PRINTING OF TELEPHONE BILLS – BUSINESS AUXILIARY SERVICE?

[Mr. M. GOVINDARAJAN]

Definition – Business Auxiliary Service

Section 65 (19) of Chapter V of Finance Act, 1994 defines the expression ‘business auxiliary service’.  According to this section ‘business auxiliary service’ means any service in relation to-

(i) promotion or marketing or sale of goods produced or provided or belonging to the client; or

(ii) promotion or marketing of service provided by the client; or

Explanation- For the removal of doubts, it is hereby declared that for the purposes of this sub-clause “in relation to promotion or marketing of service provided by the client” includes any service provided in relation to promotion or marketing of games of change, organized, conducted or promoted by the client, in whatever form or by whatever name called, whether or not conducted online, including lottery, lotto, bingo;

(iii) any customer care service provided on behalf of the client; or

(iv) procurement of goods or services, which are inputs for the client; or

Explanation – For the removal of doubts, it is hereby declared that for the purposes of this sub-clause, ‘inputs’ means all goods or services intended for use by the client;

(v) production or processing of goods for, or on behalf of, the client; or

(vi) provision of service on behalf of the client; or

(vii) a service incidental or auxiliary to any activity specified in sub-clause (i) to (vi), such as billing, issue or collection or recovery of cheques,payments, maintenance of accounts and remittance, inventory management, evaluation or development of prospective customer or vendor, public relation services, management or supervision, and includes services as a commission agent, but does not include any activity that amounts to ‘manufacture’ within the meaning of clause (f) of section 2 of the Central Excise Act, 1944.

Issue

The issue to be discussed in this article is whether the printing of telephone bills in the outsource mode amounts to business auxiliary service with reference to decided case laws.

Case laws

In re ‘Business Information Processing Services’ – 2011 (1) TMI 598 - CESTAT, NEW DELHI it was held that the printing of bills and delivery of the bills and other reports to the client cannot be taxed under the ‘business auxiliary service’.

In ‘Commissioner of Central Excise, Delhi V. Ricoh India Limited’ – 2017 (3) TMI 1159 - CESTAT NEW DELHI  the appellant have entered into contract with the telecom companies to provide printing service of telephone bills and certain post printing activities.  The appellant also entered into contract with BSNL, Kottayam.  The agreement stipulates the scope of the contract.  BSNL outsource the work of printing telephone bills and certain post printing operations.  The appellant has to install heavy duty laser printers along with required accessories in the premises of BSNL.  The required software, personal computers, UPS, interfacing software for processing data forms, designs etc., will be provided by the appellant.  They have to also provide required manpower, consumables, stationary for this operation.  The printing of telephone bills should be done based on the data provided by BSNL and as per the form and design approved by BSNL.  BSNL is at liberty to insert commercial advertisements, special messages, letters meant for customers, in the telephone bills.  Therefore the appellant are to suitably readjust the printing form lay out, to suit the requirements of BSNL.  The telephone bill should also contain bar coding and any additional material as mandated by BSNL.  The post printing operations including sorting, z-folding, stapling, pin code wise bundling, stuffing into window cover and bundling in convenient numbers.  The printing operation and post-printing operations are to be completed within the time schedule prescribed in the agreement.  The number of print operations executed should be system controlled.  The same will be required for payment of charges to the appellant.

The Original Authority recorded that the term ‘billing’ is not defined in the Finance Act, common parlance is to be applied.  He concluded that the printing the statement of account or of money due for goods or services and post-printing function of dispatching the bill would qualify as billing.  The Original Authority held that the appellant is liable to service tax for normal period of one year from relevant date.   He imposed penalties under section 76 and 77 of the Act.

The appellant, being aggrieved against this order, filed appeal before the Tribunal.  The Revenue also filed appeal against the order of the Original  Authority which dropped the demand for extended period and not imposing penalty under section 78 of the Act.

The Tribunal found that the reasoning adopted by the Original Authority is not sustainable.  The appellant is involved in printing of telephone bills and certain post-printing operations.  The Tribunal did not accept the contention that the physical printing of telephone bills can be considered as ‘billing’.  Telecommunication billing involves a group of processes of telecom service providers, including collection of consumption date of customers, calculate charging and billing information, produce bills to customers, process their payments and to follow up in default.  Billing is more of a financial activity involving quantification of charge, methodology of providing information in the bill and reaching it to the customer and following it for collection.  The appellant is not involved in any calculation of quantification of the bill amount, details to be presented in the bill and regarding correctness of the said details in the bill.  The appellant is not responsible for any details in the bill or authenticity of the same.  They are simply printings in a pre-formatted  design the telephone bills based on the data provided by the telecom company and give the printed bills in envelops, after bunching in convenient groups, for further follow up by the telecom companies.

The Tribunal found that above such activities cannot be considered as business auxiliary service.  The operations are in terms of agreement on a principal to principal basis with no involvement of third party.  The sub clauses in section 65 (19) talk about promotion or marketing of service provided by the client or customer care service provided on behalf of the client, provision of service on behalf of the client.  The appellant is nowhere connected with promotion of service or provision of such service on behalf of the telecom companies.

The Tribunal held that the impugned order is not sustainable and set aside the same.