ST has to be paid on gross amount charged for supply of SIM - HC order has to be considered as 'per incuriam' - benefit of Notfn No 12/2003 not available - rate of tax that should apply is rate prevalent at time of rendering of service: CESTAT
By TIOL News Service
MUMBAI, OCT 17, 2013: THE appellants are providers of cellular (mobile) telephone services. They supplied SIM cards to their subscribers during July, 2002 to March, 2006 but failed to pay service tax on the gross value of the SIM cards/pre-charge coupons/vouchers etc. The differential duty demand amounted to Rs.1,73,95,879/- during the said period.
It was further noticed that in respect of such cards/coupons/vouchers they had discharged service tax @ 5% for the period on or after 13-5-2003 whereas the rate of service tax was raised from 5% to 8% w.e.f. 13-5-2003 and the rate was further raised to 10% w.e.f. 10-9-2005. The appellant did not discharge service tax at the enhanced rates on the balance talk time available on such pre-paid cards/coupons. The differential tax on account of the rate changes amounted to Rs.20,97,757/-.
It was also noticed that the appellant had collected advance rental on post-paid services provided on or after 14-5-2003 and 10-9-2004 and the differential service tax liability on account of such rentals amounted to Rs.5,74,129/-.
All allegations put together a SCN was issued demanding differential service tax of Rs.1,99,22,580/- along with the attendant penal and interest liabilities.
The CCE, Pune-III upheld the allegations. However, he restricted the demand to Rs.51,21,967/- in respect of the amount of Rs.1,73,95,879/- on the ground that the appellant had been audited by the department during April and May, 2004 and the financial records maintained by the appellant were scrutinized and therefore, suppression of facts cannot be alleged and hence extended period of time is not invokable.
However, he confirmed in totality the demands raised on the other two counts and imposed penalties and interest.
Before the CESTAT the appellant inter alia submitted -
+ that they had discharged ST liability on the activation charges collected for activating the SIM cards/pre-charge coupons/vouchers. The balance amount collected represents the value of goods sold by them (i.e. SIM cards, Coupons, etc.) which is not taxable and the said value has to be excluded from the taxable value in view of Notification No. 12/2003-ST dated 20/06/2003moreso since they have discharged sales tax on the value of SIM cards. Reliance is placed on the decision of the Bombay High Court dated 25/06/2012 in the case of Vodafone India Ltd. wherein in respect of an identical issue, the High Court directed the Tribunal to consider the applicability of Notification No.12/2003-ST and the Bench in turn had remanded the case back to the adjudicating authority. Inasmuch as in the present case also the matter should be remanded back for considering their eligibility to notification No. 12/2003-ST.
+ As regards the differential ST demand on the ground of enhancement in tax rates, it is their contention that the appellant has discharged the service tax liability at the rates prevalent on the date of receipt of consideration. Since service tax liability is to be discharged at the time of receipt of consideration as per Rule 6 of the Service Tax Rules, 1994, the question of discharging service tax at the high rates which came into force subsequently would not arise at all. Reliance is placed on the decision in VigyanGurukul = (2011-TIOL-1724-CESTAT-DEL).
+ the demands of Rs.20,97,757/-&Rs.5,74,129/- are also hit by limitation.
The Revenue representative submitted that the issue relating to whether SIM cards are goods or not has been settled in favour of Revenue by the High Court of Kerala in the case of Idea Mobile Communication Ltd. - (2009-TIOL-318-HC-KERALA-ST) and by the High Court of Andhra Pradesh in the case of State of A.P. vs. Bharat Sanchar Nigam Ltd. = (2011-TIOL-731-HC-AP-ST) wherein it is held that SIM cards are not goods leviable to sales tax but services exigible to service tax. Inasmuch as since these decisions were not presented before the Bombay High Court the decision delivered in Vodafone case should be considered per incuriam. Furthermore, since it is held that SIM cards are not goods the question of extending the benefit of Notfn. 12/2003-ST would not arise. As for the rate of tax applicable, it is submitted that the rate prevalent on the date of rendering of the service is material for demand of tax and merely because the service tax liability has been discharged in advance, it did not mean that if the rate undergoes a change at the time of rendering of the service, the revised rates would not apply.
After extracting the decisions of the High Court cited by the Revenue, the Bench observed -
“5.3. What emerges from the above decisions of the hon'ble Kerala and A.P. High Courts is that SIM cards/ Recharge Coupons are not “goods” but service and service tax alone can be levied on the supply of such cards/coupons. While considering the case of Vodafone India Ltd. by the hon'ble Bombay High Court, these decisions of the Kerala and A.P. High Court was not brought to the notice of the Court and therefore, the said decision has to be considered as “per incuriam”. In view of the above factual and legal position, we hold that the benefit of Notification NO.12/2003-ST will not be available to the appellant and service tax has to be paid on the gross amount charged for the supply of SIM cards. Therefore, the demand of Service Tax confirmed by the adjudicating authority is sustainable in law and we hold accordingly.”
On the question of the rate of tax that should apply, whether the rate prevalent at the time of rendering of the service or the rate prevalent at the time of receipt of payment for the services rendered, especially in a case when payment is received in advance, the Bench extracted the provisions of section 66 of the FA, 1994, and after referring to section 65(105) of FA, 1994; and relying on the decisions of the Gujarat High Court decision in CCE vs. Schott Glass India Pvt. Ltd. - (2009-TIOL-82-HC-AHM-ST); Supreme Court decision in Gujarat Ambuja Cements Ltd. vs. UOI - (2005-TIOL-53-SC-ST); Kerala High Court decision in the case of Kerala Colour Lab. Association vs. U.O.I. = (2003-TIOL-19-HC-KERALA-ST); Maharashtra Chamber of Housing Industry vs. U.O.I. - (2012-TIOL-78-HC-MUM-ST), the Bench observed -
"5.9 Applying the ratio of these decisions to the facts of the present case, it is the rate of tax prevalent on the date of rendering of service that is material and not the rate prevalent on the date of payment of tax. The reliance placed by the appellant in VigyanGurukul case is of no help as the said decision has not taken into the ratio of the various High Court and Supreme Court decisions on the subject as discussed above. In view of the above factual and legal position, we are of the considered view that the rate of tax that should apply in respect of service tax is the rate prevalent at the time of rendering of the service and not the rate prevalent at the time of receipt of consideration or the rate prevalent on the date of payment of tax as that would create uncertainties. The basic feature of a tax system is its certainty. Therefore, any interpretation that leads to uncertainties should be eschewed.”
On limitation, the Bench observed -
"5.10 …The ld. Adjudicating authority has held that only normal period of time would apply in respect of demand of service tax on the gross amount charged as the records of the appellant had been audited by the Department and no suppression could be alleged. If that be so, in respect of application of rate of tax on the balance of talk time available in respect of pre-paid SIM cards/re-charge coupons and the rental advance, the same logic should apply. Therefore, we hold that in respect of these demands also, the normal period of time shall only apply and not the extended period of time."
In fine the Bench held that the demands are sustainable. Holding that the demands are sustainable for the normal period of limitation (which amount is to be recomputed in respect of the demands confirmed of Rs.20,97,757/- & Rs.5,74,129/-); the penalties under section 76 are sustainable but not that imposed u/s 78 as there is no suppression and interest is payable, the appeal was disposed of.
In passing: Hope there is no Revenue appeal pending against the O-in-O dated November, 2006.
(See 2013-TIOL-1532-CESTAT-MUM)
