WHETHER TRADING IN SERVICES OF BSNL AMOUNTS TO BUSINESS AUXILIARY SERVICES?

[Mr. M. GOVINDARAJAN]

                        Bharat Sanchar Nigam Limited ('BSNL' for short) is used appoint franchisees and authorize them to sell its various service products.  Whether such activities of the franchisees amount to 'Business Auxiliary Service'?  Sec. 65(105)(zzb) of the Finance Act, 1994 ('Act' for short) defines the term 'Business Auxiliary Services' as a taxable service provided or to be provided to a client, by any person in relation to Business Auxiliary Service.   According to Sec.65 (19) of the Act the following activities are to be covered under the Business Auxiliary Service:

·  Any service in relation to promotion or marketing or sale of goods produced or provided by or belonging to the client;

·  Any service in relation to promotion or marketing of services provided by the client;

·  Any customer care service provided on behalf of the client;

·  Procurement of goods or services, which are inputs of the client;

·  Production or processing of goods for, or on behalf of, the client;

·  Provision of service on behalf of the client.

The following case laws are discussed here for the answer to the question of the topic:

·  South East Corporation V. Commissioner of Central Excise, order dt. 25.5.2007;

·  Karakkattu Communication V. Commissioner of Central Excise, Cochin - 2007 (8) STR 164 (Tri. Bang);

·  Chetan Traders V. Commissioner of Central Excise 2008 -TMI - 30579 - CESTAT, NEW DELHI.

In 'South East Corporation V. Commissioner of Central Excise' (supra) the tribunal held that they were of the opinion that the appellants were not carrying on the activity of Business Auxiliary Service.   They have purposed BSNL post paid/pre paid cellular sim cards and sold the same in the market.   They have only received certain amount of profit which is ultimately a business practice when goods are sold in the market.   There is no service carried out by the appellants but actually they have done the activity of purchase and sale which comes within the purview of 'sale of goods' and sales tax is attracted.

                        The tribunal further held that the Commissioner (Appeals)'s finding that the appellant is doing the activity of marketing and distribution of products and it comes within the ambit of Business Auxiliary Service is not a correct finding especially, in the light of the appellants having paid full value for the SIM cards to the BSNL and sold the same on the profit margin.   BSNL had clarified that they had already paid service tax on the SIM cards sold to the appellants.  This also clearly shows that the BSNL had already discharged their burden and there cannot be double taxation in the peculiar circumstances of the case there is no merit in the impugned order and the same is set aside by allowing the appeal with the consequential relief, if any.

                        In 'Karakkattu Communication V. Commissioner of Central Excise, Cochin' (supra) the appellants were acting as distributors on cellular mobile telephone service for and on behalf of BSNL as per the agreement entered into between them during the period of July 2003 to Dec. 2004.   Their services have been brought under the category of Business Auxiliary Services.   They contested the matter on the ground that the service tax has been discharged by BSNL and they were not getting commission but were trading in the cards.   They were discharging sales tax.   The decision in 'South East Corporation V. CCE (supra)' was relied on by the appellants.   The tribunal held that the order in 'South East Corporation V. CCE' applied to the facts of this case.  The tribunal followed the ratio of the same and set aside the impugned order and allowed the appeal with consequential relief.

                        In 'Chetan Traders V. Commissioner of Central Excise' (supra) the appellants filed appeal against the order of demand of service tax confirmed on the ground that the appellant is providing service of Business Auxiliary Service.   The appellants are authorized franchisees of BSNL for marketing of various telecommunication services such as cellular phones, basic phone connections and customer care and selling of recharge coupons of BSNL.   The appellant contended that-

·  They are engaged in purchasing various service products from BSNL and selling the same to ultimate customers and earned the commission at pre determined rate;

·  BSNL is also an assessee of service tax and paying service tax in respect of service provided by them;

·  The appellants are paying sales tax in respect of goods sold by them.

The appellants relied on the decision of the tribunal in the case of 'Karakkattu Communications' (supra).  The Revenue contended that the appellants are rendering service of promoting the service of M/s BSNL and the activity of promotion or marketing of the company between the scope of taxable service under the Business Auxiliary Service and therefore the demand is rightly made.

                        The tribunal considering the decision in 'Karakkattu Communication' held that the ratio of the decision is fully applicable in the facts of the present case.   The tribunal allowed the appeal by setting aside the order.