TaxTMI 
TaxTMI 
2024 (9) TMI 239
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....ovision of the taxable 'service', defined under 65B(44) of the Act of 1994. For provision of such taxable service, the appellants got themselves registered with the jurisdictional Service Tax department. Upon introduction of Goods and Services Tax (GST) with effect from 01.07.2017, the appellants have taken GST registration by migrating from the Service Tax regime to the GST regime. 1.3 For providing the telecommunication service, the appellants were granted a Unified License (UL) No. 20-401/2013 (AS-I) dated 21.10.2013 by the Department of Telecommunications ('DoT'), Ministry of Communications & IT, Government of India under Section 4 of the Indian Telegraph Act, 1885. For the aforesaid purpose, the appellants had set up telecommunication infrastructure viz., poles, masts, towers, optical fibre cable network, antennas, data centre etc., throughout the country. The appellants were availing Central Value Added Tax (CENVAT) credit of Central Excise duty paid on the capital goods/inputs and service tax paid on the input service and the credit so availed, was utilised for payment of service tax on the output service provided by the appellants. 1.4 In this case, the appellants hav....
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....r Section 77 and 78 of the Act of 1994 on the appellants. In support of confirmation of the adjudged demands, the original authority has based his findings, inter alia, on the following aspects: (i) the activities in the form of Telecommunication service provided by the noticee free of charge/without consideration to the subscribers, during the period 05.09.2016 to 31.03.2017, falls under the category of 'exempted services', in terms of Explanation-3 of Rule 6(1) of the CCR inasmuch as no consideration is involved in such activities; (ii) commercial launch of telecommunication service to the general public during the period 05.09.2016 to 31.03.2017, cannot be treated as a trial/testing phase, as claimed by the noticee and therefore, their plea that the company had commercially launched their services w.e.f. 01.07.2017 is not correct; (iii) that services provided to subscribers, who have not exceeded the specified free limits (domestic voice calls, 100 SMS per day and upto 4GB data usage per day) were services provided without consideration and were distinct and separate from paid telecommunication service which were provided to Reliance Retail Ltd (RRL), ....
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....ue recharges done; and similar tariff plans offered in subsequent period, were discarded, holding that the said methods suggested are based on the comparative values of a period, other than the relevant period. It has further been held that there was vast difference in the cost for provision of service in the initial years in a telecommunication service industry, like that of the noticees; and as such, the valuation methods suggested by them are not in accordance with the provisions contained in Section 67 of the Act of 1994, Service Tax (Determination of Value) Rules, 2000 and Rule 6(3) of the CCR. (ix) with regard to invocation of the extended period of limitation contained in the proviso to Section 73(1) of the Act of 1994, read with Rule 14 of the CCR, the impugned order has held that the noticee has suppressed the relevant facts of provision of exempted and nonexempted service in the periodic ST-3 returns and that since the department has gathered such information from verification of TRAN-1, suppression of fact on the part of the noticee is manifest and accordingly, the said statutory provisions are correctly applicable for confirmation of the proposed demands. 1.....
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....d Counsels, that the mere activity of re-selling or distributing telecom vouchers by RRL did not amount to provision of telecommunication service, as under Section 4 of the Indian Telegraph Act, 1885 only a licence holder was entitled to provide telecommunication services in India. 2.2 It was further submitted by the learned Counsel for the appellants that the appellants were providing a single service viz., 'telecommunication service', which was undisputedly, rendered for a consideration as evident from the tariff plans filed with the TRAI, the media release and the 2016- 17 revenue figures extracted in the impugned order. They submitted that the department had vivisected a single and indivisible telecommunication service rendered by the appellants as that within the specified threshold, being called as 'free' and that beyond the specified threshold, as being termed as 'top-up/paid'; overlooking the provisions of continuous supply of service provided under the Point of Taxation Rules, 2011, which specifically dealt with telecommunication service as a continuous service. They further submitted that the learned adjudicating authority has erred in presuming that the 'free' telecom....
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....as 'capital goods' in the definition provided under Rule 2(a)(A) (i) and (iii) of the CCR, denial of CENVAT credit on the capital goods in the impugned order is not proper and justified. They further submitted that in certain cases, the value of goods procured by the appellants was below Rs.10,000/- per piece, the total quantum of such credit would be very meagre, i.e., around Rs. 6.90 crores, for which denial of the CENVAT benefit to the tune of Rs.4724 crores in the impugned order was totally uncalled for and unjustified and therefore, the same deserves to be quashed and set aside. It was further submitted that even if Rule 6(3) of the CCR was attracted in the present case and the appellant's liability was to be determined under Rule 6(3)(i) of the CCR as 7% of the value of exempted services, there was no justification for the learned Commissioner to have disallowed the entire CENVAT credit availed by the appellants in the garb of best judgement determination of value. It was pointed out that under Rule 6(3) of the CCR, the liability of the appellants was 7% of the value of exempted service which could not exceed the total amount of CENVAT credit availed. Despite invoking the bes....
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....d Customs Vs. Reliance Industries Limited - 2023 (385) E.L.T. 481 (SC)&(2023) 8 Centax 96 (S.C.) (viii) Goodyear India Ltd. Vs. Commissioner of Central Excise, Delhi- IV2014 (301) E.L.T. 410 (Tri-Del.) (xi) Gannon Dunkerely& Co. Ltd. Vs. Commissioner (Adj.) of Service Tax - 2021 (47) G.S.T.L. 35 (Tri.-Del.) (x) Shiv Shakti Co-Op. Housing Society, Nagpur Vs. Swaraj Developers &Ors. - Judgement dated 17304.2003 in SLP (C) 19030 of 2002 (xi) Commissioner of Customs Vs. Toyo Engineering India Limited- 2006 (201) E.L.T. 513 (S.C.) (xii) Commissioner of Central Excise, Nagpur Vs. Ballarpur Industries Ltd.- 2007 (215) E.L.T. 489 (S.C.) 3.1 Shri Devang Girish Vyas, learned Additional Solicitor General (ASG) appearing for Revenue, reiterated the findings recorded in the impugned order and further submitted that the telecommunication service provided by the appellants during the disputed period was "exempted", as per the provisions contained in Rule 6 of the CCR. In this regard, he has stated that the appellants have offered telecommunication service (Domestic voice calls, SMS up to 100 per day, Data Usage up to 4GB/1GB per day, Jio Apps, Jio S....
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.... judgement of Hon'ble Supreme Court in the case Commissioner of Central Excise Vs. Modi Rubber, reported in 2001 AIR SCW 4363 (SC 3 Judges Bench), to state that no credit of duty paid on inputs is available, if the final product is exempt from payment of duty. By relying upon the judgement of Hon'ble Delhi High Court in the case of Lally Automobiles Private Limited Vs. Commissioner (Adjudication) - 2018 (17) G.S.T.L. 422 (Del.), he submitted that the CENVAT statute has been designed to give the benefit of credit to only excisable goods or taxable services, and if such goods or services are exempted, then the assessee would pay the availed credit at a percentage of value of such exempted goods or services; and for that purpose, recovery mechanism has been provided in the statute, which is Rule 6 of the CCR. Further, learned ASG has also referred to the judgement of the Hon'ble Supreme Court in the case of ALD Automotive Ltd. Vs. Commercial Tax Officer - (2019) 13 SCC 225 to state and submit that availment of CENVAT credit, being a concession/benefit provided in the statute, observance of the procedures laid down therein have to be strictly adhered to, which in the present case, is a....
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....activity? (vi) Assuming that the activity specified in (v) above is an exempted service by virtue of Explanation 3, what would be the value of such an exempted service for the purpose of Rule 6(3)(i) of the CCR, particularly in view of Explanation 4 appended to such rule? (vii) Whether the learned Commissioner was correct in completely ignoring the provisions of the Point of Taxation Rules, 2011 while determining the issue whether services had been provided without consideration? (viii) Can the extended period of limitation be invoked under Section 73 of the Act of 1994 read with Rule 14 of the CCR for confirmation of the adjudged demands on the appellants? 5.2 Before dealing with the substantive issues on merits, it is necessary to first deal with the grievance of the appellants that the order passed by the learned Commissioner had traversed beyond the scope of the SCN by confirming the demands raised therein on an entirely new and different basis, than the one proposed in the said SCN. 5.3 The allegation in the SCN was that telecommunication service provided to the subscribers was partly non-exempt (Interconnection usage charges and prepaid vouche....
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...., RRL. He has further held that the free telecommunication service (provided to the subscribers) and paid telecommunication service (provided to RRL) are entirely distinct transactions, which cannot be clubbed. It is on this reasoning that the learned Commissioner holds that the revenues earned from the sale of prepaid vouchers are not 'consideration' received for provision of telecommunication service. Quite apart from the fact that this reasoning is bordering on absurdity, we find that the learned Commissioner has by adopting this reasoning, almost jettisoned the reasons originally assigned in the SCN and replaced the same with an entirely different logic. It is trite that an adjudicating authority cannot change the underlying basis of a demand raised in a SCN and confirm the demand on an entirely different logic. We have therefore no hesitation in holding that the impugned order passed by the learned Commissioner is unsustainable, having traversed beyond the scope of the SCN issued to the appellants. Though, this ground alone is sufficient basis for allowing the appeal, we have in the following paragraphs, dealt with the other issues on merits and on limitation, as both sides ha....
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....roperty, by way of sale, gift or in any other manner; or (ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of article 366 of the Constitution; or (iii) a transaction in money or actionable claim; (b) a provision of service by an employee to the employer in the course of or in relation to his employment; (c) fees taken in any Court or tribunal established under any law for the time being in force.... Valuation of taxable services for charging service tax. Section 67. (1) Subject to the provisions of this Chapter, where service tax is chargeable on any taxable service with reference to its value, then such value shall,- (i) in a case where the provision of service is for a consideration in money, be the gross amount charged by the service provider for such service provided or to be provided by him; (ii) in a case where the provision of service is for a consideration not wholly or partly consisting of money, be such amount in money as, with the addition of service tax charged, is equivalent to the consideration; (iii) in a case where the pr....
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....ervice whose part of value is exempted on the condition that no credit of inputs and input services, used for providing such taxable service, shall be taken but shall not include a service- (a) which is exported in terms of rule 6A of the Service Tax Rules, 1994; or (b) by way of transportation of goods by a vessel from customs station of clearance in India to a place outside India; Obligation of a manufacturer or producer of final products and a provider of output service. 6. (1) The CENVAT credit shall not be allowed on such quantity of input as is used in or in relation to the manufacture of exempted goods or for provision of exempted services or input service as is used in or in relation to the manufacture of exempted goods and their clearance upto the place of removal or for provision of exempted services and the credit not allowed shall be calculated and paid by the manufacturer or the provider of output service, in terms of the provisions of sub-rule (2) or sub-rule (3), as the case may be: ..... Explanation 1.-For the purposes of this rule, exempted goods or final products as defined in clauses (d) and (h) of rule 2 shal....
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....rvice' was specifically notified by the Central Government to be an instance of a service which is supplied in a continuous manner. Further, Notification No. 1/2013-Service Tax dated 22.02.2013, prescribing the ST-3 Return, has also captured the list of 119 services, which were specifically defined in the service tax statute effective up to 01.07.2012, as 'taxable service'. Since, telecommunication service has not been specifically defined in the postnegative list regime and that such service has been specifically notified in 2012 to involve continuous supply of service and has also been considered for filing of the ST-3 Return by the assessee in the post negative list regime, it cannot be said that such phrase defined earlier, cannot be applied for the period post July, 2012. On reading of the above definition of 'telecommunication service', it transpires that telecommunication service encompasses a bouquet of various services such as, making outgoing calls, receiving incoming calls, sending and receiving SMS, internet usage, ISD, international roaming, etc. This bouquet of services is provided to subscribers as one single indivisible service. In the present case, though the a....
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.... appellants alone to the subscribers, there is no substance in the finding that such supply of service was effected to the subscribers by the agencies, as the service provider. 6.4 Further, "Telecommunication service" under clause (zzzx) of Section 65(105) of the Act of 1994 was notified to be continuous supply of service in terms of Notification No. 28/2011-Service Tax dated 01.04.2011, under the pre-negative list regime; which was continued to be considered as 'continuous supply of service', even after the introduction of the negative list regime w.e.f. 01.07.2012. In this context, the Notification No.38/2012- Service Tax dated 20.06.2012, has retained the 'telecommunication service' among others, to consider those as continuous supply of service. It has been made clear in the said notification that the date of effect would be from 01.07.2012. We find that the order of the learned Commissioner has totally overlooked this Notification and the POT Rules, even though this was one of the main planks of the appellants' defence before him. The factum of telecommunication service, being notified under the POT Rules is an undisputed position. The upshot of this is that the contract (C....
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....puted on a daily basis. In our view, the service contracts, as evidenced by the CAF on record, were for an indefinite and indeterminate period, thus satisfying even the first limb of the definition of "continuous supply of service". 6.6 If we apply the POT Rules to the present case, we find that only 0.15% of subscribers were such, who surrendered their SIM connections and de-activated the connection before the POT was triggered. Even in respect of this small percentage of subscribers, the question of applying Rule 6 of the CCR can arise, only if it is shown that no consideration whatsoever was received for the services provided to them. In this connection, we note that the term consideration is not really defined in the Act of 1994, as the explanation Section 67 of the Act of 1994 merely provides that the term 'consideration' includes certain specified amounts and expenditure. Therefore, the meaning of the term 'consideration' in Section 2(d) of the Indian Contract Act, 1872 would be of relevance and reads thus "when, at the desire of the promisor, the promissee or any other person has done or abstained from doing, or does or abstains from doing, or promises to do or to abstain....
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....oing calls but also for all incoming calls. Subsequently, as part of the regulatory changes brought in by the Government of India through the Telecommunication Interconnection Usage Charges (IUC) Regulations, 2003, the principle of "caller party pays" was introduced with the result that the subscribers did not have to pay for incoming calls and the responsibility of paying such charges fell upon the caller party. This amount was recovered by the receiving network service provider as IUC charges from the network service provider from where the call was originating. Since as we have held above, that the meaning of consideration in Section 67 of the Act of 1994 is agnostic to the entity paying it, receipt of IUC charges is also a part of the consideration for telecommunication service provided to a subscriber, as the facility of receiving incoming calls from third party networks is an integral part of the telecommunication service, being provided to a subscriber. We therefore, hold that even in respect of the 0.15 per cent of subscribers who never recharged their mobile phones and therefore did not directly pay anything to the appellants company, the services provided to such subscrib....
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....ervice' is being rendered by the airlines. Therefore, applying the above examples to the facts of the present case, it cannot be concluded that the threshold facility provided as introductory offers at the initial stages of the launch, which was subsequently curtailed and charged for provision of service at the commercial run phase, was an exempted service, in order to fall under the purview of Explanation 3 appended to sub-rule (1) of Rule 6 of the CCR. 6.10 In the course of the hearing, we had specifically inquired from the learned Counsel appearing for the appellants, whether there was any subscriber in respect of which no revenue, either directly through recharge vouchers or indirectly through IUC charges was earned by them. We were informed that there were 771 of such subscribers, who did not seem to have activated their SIM and therefore, neither received nor made any calls, SMS nor data. This number constitute less than 0.0007 per cent of the total subscribers of the appellants' company. Even in respect of these subscribers, it was submitted on behalf of the appellants that the cause of action for invoking Rule 6 of the CCR never arose, in view of POT Rules, since these s....
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....as defined in clause (e) of Rule 2 of the CCR, shall include an activity, which is not a 'service' as defined in Section 65B(44) of the Act of 1994, provided that such activity has used inputs or input services. The phrase 'exempted service' has been defined in the CENVAT statute to mean taxable service which is exempted from the whole of service tax leviable thereon; or service, on which no service tax is leviable under Section 66B of the Finance Act; or taxable service whose part of value is exempted on the condition that no credit of inputs and input services, used for providing for such taxable service, shall be taken. 8.1 Even if we assume that qua the 0.0007 percent subscribers or 0.15 percent subscribers, the services provided by the appellants were free of charge/without consideration, as held by the learned Commissioner, the next question that would arise is whether, such services (supposedly provided without any consideration), are exempted services for the purpose of Rule 6(3) of the CCR. The Revenue has relied upon Explanation 3 to Rule 6(1) of the CCR, for contending that the said explanation contains a deeming fiction, deeming activities undertaken without consider....
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....tent with the principles of valuation contained in the Act of 1994 and the rules made thereunder. We have perused through all the three sub-clauses of section 67(1) of the Act of 1994 and note that each of them contemplates the existence of a consideration, so is the position under the Service Tax (Determination of Value) Rules, 2006. If an activity without consideration was also to be considered as an activity, which is not a service and thus deemed to be an exempt service by application of Explanation 3, the value of such exempt service in any case would be NIL. This is so as Explanation 4 requires adoption of invoice/agreement/contract value. In our view, the only reasonable and logical way of reading Explanation 3 and 4 is that, activities without consideration are not activities, contemplated to be covered by Explanation 3 to Rule 6(1) of the CCR. 8.2 We also note that even if a view is taken that an activity without consideration is an exempt service by virtue of Explanation 3, such a view will not help the case of Revenue in any manner inasmuch as, the value of such an exempted service would have to be necessarily 'nil', in view of Explanation 4. The said Explanation 4 st....
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....inly cannot be a ground for refusing to determine the value of such exempted services and instead adopting the maximum upper limit prescribed therein. We also note that the learned Commissioner has made much ado about the appellants not having furnished subscriber wise data with respect to those subscribers, who were within the specified limits along with their consumption of voice/SMS/data usage; and subscribers who had exceeded the specified limit along with their voice/SMS/data usage. It is not in dispute that particulars regarding the total GB data (internet usage which includes data used for calls, as the same are Voice over IP or VoIP calls) consumed during the relevant period for all the subscribers put together had been furnished by the appellants. The learned Commissioner, in the impugned order does not set out as to how the data with respect to each of the 10.86 crore individual subscribers, as being within the specified limits (100 SMS and 4GB/1GB data per day) vis-à-vis those who had exceeded the said specified consumption would have enabled him to arrive at the so called value of exempt service and as to why the said value could not have been arrived at by takin....
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.... nor excisable goods, i.e., relating to trading activity. Since, the present dispute has not dealt with the issue of trading activity, the ratio of the said judgement does not apply to the case in hand. Further, the issue dealt with by the Hon'ble Supreme Court in the case of ALD Automotive (supra), was in context with the concession provided to a dealer for sale of goods, concerning payment of sales tax. On the contrary, the issue in hand relates to provision of service and not sale of goods. Hence, the judgement relied upon by the learned ASG is distinguishable from the facts of the case. The learned ASG has urged that disallowance of the entire amount of CENVAT credit availed was justified since nonexempted services provided were negligible and that the majority of the services were exempt. This submission has to be only stated to be rejected as the appellants liability in terms of Rule 6 of the CCR has to be determined with reference to the language and requirements of the said Rule and not on an any other basis. So also the submission of the learned ASG to the effect that CENVAT credit is a concession does not advance the case of the Revenue as, even if CENVAT is a concession,....
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....ied in the notice. The proviso clause appended to sub-section (1) of Section 73 of the Act of 1994 has substituted the period of 'thirty months' to 'five years', in the eventuality, where non-levy or short paid service tax was owing to the reason of fraud; or, collusion; or, wilful mis-statement; or, suppression of facts; or, contravention of any of the provisions of Chapter V of the Finance Act, 1994 or of the rules made thereunder with intent to evade payment of service tax. 12.4 On reading of the provisions contained in Section 73 of the Act of 1994, it transpires that the conditions to be fulfilled for invocation of the proviso clause contained therein are that, there should be an act of commission or omission such as fraud, collusion, wilful mis-statement and/or suppression of facts; and that such act of commission should be 'with an intent to evade the payment of service tax'. The department, in the present case, had not relied upon any evidence, other than those furnished by the appellants under the cover of the periodic returns and that submitted during the course of investigation proceedings. Thus, it cannot be said that there is element of suppression of fact, mis-stat....
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.... "Provided that where any duty of excise has not been levied or paid or has been short levied or short-paid or erroneously refunded by reason of fraud, collusion or any wilfull misstatement or suppression of facts, or contravention of any of the provisions of this Act or of the rules made thereunder with intent to evade payment of duty, by such person or his agent, the provisions of this sub-section shall have effect, for the words one year the words five years were substituted." 14. In the case of Pushpam Pharmaceuticals Company v. Collector of Central Excise, Bombay, 1995 Sup (3) SCC 462/1995 (78) E.L.T. 401 (SC) this Court, while dealing with a similar fact circumstance wherein the extended period of limitation under the abovementioned proviso had been invoked, held that since the expression "suppression of facts" is used in the company of terms such as fraud, collusion and willful misstatement, it cannot therefore refer to an act of mere omission, and must be interpreted as referring to a deliberate act of non-disclosure aimed at evading duty, that is to say, an element of intentional action must be present. 15. Similarly, in the case of Collector of Central....
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....during the period in dispute it was holding a bonafide belief that it was correctly discharging its duty liability. The mere fact that the belief was ultimately found to be wrong by the judgment of this Court does not render such belief of the assessee a malafide belief particularly when such a belief was emanating from the view taken by a division bench of Tribunal. We note that the issue of valuation involved in this particular matter is indeed one were two plausible views could co-exist. In such cases of cases of disputes of interpretation of legal provisions, it would be totally unjustified to invoke the extended period of limitation by considering the assessee's view to be lacking bonafides. In any scheme of selfassessment it becomes the responsibility of the assessee to determine his liability of duty correctly. This determination is required to be made on the basis of his own judgment and in a bonafide manner. 24. The extent of disclosure that an assessee makes is also linked to his belief as to the requirements of law. In the present case the assessee who was required to self-assess his liability determined the assessable value on the basis of an interpretation....
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....f disclosing whether or not an assessee was maintaining separate accounts for exempted and non-exempted services. Applying the ratio laid down by the Hon'ble Supreme Court in the above judgement, we hold that non-disclosure of a fact, which an assessee was not otherwise required by the rules and the Act to disclose in its returns or invoices, cannot be termed as an act of suppression. It has also been contended by the learned ASG that the appellants have requested TRAI not to share information, we find that this submission besides being irrelevant is incorrect, as it is TRAI, which has under cover of its letter 19.08.2021, while being requested to furnish copy of Accounting Separation Report (ASR) filed with them informed the department that the covering letter under cover of which the same was filed by the appellants had a request to the authority to maintain confidentiality. This in our view cannot be a basis to contend that TRAI did not share information at the behest of the appellants. The same appears to us as an independent decision of TRAI. In any case, the appellants have during the course of the adjudication proceedings, have furnished a copy of the ASR, as recorded in par....