TMI Blog2023 (10) TMI 812X X X X Extracts X X X X X X X X Extracts X X X X ..... rge coupons, we are of the view that Commissioner (Appeals) has rightly set aside the confirmation of demand. The demand on commission for sale of SIM cards is not sustainable, hence the impugned order is set-aside - appeal allowed. - HON BLE MR. RAMESH NAIR, MEMBER ( JUDICIAL ) And HON BLE MR. C. L. MAHAR, MEMBER ( TECHNICAL ) Shri Paritosh Gupta, Advocate for the Appellant Shri P. Ganesan, Superintendent (AR) for the Respondent ORDER RAMESH NAIR : The issue involved in the present case is that whether the commission received against the sale of SIM card on MRP and in such MRP the commission is already included and on that MRP the principal i.e. the mobile company has discharged the service tax, whether the appellant being a commission agent is liable to pay service tax on the commission received by them from the mobile Company in the present case, M/s. Vodafone Essar Gujarat Limited. 2. Shri Paritosh Gupta, learned Counsel appearing on behalf of the appellant at the outset submits that this issue is no longer res-integra as the same has been considered in various judgments and held that since the mobile company itself discharged the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when a distributor sells SIM-cards can still be a matter of dispute because distributor is not providing any telecommunication service to the customer. This issue can come up in two different types of transactions depending on the business model of the telecom operator. In some cases the distributor gets his consideration from customer at the time of sale of SIM-cards through the margin in price. In some cases the distributor gets their consideration from the telecom operator by way of commission on the transaction normally called as sale. In the case before us the second type of situation exists. Some clauses from the agreement showing General Obligations of the Franchisee and Responsibilities of the Franchisees and procedure for payment of commission/rewards/marketing expenses as given in the agreement are reproduced below :- General Obligation of the Franchisee 9.1 The Franchisee shall maintain a suitable organisation for the Marketing and Distribution of products services in the allocated territory from his outlet(s). The franchisee shall use its best efforts to actively provide effective services to the subscribers of the BSNL and always act in the interest of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anning of its shows room at least 14 Hrs. per day (8 am to 10 pm) 7 days a week and attending complaints (8.00 am to 8.00 pm) 7 days a week. Commission Incentives Policy 3.11 Basic Commission : the rate of the commission shall be same for all the franchisee in UP (West) Telecom Circle. The basic commissions for service are as follows : (i) Cellular - (per connection) Postpaid Rs. 200/- (prepaid) Rs. 100. (ii) in Services - As orders issued from time to time. 3.12 Commission on recharge coupons, there will be uniform commission for Recharge coupons in BSNL License area. The commission to be paid to franchisees will be 5% : 3% commission to retailers by franchisees/sub-franchisees from their own commission. Share of Commission in between franchisee and sub-franchisee will be decided mutually. 9.6 The franchisee shall if so desired by the BSNL, make alterations, modification and install such furniture, fixture and air conditioning equipment, introduce customer care hardware including computer with UPS, Modem etc. as required and mutually agree upon the cost of such alteration renovation shall be borne exclusively by the franchisee. P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ove, BSNL is paying service on MRP of the cards and paying commission to distributors out of MRP realized. In such a situation, collecting service tax on MRP of SIM-card from BSNL and collecting service tax again on that part of the amount paid by BSNL to the distributor out of MRP realized, puts the parties to these transactions at a doubly disadvantageous position as compared to the value taxed in the case of BPL Mobile because BPL Mobile was paying tax only on the discounted price of the card and there is no evidence to show that the value of service rendered by those distributors was being subjected to tax. 17. Against the above background the prime arguments of the respondents-distributors in these case are the following :- (i) The distributor is buying and selling SIM-cards and there is no service involved in the activity of the distributor. (ii) BSNL has paid service tax on the entire value of Rs. 500 including Rs. 15 paid to the distributor. So there is no case for demanding service tax again on the amount of Rs. 15. 18. Some facts and relevant laws that are to be noted in this context are the following :- (i) It is already held by the Apex Cou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Communications Ltd. v. CCE - 2011 (23) S.T.R. 433 (S.C.) and for the reason that the essential character of the transaction is not of sale. 20. The second argument adopted was that demanding tax on a part of such value again in the hands of the distributor amounts to double taxation. The argument that tax should not be demanded in situations where somebody else has paid tax on the taxable value of a service is not an argument that can be accepted normally. If this argument is adopted, a taxpayer X in a VAT chain can argue that the next person Y who uses the service as input will be paying tax and X need not pay tax. In a VAT chain it is difficult to identify who is the ultimate consumer who is not paying further tax. Taking the case of telecommunication service if the customer is a person who does not pay service tax on any of his activities a telecom operator cannot adopt this argument. But if the customer is an industrialist he is eligible for credit of service tax to be paid by him. So a telecom operator can adopt the argument in respect of services rendered to such customers. Such logic will make any VAT system for collecting tax unworkable. During the initial phase o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... service, billing for it, collecting the charges for the service and then BSNL charging for the services to the customers through a separate process. On the contrary this is a case where BSNL sells the cards through the distributor and collects money from customers through the distributor and then pays to the distributor out of consideration received by them from their customers on which consideration service tax is first discharged by BSNL. That is to say the transactions of both the parties are essentially one and payment on the full value of service occurs earlier than payment of commission to the distributor. Further payment of tax on full value of service rendered by the principal, that is BSNL, is easily verifiable unlike in the case of services rendered by many other sub-contractors for other type of services. 23. Some services which are on similar footing as sale of sim cards or re-charge coupons by distributors are services provided by (a) sub-broker to a stock broker; (b) mutual fund agent to a mutual fund or asset management company; (c) selling or marketing agent of lottery tickets to a distributor or a selling agent. 24. Interestingly the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, whether first-time purchaser of SIM card or subsequent purchaser of other cards, is collected from the customer and deposited to Government account by the principal. An attempt has been made to catalogue the various activities that devolve on the appellants in relation to activation of SIM cards without appreciating the fact that the SIM cards are marked with an MRP on which tax is collected in full from the customer. Therefore, the commission paid to appellants is also included in the value on which tax has been collected from the customer. The customer is, consequently, the recipient of the full value of services from none other than M/s. Bharat Sanchar Nigam Ltd.; thus, it is no different from the other two products. 8. The rationale for non-leviability of tax in relation to recharge and top-up coupons in Paragraph 26 in re GR Movers (supra) is as follows : 26. Though the correct procedure for discharge of the service tax liability by the two parties is that the distributors raise bills for commissions that is due to them along with service tax and BSNL takes Cenvat credit of tax paid by distributors for discharging liability on the telecommunication service pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Idea Mobile Communication Ltd. [2011 (23) S.T.R. 433 (S.C.)]. The issue involved before the Hon ble Supreme Court was as to whether the value of the SIM cards is required to form part of the activation charges or not. Inasmuch as the issue before the Hon ble Supreme Court was entirely different than the issue involved in the present case we are of the view that following said decision by Commissioner (Appeals) in preference to the decision of Tribunal on the same issue as involved in the present case is not proper. We also refer to the latest decision in the case of Martend Food Dehydrates Pvt. Ltd. vide Final Order No. ST/A/684-687/2012-Cus., dated 6-11-2012, wherein after taking note of the entire case law available on the said issue, the Tribunal in a detailed order has held that activity of purchase and sale of SIM card belonging to BSNL where BSNL has discharged the Service Tax on the full value of the SIM cards, does not amount to providing business auxiliary services and confirmation of demand on the distributors for the second time is not called for. By following the said decision, we set aside the impugned order and allow the appeal with consequential relief to t ..... 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