TMI Blog2018 (11) TMI 232X X X X Extracts X X X X X X X X Extracts X X X X ..... the value of such SIM s is includible in the taxable value of the services provided by them whether the benefit of exemption under notification No 12/2003-ST can be extended to them - Held that:- The supply of SIM cards is integral with provision of the taxable service and without the said SIM cards the provisioning of this taxable service is impossible. Accordingly the benefit of Notification No 12/2003-ST cannot be extended to the Appellants. Whether the benefit of cum tax price needs to be extended to the appellant for determining the service tax leviable? - Held that:- Hon ble Supreme Court has in the case Dugar Tetenal Ltd [2008 (3) TMI 50 - SUPREME COURT] has held in favor of allowing such benefit. Whether interest is demandable and recoverable from the appellants? - Held that:- The 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 - demand of interest upheld. Whether in facts and circumstances of this case penalty under Section 76 and Section 78 of the Finance Act, 1994 are justified? - Held that:- Penalty under Section 76 is for the delay in payment of service tax - pen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Apr08 to Mar09 14451422 To the extent of ₹ 6,18,10,184/- (Rupees Six Crore eighteen lakhs ten thousand one hundred eighty four only.) inclusive of Edu. Cess and Secondary Higher Secondary Edu. Cess and order recovery of the same from M/s Hutchinson Max Telecom Pvt. Ltd. (Now known as M/s Vodafone Essar Ltd.) under section 73(1) of the Finance Act, 1994 read with section 68 of the Finance Act, 1994 and Rule 6 of the Service Tax Rules, 1994. b) Interest on the amount of demand determined at a) at the appropriate rate should be paid by M/s Hutchinson Max Telecom Pvt. Ltd. (Now known as M/s Vodafone Essar Ltd.), under Section 75 of the Act read with Rule 6 of the Service Tax Rules, 1994; c) Impose penalty of ₹ 6,18,10,184/- (Rupees Six Crore eighteen lakhs ten thousand one hundred eighty four only.) under Section 78 of the Act on M/s Hutchinson Max Telecom Pvt. Ltd. (Now known as M/s Vodafone Essar Ltd.); d) Impose penalty of as per section 76 of the Act on M/s Hutchinson Max Telecom Pvt. Ltd. (Now known as M/s Vodafone Essar Ltd.), which is as follows: i) for the period from 01.04.2004 to 09.09.2004, a p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... v. Central Excise Customs, reported in 2011 (23) S.T.R. 433 (S.C.). Challenging the aforesaid order, the assessee has filed the present appeal. 5. It is argued on behalf of the appellants that the judgment of the Apex Court in the case of Idea Mobile Communication Ltd. (supra) has no relevance in view of the exemption Notification No. 12 of 2003, dated 20th June, 2003 which is not considered by the Apex Court. It is the contention of the appellants that in the light of the said Notification No. 12 of 2003, the assessee is exempted from payment of tax on the value of goods and material sold by the assessee to the recipient of service. On perusal of the order passed by the Adjudicating Authority as also the order passed by the Tribunal, it is seen that both the authorities have not considered the applicability of the Notification No. 12 of 2003 to the facts of the present case. It is not in dispute that assessee had claimed benefit of the above notification before the authorities below and in fact they said claim of the assessee is recorded in the impugned orders but no finding is recorded. Since the Apex Court in the case of Idea Mobile Communication Ltd. (supra) has not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... amount already deposited by the applicant is sufficient for hearing of the appeal. The pre-deposit of the remaining amount of dues are waived and recovery of the same is stayed during the pendency of the appeal. 8. As noted above, the benefit of notification No, 12/2003-ST claimed by the appellant had not been considered in right perspective by the adjudicating authority hence the matter requires reconsideration by the adjudicating authority afresh. The impugned order is set aside and matter is remanded to the adjudicating authority for denovo adjudication and to consider the claim of the applicant in respect of the Notification No. 12/2003-ST. Both sides are at liberty to produce the evidence in support of their claim. The appellants are directed to appear before the adjudicating authority on 6.11.2012 and thereafter adjudicating authority will fix the date of hearing in accordance with law and decide after affording an opportunity of hearing to the appeal. Appeal is disposed of by way of remand. 2.3 Matter has been adjudicated by the order as referred in para 1 supra, by the Commissioner again holding that benefit of the Notification 12/2003-ST shall not be admissibl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered on this. h. Commissioners reliance on the Hon ble Supreme Court decision in case of IDEA Cellular is erroneous. i. When SIM card is loaded into the mobile phone, no service is being provided. SIM is only for identification. j. If the appellants are held liable to pay service tax on SIM, then VAT/ CST already paid by them against the sale of such SIM should be allowed to be adjusted. [Bharat heavy Electricals Limited vs Union Of India 1996 (4) SCC 230]. k. The computation of Service Tax is incorrect and not taking into account the provisions of Section 67(2) and Supreme Court decision in case of CCE vs Maruti Udyog Limited [2002 (49) RLT 1 (SC)] l. Since appellants acted bonafidely no penalty and interest should be imposed. {Hindustan Steel Ltd vs The State of Orissa {1969 (2) SCC 627}. m. In case of Bhati Airtel {ST 529-534/2011 dated 21.09.2011, in similar facts Tribunal has held no penalty is to be imposed. n. Simultaneous penalties cannot be invoked under Section 76 and Section 78 and for this they rely on the decision of Tribunal in case Silver OAK Gardens Resort [2008 (9) STR 481 (T-Del)]. 4.1 We have heard Shri V Sridharan counsel for Appellants ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rther submitted that in fact there was no reason for invoking penal provisions under section 78 for imposing penalty on them as they have acted in a bonafide manner. 4.7 Further simultaneous penalties under Section 76 and 78 cannot be justified in view of the various decisions of the Tribunal including that in case of Silver OAK Gardens Resort 4.8 He submitted the following decisions for the consideration of bench: i. Idea Mobile Communication Ltd Vs CCE C [2011-TIOL-71-SC-ST] ii. CCE Vs Idea Mobile Communication Ltd [2009- TIOL-318-HC-Kerala-ST] iii. Bharti Airtel Ltd vs CCE [2015-TIOL-2616- CESTAT-MUM] iv. Bharti Televntures Ltd (Bharti Airtel Ltd) vs CST [2012-TIOL-1658-CESTAT-MAD] v. Bharti Airtel Ltd vs CST [2014-TIOL-1713- CESTAT-AHM] vi. Bharti Hexacom Ltd vs CCE [2012-TIOL-742- CESTAT-Del] vii. Bharti Hexacom India Ltd vs CCE CESTAT Final Order No ST/A/531/2012-CU{DB} dated 4.7.2012. viii. Hutchison Max Telecom Ltd vs CCE [2005-TIOL- 1642-_CESTAT-DEL] ix. CST vs Hutchison Max Telecom Ltd [2008 (9) STR 455 (BOM)]Idea Cellular Ltd vs UOI [2016 (42) STR 823 (P H) x. Bharat Heavy Electricals Ltd vs UOI 1996 AIR 1854 xi. D Navinchandra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extended as the appellants do not fulfill the requirements of the said notification. He also referred to the certificate of Chartered Accountant wherein it has been specifically stated The company has debited to Profit Loss Account cost of SIM consumed for respective F Y and company s normal Gross profit ratio based on revenue from operations and other income which is liable to service tax is as per table detailed below: 4.11 To avail the benefit of Notification No 12/2003-ST, there should be sale of goods, if item under consideration does not satisfy the ingredients goods or there is no sale then such benefit cannot be extended. He relied on the decisions as follows in his support: i. Bharati Televenture [2014-33-STR-86-T-MUM) ii. BSNL [2011-TIOL-731-HC-AP-ST] iii. Super quality Service vs CCE 2018-TIOL-CESTATMAD iv. S S Electricals Vs CCE 2017-52-STR 322-Tri-Mum v. Daswani Classes Ltd vs CCE 2017-TIOL-1080- CESTAT-Del vi. Bata India vs CCE 2017-TIOL-4295-CEST-DEL vii. Idea Cellular 2017-TIOL-98-HC-MP-VAT viii. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services to its customer includible in taxable value of services provided by him. ii. If the value of such SIM s is includible in the taxable value of the services provided by them whether the benefit of exemption under notification No 12/2003-ST can be extended to them. iii. Whether the benefit of cum tax price needs to be extended to the appellant for determining the service tax leviable iv. Whether interest is demandable and recoverable from the appellants v. Whether in facts and circumstances of this case penalty under Section 76 and Section 78 of the Finance Act, 1994 are justified. vi. Whether the adjustment of VAT paid on sale of SIM to its consumers is allowed. 6.0 Issue at i is no longer resintegra and has been settled by the Apex Court in favour of revenue holding that value of SIM cards is part and parcel of the services rendered by the appellant. The relevant para of the Apex Court decisions are reproduced below: 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 d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the selling of the SIM Card and the process of activation are services provided by the mobile cellular telephone companies to the subscriber, and squarely 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in another aspect and for another purpose fall within another legislative power . * * * There might be overlapping; but the overlapping must be in law. 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee. The charges paid by the subscribers for procuring a SIM Card are generally processing charges for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... there is no sale in terms of Central Excise Act, 1944. 7.2 The term possession cannot be interpreted in isolation. Possession implies both intent to posses and control. Possession without both the ingredients present cannot be effective possession. It cannot be the case that consumer, of telephony services provided by the appellant had the intent to possess the said SIM. The intent of the consumer is to avail the telephony service. Further even the appellant does not have any intent to transfer the property in the said SIM s to the consumer as is evident from the sale invoices. Since there was no intent to transfer the property in the said SIM s by the appellant to consumer either on the date of transference of possession or thereafter, mere transfer of possession cannot be held to be said to be sale within the meaning of Section 2(h) as claimed by the Appellants. The reference made by the counsel to the Salmon s, and argument that on such transfer of possession, the possessor holds the goods on the bailment, is improper, because in case of bailment the transfer of possession is with ultimate intention of transfer of property in goods or for return of the goods after expiry of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in case of Idea Mobile Communication 2. The question involved is whether the value of SIM cards sold by the respondent to their 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... liability towards service tax payable to Central Government. Now since the State Government after remand by Supreme Court has given up the 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 throu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Maruti Udyog Limited (supra). After considering the case in Bata India Limited (supra) this Court observed in para 5 as under :- 5. A reading of the aforesaid Section clearly indicates that the wholesale price which is charged is deemed to be the value for the purpose of levy of excise duty, but the element of excise duty, sales tax, or other taxes which is included in the wholesale price is to be excluded in arriving at the excisable value. This Section has been so construed by this Court in Asstt. Collector of Central Excise and Ors v. Bata India Ltd., 1996 (4) SCC 563, and it is thus clear that when cum-duty price is charged, then in arriving at the excisable value of the goods the element of duty which is payable has to be excluded. The Tribunal has, therefore, rightly proceeded on the basis that the amount realised by the respondent from the sale of scrap has to be regarded as a normal wholesale price and in determining the value on which excise duty is payable the element of excise duty which must be regarded as having been incorporated in the sale price, must be excluded. There is nothing to show that once the demand was raised by the Department, the respondent sought ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... There would be discretion, if at all the same is incorporated in such notification in the gazette by which rates of interest chargeable Under Section 11AB are declared. The second aspect would be whether there is any discretion not to charge the interest Under Section 11AB at all and we are afraid, language of Section 11AB is unambiguous. The person, who is liable to pay duty short levied / short paid / non levied / unpaid etc., is liable to pay interest at the rate as may be determined by the Central Government from time to time. This is evident from the opening part of Sub-section (1) of Section 11, which runs thus: Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, who is liable to pay duty as determined under Sub-section (2) or has paid the duty under Sub-section (2B) of Section 11A, shall in addition to the duty be liable to pay interest at such rate.... The terminal part in the quotation above, which is couched with the words shall and be liable clearly indicates that there is no option. As discussed earlier, this is a civil liability of the assessee, who has retained the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the Writ Petitions are liable to be dismissed and we do so. However, we do not make any order as to costs. 10.2 Thus penalties imposed under Section 76 of the Finance Act, 1994 are justified and we do not find any reason to alter them. Since the penalties imposed under Section 76 are upheld, we do not find justification in separate penalties imposed under Section 78. Moresoever, when all the demands for taxes have been made within normal period. Accordingly penalties under Section 78 are set aside. Same view has been expressed by Hon ble High Court in Idea Mobile Communication Ltd. (supra). 11.0 Now coming to the last question with regards to adjustment of the VAT paid towards the demand for Service Tax, we are not in position to permit or allow for such adjustment or uphold such contention. VAT is levied under the State Act and Service Tax under the Central Act. Since both the authorities, under which Service Tax and VAT are levied are not the same, the tribunal being creature of the Central Act, would not be in position to determine such transfer and adjustment of VAT paid under State Act, towards the tax liability under a Central Act. 12.1 In view of above we remand ..... 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