AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2024 (9) TMI 239
X X X X Extracts X X X X
X X X X Extracts X X X X
....d 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 have contended that after the requisite telecom....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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), with whom the appellants had entered into a Master distribution agr....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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. 1.6 Feeling aggrieved with the impugned order dated 10.12.2022, the appellants have preferred this appeal with th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ion 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' telecommunication service was rendered to subscribers; whereas, the paid and top-up telecommunication services was rendere....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he 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 best judgement method of determination of value, the learned Commissioner has, on the pretext of not having adequate data,....
X X X X Extracts X X X X
X X X X Extracts X X X X
....hi- 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 Security, etc.) to subscribers on 'free' basis inasmuch as no consideration was charged for provision of such services. Apart from relying upon the reasoning given by the learned Commissioner in the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ble, 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 absent inasmuch as no documentary evidences were produced by the appellants before the adjudicating authority to demonstrate that they had dealt only with the provision of taxable service and not the exem....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation 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 vouchers) and partly exempted (activities provided free of charge without consideration to the subscribers). Significantly, the SCN did not treat revenues earned from sale of prepaid vouchers to be a service provided to RRL, as is the finding recorded by the learned Commissi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s 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 have made detailed submissions, dealing with those issues. 6.1 In order to address the issues framed herein above on the merits of the matter, the statutory provisions, relevant for consideration, are extracted below: "Finance Act, 1994 Chapter V Service Tax Pre-Ne....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f 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 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 char....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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 shall include nonexcisable goods cleared for a consideration from the factory. Explanation 2.-Value of non-excisable goods for the purposes of this rule, shall be the invoice value and where such invoice value is not available, such value shall be determined by using reasonable means consistent with the principles of valuation contained in the Excise Act and the rules made thereunder. Explanation 3.-For the purposes of this rule, exempted services as defined in clause (e) of rule 2 shall include an activity, which is not a 's....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ling 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 appellants had not charged for usage of the facilities provided within the prescribed threshold limit, but on completion of the period and/or exceeding the usage limit, the appellants had intended to charge and in fact charged, barring a minuscule percentage of subscribers for the services as per the approved plan. It is not the case of the Revenue that each of the subscribers covered under the threshold limit were provided with a mobile number, which were subsequently changed to another mobile number on completion of the threshold limit period. The learned Commissioner in the impugned order has vivisected one....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2- 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 (CAF) has to be examined for determining the point of time, when the service is deemed to be provided. We have gone through the CAF and taken note of the clauses therein to the effect that the subscribers have agreed to pay all charges raised on account of services provided and that they have also agreed to the variation in the tariff charges. Insofar as the subscribers who are within the specified threshold of 100 SMS and 4 GB data are concerned, the point of taxation is the point of time when such subscribers become contractually obliged to pay for the services. It is relevant to note qua the subscribers whom the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rvices 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 from doing, something, such act or abstinence or promise is called consideration for the promise". We note that the learned Commissioner also in the impugned order at paragraph 41 has referred to the said definition in Section 2(d) of the Act of 1872. 6.7 It is not in dispute that the appellants have earned IUC charges for the telecommunication service rendered by them from the very inception i.e., the moment a subscriber activates his SIM card and receives a call from outside the network. It is the appellants submission that the IUC charges are consideration for the telecommunication service provided to the subscr....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ation 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 subscribers cannot be considered as provided without consideration; since, in respect of such subscribers too, IUC charges were earned and received by the appellants, albeit from other telecommunication service providers. The fact that a separate contract also existed with the other telecom service providers with a view to give effect to the regulatory regime of 'caller party pays' does not alter the fact that the service of enabling the subscribers to receive incoming calls from outside third party networks was a telecom service provided by the appellants to their subscribers. This service of receiving incoming calls from outsi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....h 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 subscribers were, in terms of the service contract, never liable to pay anything to the appellants' company during the relevant period. 6.11 In view of the above analysis and the detailed discussions made in the preceding paragraphs, we are of the considered opinion that an element of consideration was always present in the provision of telecommunication service, as a continuous supply of service, during the disputed period. Therefore, the observations of the learned adjudicating authority that the telecommunication service provided by the appellants free of charge/without consideration to the subscribers, during the period ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....en 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 consideration to be exempt service for the limited purpose of applying Rule 6. The said Explanation 3 provides that the expression exempted service will include an activity which is not a service as defined in section 65B(44) of the Act of 1994. It has been argued by the appellants that according to Explanation 3 and the definition of service, as extracted above, activities which are deemed to be an exempted service are the eight activities specified in the definition of 'service' i.e., transfer of title in goods, transfer of title in immovable property, deemed sale in terms of Article 366(29A) of the Constitution of India, transaction in m....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ntract 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 stipulates that the value of the exempt service shall be the invoice/agreement/contract value, which undisputedly as per the Revenue's own say is 'NIL', in the facts of the present case. Therefore, whatever mileage the Revenue would have gained from Explanation 3, is lost by application of Explanation 4 of Rule 6(1) of the CCR. 9. We now turn to the issue whether, the learned Commissioner was justified in disallowing the entire amount of CENVAT credit availed on input, input services and capital goods, by applying the provisions of Rule 6(3)(i) of the CCR. This rule which has been extracted above, provides that a provider of output ser....
X X X X Extracts X X X X
X X X X Extracts X X X X
....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 taking the maximum of the total data consumption during the relevant period, which had been duly furnished by the appellants. We are therefore, of the view that the learned Commissioner was not justified in abdicating his responsibility of determining the value of so-called exempt service under Rule 6(3)(i) of the CCR and the supposed failure by the appellants to furnish the information sought for, does not absolve him of his failure to act, in accordance to the provision of the CCR. 10. We also note that while adopting the maximum prescribed limit in Rule 6(3)(i) of the CCR, the learned Commissioner has included the credit taken by the app....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 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, such concession once validly availed can be curtailed or denied only in terms of the Rules under which the same has been granted. As has already been concluded by us, no reversal was warranted under Rule 6 of the CCR, consequently CENVAT being a concession, does not further the case of the Revenue. 12.1 We now deal with the last aspect of the demand being time barred. To justify the stand that extended period of limitation can be invoked for issuance of the SCN beyond the normal period, the learned Commissioner has observed in the impugned order that the appellants were governed under the self-assessment procedure; that they had failed to....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned 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-statement etc., which justify invocation of the extended period of limitation. Short-levy, non-levy or short-paid/non-paid service tax, if any, can be recovered under the main part of Section 73 of the Act of 1994 and the proviso clause cannot be referred to or invoked, without substantiating involvement of the appellants on the activities itemised therein. In other words, issuance of show cause notice under the normal period is the 'rule' and issuance of the same, by invoking the extended period of limitation is the 'exception', for which, the onus of proof entirely lies with the department. In the case in hand, we find that the department had failed ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct 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 Excise, Hyderabad v. M/s. Chemphar Drugs and Liniments, Hyderabad, 1989 (2) SCC 127/1989 (40) E.L.T. 276 (S.C.)/1989 taxmann.com 612 (S.C.) this Court, while dealing with a similar situation of invocation of extended period of limitation under section 11(A) of the Act, this Court held as under: "In order to make the demand for duty sustainable beyond a period of six months and up to a period of 5 years in view of the proviso to sub-section 11A of the Act, it has to be established that the duty of excise has not been levied or paid or short-levied or short-paid, or erroneously refunded by reasons of either fraud or collusion or willful misstatement or suppression of facts....
X X X X Extracts X X X X
X X X X Extracts X X X X
....g 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 given by CESTAT in its order dated 28-7-2000. It could not have foreseen that the view taken by CESTAT would be upset and overturned by the Supreme Court as it happened on 9-8-2005. The assessee's conduct during the material period i.e. between 2000 to 2005 cannot be considered to be malafide when it merely followed the view taken by the Tribunal in IFGL's case. On the question of disclosure of facts, as we have already noticed above the assessee had disclosed to the department its pricing policy by giving separate letters. It is also not disputed that the returns which were required to be filed were indeed filed. In these returns, as we noticed earlier there was no separate column for....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ed 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 para 41 of the impugned order. Therefore, the ruse of the so-called information not having been furnished at the behest of the appellants is not a submission available to the Revenue. Therefore, we are of the considered view that there is no legal basis for invoking the extended period of limitation provided in the proviso to Section 73(1) of the Act of 1994, for confirmation of the adjudged demands on the appellants. 13. Since the service tax demand is not sustainable in view of the discussions made in the foregoing paragraphs, the demand for interest and penalty are also not sustainable. Even otherwise, there was no justification of ordering for recovery of interest on the amount determined as payable....