TaxTMI 
TaxTMI 
2018 (11) TMI 233
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....No V/ST/Dn-V/Bel/Tata Tele/2012-13/3768 dated 20.05.2014, totally amounting to Rs. 27,97,57,680/- (Rupees Twenty Seven Crore Ninety Seven Lakhs Fifty Seven Thousand Six Hundred and Eighty only) under Section 73(1) of the Act and confirm the same under the provisions of Section 73(2) of the Act, I order recovery of the amount so confirmed. b) I appropriate Rs. 3,00,00,000/- (Rupees Three Crores) and Rs. 16,85,046/- (Rupees Sixteen Lakhs Eighty Five Thousand Forty Six Only) paid by the Noticee against the service atx liability confirmed at (a) above. c) I order recovery of interest at the appropriate rate(s), on the amount of demand confirmed at (a) above, from the due date(s), under the provisions Section 75 of the Act from M/s Tata Teleservices (Maharashtra) Limited. d) Impose penalty of Rs. 10,000/- (Rupees Ten Thousand only) on M/s Tata Teleservices (Maharashtra) Limited, under the provisions of Section 77 of the Act; e) Impose penalty of Rs. 27,97,57,680/- (Rupees Twenty Seven Crore Ninety Seven Lakhs Fifty Seven Thousand Six Hundred and Eighty only) on M/s Tata Teleservices (Maharashtra) Limited, under Section 78 of the Act." 2.1 Acting on the intelligence that A....
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.... were also imposed under Section 77 and Section 78 of the Finance Act, 1994. Against this order of Commissioner, Appellant are in appeal. 3.1 Appellants have challenged the order of the Commissioner in their appeal memo on various grounds as mentioned below: a. The order of Commissioner has been based on incorrect reading and interpretation of the decision of Apex Court in case of BSNL as in the said case the court held that SIM card is always subjected to sales tax. Clearly the Apex court has laid down scenarios for provision of SIM card by the Telcom companies. Their case falls within one of the scenario, thus the conclusion derived by the Commissioner relying on said decision are not correct. b. The decision of Apex Court in case of IDEA Mobile Communication Ltd. Is not applicable in their case, and is clearly distinguishable on facts. c. The basic foundation that SIM card is a part of 'service' is erroneous, since the SIM card is being sold by them as 'goods" as per the Apex Court decision in case of BSNL. d. Dominant nature test applied is not relevant as the transaction of sale of SIM card is totally separate from the transaction of providing the taxable "telec....
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....f Apex Court in case H Anraj Vs Government of Tamil Nadu [1986 (61) STC 165. 4.5 Since all the facts were brought to the knowledge of the department during course of audit undertaken in the year 2009, they are not guilty of suppressing any facts from the department with intent to evade payment of service tax hence extended period should not have been invoked for demanding tax for the period 2007 to 2012 {Sunil Forgings Ind {2016 (332) ELT 341 (T-Mum)], Trans Engineers India Pvt Ltd [2015 (40) STR (T-Mum)]. Pushpam Pharmaceutical [1995 (78) ELt 401 (SC)]}. Also the issue in the present case was of interpretation and they acted under the bonafide belief, extended period should not have been invoked {BPL Mobile Communication [2008 (9) STR 349 (Bom)], Bharti Airtel Limited [2016 (43) STR 400(T-Del)], Idea Mobile Communication Ltd [2012 (26) STR 27 (T-Del)]. For this reason no penalty should also be imposed on them. 4.6 Since there was no delay in payment of Service Tax penalties under Section 76 and 77 are not justified. 4.7 He submitted that in their case the requirements of Notification No 12/2003-ST are satisfied and benefit of the same to the extent of value of SIM card sh....
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....services. Similarly appellants by providing the CAF form and the user guide is also making it clear to the buyer that what is intended for by Mobile operator is for the usage of the tele-communication services He relied on the decisions as follows in his support. i. BSNL [2011-TIOL-731-HC-AP-ST] ii. Mahanth Ente vs State 2018-TIOL-657-HC-MADCT date 16.03.2018 4.12 He also referred to the invoices produced by the appellants, and pointed out that the invoice specifically states "-The property in SIM card would remain vested with VIL and there is no transfer of property or right to use SIM cards to any person including subscribers. -For item "Refill Slips, Scratch Cards and TopUp" 12.36% Service Tax 9inclusive of Education Cess of 3%) is being charged -Service tax is on total Maximum Value." The above remarks in view of the learned AR specifically clinch to issue as appellants themselves are declaring that there is no transfer in property or the right to usage. Hence in his view there is no sale of SIM hence the benefit of exemption under notification No 12/2003- ST has been rightly denied to the Appellants. 4.13 He also pointed out that as per the invoices enc....
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....t case? 6.1 Submissions made by the appellant in respect of supply chain for procurement of SIM card and technical aspects relating to provision of telecommunication services are reproduced below: "1.7 The appellant procures SIM card from SIM card vendors/manufacturer on issuance of purchase order which contains specification of the SIM card required by the appellant. The manufacturer issues excisable invoice on the appellant. The vendor charges VAT on local sales made by them to appellant. 1.8 The Registered Serial Number (RSN), International Mobile Subscriber Identity Number for GSM (IMSI) and provided by the appellant to the vendor along with short code of services which are to be provided to subscriber. These details are integrated/programmed into the SIM card for the purpose of authentication of the telephone number and corresponding service by the vendor. Subsequently, vendor supplies the SIM card as per specifications required by the appellant along with information of RSN number in a softcopy. 1.9 On receipt of SIM card by the vendor, the appellant pair the RSN number with Mobile Number (MDN) in the network and IT systems. Such paired information is then supplie....
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....roved the customer get access to the network. Till acceptance of CAF in compliance of the DoT requirements, the activation is only temporary. 1.19 To activate the services of the appellant the customer has to make a call for which he has to purchase the talk time except where the customer circumvents and gets activated by dialing toll free number wherein the customer will receive only incoming calls and messages. Such customers are deactivated as and when the circumvention is detected or maximum of six months whichever is earlier. 1.20 In view of the aforesaid, it is submitted that the selling of SIM card is prior to the activation of telecommunication services on the handset of the appellant and hence is an independent activity on which the appellant has appropriately paid the applicable VAT." 6.2 From the above submissions it is crystal clear, that the SIM Cards purchased by the Appellants from the vendors/ suppliers/ manufacturers of SIM card and those supplied by them are distinct. The ones procured by them are not mapped to their network and are capable of being programmed and mapped to any network. However the SIM's provided by the Appellant are programmed and mapped....
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..... But the fact that there is overlapping does not detract from the distinctiveness of the aspects". No one denies the legislative competence of States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction." 6.4 Thus in view of the said decision of the Apex Court, the SIM Cards as purchased by the Appellants from the suppliers/ vendors etc are distinct from the one's supplied by them to their consumers. While those purchased by them are liable to VAT/ Custom Duty/ Central Excise Duty, those provided by them through their network are incidental to the supply of services provided by them. 6.5 Hon'ble Apex Court has in case of Idea Mobile Communication [2011 (23) STR 433 (SC)], further held- "12. A SIM Card or Subscriber Identity Module is a portable memory chip used in cellular telephones. It is a tiny encoded circuit board which is fitted into cell phones at the time of signing on as a subscriber. The SIM Card holds the details of the subscriber, security data and memory to store personal numbers and it stores information which helps the network service provider t....
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....uarely fall within the definition of "taxable service" as defined in section 65(72)(b) of the Finance Act. They are also exigible to service tax on the value of "taxable service" as defined in Section 67 of the Finance Act." 13. It would be appropriate to mention that later on the said Escotel Mobile Communications Ltd. merged with the appellant company i.e. M/s. Idea Mobile Communication Ltd. The aforesaid decision of the Kerala High Court was under challenge in this Court in the case of BSNL v. Union of India reported in (2006) 3 SCC 1. The Supreme Court has framed the principal question to be decided in those appeals as to the nature of transaction by which mobile phone connections are enjoyed. The question framed was, is it a sale or is it a service or is it both. In paragraphs 86 and 87 of the Judgment the Supreme Court has held thus : - 86. In that case Escotel was admittedly engaged in selling cellular telephone instruments, SIM cards and other accessories and was also paying Central sales tax and sales tax under the Kerala General Sales Tax Act, 1963 as applicable. The question was one of the valuation of these goods. The State Sales Tax Authorities had sought to incl....
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.... The same transaction may involve two or more taxable events in its different aspects. But the fact that there is overlapping does not detract from the distinctiveness of the aspects." 14. In paragraph 88 this Court observed that no one denies the legislative competence of the States to levy sales tax on sales provided that the necessary concomitants of a sale are present in the transaction and the sale is distinctly discernible in the transaction but that would not in any manner allow the State to entrench upon the Union List and tax services by including the cost of such service in the value of the goods. It was also held that for the same reason the Centre cannot include the value of the SIM cards, if they are found ultimately to be goods, in the cost of the service. Consequently, the Supreme Court after allowing the appeals filed by Bharat Sanchar Nigam Ltd. and Escotel remanded the matter to the Sales Tax Authorities concerned for determination of the issue relating to SIM Cards in the light of the observations contained in that judgment. 15. As against the order passed by the adjudicating authority, the appellant assessee took up the matter in appeal before the Commissi....
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....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 parcel of the services provided and the dominant position of the transaction is to provide services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. Thus, it is established from the records and facts of this case that the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable serv....
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....mobile subscribers is to be included in taxable service under Section 65(105)(zzzx) of the Finance Act, 1994 which provides for levy of service tax on telecommunication service or it is taxable as sale of goods under the Sales Tax Act. Different mobile operators took divergent stand in the matter before the departmental authorities. While BPL Mobile Services, a leading mobile operator, took the stand that SIM card has no intrinsic sale value and is supplied to the customers for providing mobile service and they paid service tax including value of SIM card, respondent herein paid sales tax on the sale price of SIM cards and started remitting service tax only on activation charges. BSNL also took the stand similar to BPL Cellular services and their sales tax assessment on the value of SIM cards upheld by this Court was taken up to Supreme Court which led to judgment in BSNL's case, 2006 (2) S.T.R. 161 (S.C.) = A.I.R. 2006 S.C. 1383. The Supreme Court elaborately discussed the issues raised and in paragraph 86, the contention of the respondent that they have paid sales tax on sale price of SIM card is recorded by the Supreme Court. However, the Supreme Court in the final judgment left....
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....he claim for sales tax, the question to be considered is whether the value of SIM cards forms part of taxable service. Admittedly respondent answers the description of telegraph authority defined under Section 65(111) of Finance Act, 1994 and they are registered for the payment of service tax and they are in fact remitting tax on activation charges. The exclusion claimed by them is only on the value of SIM cards, that too only on the ground that they are free to supply SIM cards as sale of goods and remitted sales tax thereon. In order to consider whether the value of SIM card constitutes taxable service, we have to examine the functioning of this item in the service provided by the respondent. Admittedly SIM card is a computer chip having it's own SIM number on which telephone number can be activated. SIM card is a device through which customer gets connection from the mobile tower. In other words, unless it is activated, service provider cannot give service connection to the customer. Signals are transmitted and conveyed through towers and through SIM card communication signals reach the customer's Mobile instrument. In other words, it is an integral part required to provide mobi....
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....ission of the appellant in this respect cannot be accepted. There appears to be no interpretational issue left on basis of which appellants could have entertained the bonafide belief claimed by them. In fact appellants were only devising business plans and strategies to circumvent the law clearly laid down by the Apex Court. 8.4 The changes in the business plans and the marketing strategies, which resulted in the short payment of taxes were never brought to the knowledge of the department. This fact has been admitted by the Chief Financial Officer of the Appellants in his statement recorded during the investigations. (Para 11 (iv) of the Show Cause Notice) 8.5 Further the issue of suppression needs to be examined vis a vis the acts of omission and commission of the appellants which have laid to the short payment of the taxes at the appropriate time. In fact non disclosure of the relevant facts when required, when made to circumvent the payment of taxes due is an act of suppression with intent to evade payment of duty. 8.6 Even if it is taken into account that appellants were audited during the year 2009, then also the fact of suppression with the intent to evade payment of....
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.... a question of fact depending upon the facts and circumstances of a particular case." 8.2 If there cannot be general rule, the rule of "positive act of suppression" itself cannot be a general rule for reasons as explained below. 8.3 Suppression with intent to evade payment of duty is seldom done by actions leaving trails and therefore the "positive act" that the Apex Court was referring to is not something which can always be demonstrated through existence of a physical thing or document. It is about a state of mind. This is to be judged from the facts of the case. 8.4 All the cases pointed out were with reference to a registered assessee and before self-assessment system came into existence. With the scheme of self-assessment the onus on the part of the assessee to disclose information to the department has become all the more important. The first step in such disclosure is taking registration. The second step is in filing returns filling all columns in the return in a bona fide manner and not in a clever manner. 8.4 Section 11A of Central Excise Act and Section 73 of the Finance Act, 1994 tries to strike a balance between the requirement to collect tax through a self-....
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....f Vodafone Digilink Ltd [2013 (29) STR 229 (Raj)], Hon'ble Rajasthan High Court held as follows: 7.It is apparent that Cenvat credit of higher amount was unduly claimed; it was nowhere disclosed in the return. There was failure to make disclosure of the availment of the credit in excess and entire facts were not mentioned in various returns. Thus, it has been held to be a case of wilful suppression. Finding recorded by the Tribunal in para 7 of its order is quoted below : So far as levy of penalty is concerned the case of the "7. appellant is that Cenvat credit of a higher amount was unduly claimed. Sample copy of the return is available in appeal folder at page 23 of the paper book. That nowhere discloses bona fide of the appellant. Had the appellant disclosed that it was under bona fide belief that service provided by the appellants as visiting network service provider was exempt and not taxable, the appellant would have clearly guided the department to understand its claim on set off Cenvat credit. Failure to make such disclosure in return or submitting entire fact by any letter accompanying its return appears to be a case of wilful suppression. Suppression does not vanish....
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.... an incorrect statement with the knowledge that the statement was not correct." 10.It was not a case of mere omission to give correct information; it was devised deliberately so to evade tax liability. The limit of exemption was known and provisions of Rule 3(5) of the Rules of 2002 are clear. Thus, it was deliberate suppression of facts. Even testing on the anvil of the aforesaid decision, we find the finding of suppression which has been recorded by the Additional Commissioner and confirmed by Commissioner (Appeals) as well as the Tribunal call for no interference. We find that five years' period of limitation has been rightly invoked in the instant case. We thus find no ground to interfere in the impugned orders. No substantial question of law is involved in the appeal. 8.12 Hon'ble Supreme Court has in case of Pasupati Spinning and Weaving Mills [2015 (318) ELT 623 (SC)] held that not declaring vital information on the RT-12 is suppression for invoking extended period- "4.We have heard learned Senior Counsel on behalf of the appellant. He has argued before us that the extended period could not be availed on the facts of this case, but has fairly stated that if the note....
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.... 6.On the basis of the aforesaid language in the Section, the submission of Mr. Radhakrishnan is meritorious. Thus, while the penalty as demanded in respect of one Show Cause Notice had been quashed, the Tribunal could not reduce it for an amount lesser than the duty which has been upheld. The duty in respect of two demands comes to Rs. 40,44,720/-. Therefore, going by the provisions of Section 11AC of the Act, the penalty should also have been Rs. 40,44,720/- and not Rs. 20 lakhs." 9.0 In their submissions have claimed against the demand of interest from them. However we are not in agreement with said contention because demand of interest is a natural consequence on account of delay in payment of the tax. Since appellants have short paid the tax, interest is demandable from them under Section 75 of the Finance Act, 1994. From plain reading of the above provision it is quite evident that interest is compensatory in nature and is required to be paid by the tax payer in case of any default in payment of tax for the period of default. Issue with regards to statutory levy of interest is no longer res integra. Bombay High Court has in case of Commissioner Of Central Excise vs Padma....