsets supplied by the service provider. As far as the SIM cards are concerned, the issue is left for determination by the assessing officer. (B) There may be a transfer of right to use gods as defined in answer to the previous question by giving a telephone connection. (C) The nature of the transaction involved in providing the telephone connection may be a composite contract of service and sale. It is possible for the States to tax the sale element provided there is discernible sale and only to the extent relatable to such sale. (D) The issue is left answered. (E) The aspect theory would not apply to enable the value of the services to be included in the sale of goods or the price of the goods in the value of the services." 8.5 The Hon'ble Apex Court has, made clear that providing of handset by a service provider in telecommunication service i....
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....services from a particular service provider would not make it a part of the service rather than the goods involved in a composite transaction in providing the telephone connection. This is more so when the value of such handset is clearly distinguishable from the value of the service of telephone connection being provided by the service provider. The products and services sold by the agents at the time of the marketing the Tariff Plans of the respondent distinguishably showed the value of the Tariff Plans of the respondent and the value of other products and services of the agents. It is not the allegation in the Notice that the value of the telephone is not ascertainable. On the contrary, the allegation is that the handset is so designed that without it the service provided by the respondent could not have been be availed by their subscribers. The value of the telephone handset is discernable in this case and the sale tax has also been levied on such transactions. Inadequacy of the value on which the sale tax has been imposed cannot be the ground for inclusion of the value of goods in the value of the service. 8.7. It has been alleged in the Notice that supply of handset to the....
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.... and render service and to impose tax there on cannot be questioned and would stand untouched by the instance judgment". In the present case, under a single contract the services to be provided by the respondent have been sold along with the products and services of the agents. The value of the services of the respondent on the one hand and the value of the services and the goods sold by the agents on the other hand are distinguishable. Service tax has been paid on the value of the services of the respondent. The value of the services of the agents and the value of the goods supplied is also distinctly discernible from the transaction. The agents have paid sale tax on the value declared by them in relation to the supply of goods. The remaining amounts are either for collection charges for financing of the scheme or for the privileges or services provided to the members of the DAP Club. In such a scenario, it is not correct to say that the transactions under which he agents sold the Tariff Plans along with their own goods and services cannot be vivisected and the entire value of such goods and services be added to the value of the services of the respondent. 8.10. From the abo....