TaxTMI 
TaxTMI 
2020 (3) TMI 17
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.... Tata Tele Services for marketing their telecom service products in terms of the distributorship agreement. It holds registration under the taxable category of "Business Auxiliary Services" BAS under section 65 (105) (zzb) of the Act. Tata Tele Services pays commission to the Appellant for the services provided under the distributorship agreement and the Appellant charges service tax on the commission received. 3. The Appellant claims that it also decided to engage itself in the business of selling mobile handsets and for this it paid VAT on such sales. The Appellant claims that for this business separate agreements were entered into by the Appellant with third party manufacturers/vendors for supply of handsets sold by the Appellant to the customers. The invoices were raised by the vendors in the name of the Appellant and the Appellant was responsible for making payments to such vendors. According to the Appellant, Tata Tele Services was in no way connected with the payment to the vendors from whom the Appellant purchased the handsets. However, the handsets were sold by the Appellant at a price fixed by Tata Tele Services, which price was lower than the purchase price of the hand....
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....ived on account of Scheme & Discount, appears to be taxable under the services of "Business Auxiliary Service" defined under section 659(105)(zzb) of the Finance Act, 1994. ----------------------------- 4 As per section 65(19) of the Finance Act, 1994 "Business Auxiliary Service" means any service in relation to- (i) ------- (ii) ------- (iii) ------- (iv) ------- (v) ------- (vi) ------- (vii) ------- In terms of section 65(105) (zzb), taxable Service means- any service provided or to be provided-to a client, by any person in relation to business auxiliary service. 5. From the above, it appears that the assessee is an authorized distributor appointed by M/s TTSL for selling CDMA handsets along with connection to the customers. The expenditure incurred by the distributor is reimbursed by M/s TTSL in the guise of subsidy and the same appears to be covered under the definition of "Business Auxiliary Service" and chargeable to Service Tax since, the amount received by the assessee was in respect of providing Business Auxiliary Service to M/s TTSL." (emphasis supplied) 6. The show cause notice also invoked the extended period of limitation mentioning that th....
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.... category 'Business Auxiliary Services'. -------------------- It clearly emerges that by selling the handset at a much lower price than what has been purchased along with a TTSL connection in terms of directions received from the TTSL, the activity undertaken by the noticee is a service provided by them and is clearly falling under the category of service in relation to 'Business Auxiliary Services'. In view of the above discussions, I have no hesitation in holding that the amounts received by the noticee from TTSL under the name of 'subsidy' is nothing but a consideration received against provision of services correctly classifiable under 'Business Auxiliary Services'. The said amount has to be considered as taxable value and service tax is required to be discharged on the said amounts. To that extent, I do not find any force in the noticee's contentions that the said amount was not in relation to any service but was in relation to sale of the handsets." 9. Shri Tarun Gulati, learned Counsel appearing for the Appellant has made the following submissions:- (i) Subsidies are mere "pass through" amount and are not taxable. The Appellant received it in relation to the sale....
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....iod of limitation was correctly invoked. 11. The contentions advanced by the learned Counsel for the Appellant and the learned Authorized Representative of the Department have been considered. 12. The issue that arises for consideration in this Appeal is whether the subsidy received by the Appellant from Tata Tele Services on the sale of mobile handsets purchased by the Appellant from independent vendors can be said to be an amount received for providing BAS to Tata Tele Services and, therefore, chargeable to service tax. 13. In order to appreciate the contentions advanced by learned counsel for the Appellant and the learned Authorized Representative of the Department it would be necessary to reproduce the relevant portions of the distributorship agreement entered into between Tata Tele Services Limited and the Appellant and they are as follows:- "Distributorship Agreement This Agreement is made and executed at Jaipur on the 15th day of April, 2005. xxxxxxxxxxxxxxxxxxxx WHEREAS TTSL is licensed to establish, maintain and operate Unified Telecom Services in various states in India (including the State of Rajasthan in Rajasthan telecom circle) under the License granted....
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....ons of the Distributor, TTSL hereby appoints the Distributor for the purpose of marketing/selling/reselling of such service, goods and any other products/commodities provided by TTSL and/or any other organization as may be specified by TTSL in writing from time to time. The appointment of the Distributor is subject to the terms and conditions set forth in this Agreement. xxxxxxxxxxxxxxxx 10. Sale of handsets, prepaid cards 10.1 The Distributor shall be required to purchase CDMA (Code Division Multiple Access) phones and equipments including handsets, prepaid cards etc from TTSL or such Person/s authorized by TTSL. The Distributor shall ensure that there is no sale of spurious and unauthorized phone equipment, prepaid cards from Distributor outlet(s) and/or the retails outlets under the control of the Distributor. It shall be the responsibility of the Distributor to effect the sales through proper invoices, which shall be serially numbered, dated and detailing the material particulars of the mobiles phones. The Distributor shall ensure that no activation cards or handsets are delivered to a prospective customer unless such customer has first submitted to the Distributor/deal....
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....se 10 of the agreement. It provides that the distributor shall be required to purchase CDMA (Code Division Multiple Access) phones and equipments including handsets, prepaid cards from Tata Tele Services or such persons authorized by Tata Tele Services. Clause 13 of the agreement deals with termination of the agreement by Tata Tele Services and clause 14 deals with the result of termination. 15. It is not in dispute that the Appellant has paid the service tax on the commission received by the Appellant for marketing/ selling of the telecom services provided by Tata Tele Services. 16. The dispute is with regard to the subsidy received by the Appellant from Tata Tele Services on the sale of mobile handsets from third party vendor. According to the Appellant, there is a separate agreement with third party manufacturers/ vendor for supply of handsets to the Appellant which are subsequently sold by the Appellant to the customers and Tata Tele Services is no way connected with the payment to the vendors from whom the Appellant had earlier purchased handsets. 17. The case of the Appellant is that these handsets are sold at a price fixed by Tata Tele Services, which price is lower tha....
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....ce incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of account and 'remittance, inventory management, evaluation or development of prospective customer or vendor; public relation services, management or supervision, (viii) and includes services as a commission agent, but does not include any activity that amounts to 'manufacture' of excisable goods" Explanation- xxxxxxxxxxxxxxxxxxx 20. Under section 65(105) (zzb) of the Act any service provided to a client, by any person in relation to business auxiliary service would be a taxable service. 21. The submission of learned Counsel for the Appellant is that it was necessary for the Department to specify the activity and the nature of service that was to be taxed and for this it was necessary for the Department to point out the specific clause out of seven clauses mentioned in section 65(19) of the Act but that was not mentioned in the show cause notice. In support of this contention, learned counsel has placed reliance upon the decisions of the Tribunal in Commissioner of Custom & Central Excise, Goa v/s Swapnil Asnodka....
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....rovision in the Act, we find the demand to be not sustainable." 24. The aforesaid two decisions of the Tribunal clearly hold that it is imperative for the Department to specify which specific service contained in the seven clauses of section 65(19) of the Act is being provided and in the absence of any specific service pointed out in show cause notice, the demand cannot be confirmed as the noticee will not be aware as to which precise service contained in the sub-clause has been rendered by him. 25. In the present case, as noticed above, the show cause notice, even after reproducing the seven clauses of section 65(19), does not specify which particular clause was attracted and it only mentions that "the assessee is an authorized distributor appointed by M/s TTSL for selling CDMA handsets along with connection to the customers. The expenditure incurred by the distributor is reimbursed by M/s TTSL in the guise of subsidy and the same appears to be covered under the definition of "Business Auxiliary Service" and chargeable to Service Tax since, the amount received by the assessee was in respect of providing Business Auxiliary Service to M/s TTSL." 26. Thus, what has only b....
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.... assumed or stated that it is a remuneration for marketing of telecom service products of Tata Tele Services. In fact, there is no agreement between the Appellants and Tata Tele Services for promotion of services of Tata Tele Services for which they receive subsidy. 33. The Learned Authorized Representative of the Department has, however, submitted that the subsidy received by the Appellant is nothing but a payment for the services provided by the Appellant to Tata Tele Service under BAS. 34. The submission made by learned Counsel for the Appellant deserves to be accepted. The Appellant did receive a fixed commission for marketing the services of Tata Tele Services for the works enumerated in schedule A of the Agreement. This schedule does not refer to buying and selling of handsets at lower prices and neither does the Agreement provide for payment of any subsidy, much less for promotion or marketing of Tata Tele Services. The subsidy, on the other hand, is paid to the Appellant by Tata Tele Services to compensate for the loss incurred by the Appellant on the sale of mobile handsets at a lower price and cannot be said to have any relation to the service of promotion or marketin....
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.... it is receiving a consideration and the Appellant is discharging service tax on the said amount of consideration. The amount of subsidy that the Appellant is receiving on account of sale of handsets at a lower price does not have any nexus with the promotion or marketing of the services provided by Tata Tele Services. It needs to be noted that Tata Tele Services is reimbursing only that amount to the Appellant which the Appellant would have otherwise received from the customer buying the handsets. No service is being provided. The amount of subsidy is merely a compensation and this amounts the Appellant would have received from the customer. In fact, it can be said that the arrangement between the Appellant and Tata Tele Service for selling the handset at a lower price only aids the business of the Appellant because it will be able to sell more handsets. 38. The submissions of learned Counsel for the Appellant that even if the subsidy is treated as a reimbursement, then too the same cannot be subjected to service tax also deserves to be accepted in view of the decisions of the Supreme Court in Union of India v/s Intercontinental Consultants & Technocrats Pvt. Ltd. 2018 (10) GSTL....