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2015 (6) TMI 543 - CESTAT NEW DELHI

2015 (6) TMI 543 - CESTAT NEW DELHI - 2015 (40) S.T.R. 707 (Tri. - Del.) - Business Auxiliary Service - appellants were providing Short Message Peer to Peer (SMPP) service to various clients but were not paying service tax thereon - Held that:- Telecommunication service defined under Section 65(109a) requires that the services, inter alia, is rendered by a person, who has been granted a licence under the first proviso to sub-section (1) of Section 4 of Indian Telegraph Act, 1985 and the appellan .....

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ervice to their client's subscribers on behalf of their clients for which they were paid by their clients. If the services provided by them to their clients' subscribers were not on behalf of their clients, they (i.e., the appellants) had no reason to provide service to their clients' subscribers and there would be no reason for their clients to pay the appellants for the said service. Indeed, to whom the data/SMSs should be sent, at what time they should be sent, the priority to be attached to .....

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a which consider as objectionable. The terms of the agreement make it clear that the SMS which is being sent to the client's subscriber is only on behalf of the client and the appellants cannot send any material on their own. Thus it is amply clear that the service has been rendered by the appellants on behalf of the clients and is therefore clearly covered under the scope of BAS as the appellants have rendered service in relation to provision of service on behalf of the clients.

Sect .....

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1476/2015-CU(DB) - Dated:- 30-4-2015 - G Raghuram, President And R K Singh, Member (T),JJ. For the Appellants : Shri P K Sahu & Shri Prashant Shukla, Advs For the Respondent : Ms Suchitra Sharma, DR ORDER Per: R K Singh: The appellants have filed these Appeals against confirmation of demand of service tax along with interest and penalties including the mandatory penalty under Section 78 of the Finance Act, 1994. The respective demands involved in these appeals are summarised under:- Appeal N .....

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04.02.2009 36,01,099 Rs.36,01,099/- u/s 78. 01.04.2008 to 15.05.2008 26.02.2009 15,77,329 Rs.15,77,329/- u/s 78. 2. The facts briefly stated are as under:- The appellants were providing Short Message Peer to Peer (SMPP) service to various clients but were not paying service tax thereon. The SMPP service inter alia involves sending SMS to customers of their clients on a bulk basis. The said service was provided to a large number of clients and described in their invoices as "charges for sho .....

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C. (iv) Cancel or replace a short message stored on the SMSC. (v) Send a registered short message (for which a 'delivery receipt' will be returned by the SMSC to the message originator). (vi) Schedule the message delivery date and time. (vii) Select the message made i.e. datagram or store and forward. (viii) Set the delivery priority of the short message. (ix) Define the data coding type of the short message. (x) Set the short message validity period. (xi) Associate a service type with e .....

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of the Act. 3. The appellants have contended that the appellants are engaged in "Short Message Peer to Peer Services" (SMPP services) to their clients. They were only acting as carrier of messages like a courier agency sending parcels. The appellants allow their clients to access their gateway/ SMPP Server through which their clients submit their own data to form short messages. The application software used by the appellants processes such messages so that it can hand over the messag .....

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their clients they had not paid any service tax on the amount received therefor as in their opinion SMPP service is not classifiable under BAS. Revenue demanded service tax on the said service under the sub-category "provision of service on behalf of the client in sub-clause (vi) of the clause (19) of Section 65 of the Finance Act, 1994, which defines the taxable category BAS. 4. The appellants further contended that the impugned order was not sustainable for the following reasons:- (i) Und .....

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s. State of Uttar Pradesh [1958 SCR 296: AIR 1957 SC 887 : (1958) 33 ITR 472] has held that the expression "on behalf of" connotes an agency which brings about a relationship as between principal and agent between the parties, one of whom is acting on behalf of the other. CESTAT in the case of Interocean Shipping Co. Vs. CST, New Delhi [2013 (30) STR 244 (Tri. - Del.)] has followed this ruling to interpret the expression "on behalf of". (ii) In the impugned order it has been .....

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of the appellants. The Commissioner has failed to understand that the appellants were providing the services to their clients rather than providing the services to any other person on behalf of the clients. (iii) The SMPP protocol is a telecommunication industry protocol for exchanging SMS messages between SMS peer entities such as short message service centres and/or External Short Messaging Entities (A write-up on this extracted from Wikipedia was submitted by the appellants). (iv) If at all, .....

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[2008 (9) STR 389 (Tri. - Ahmd.)] has held that if there is a subsequent entry covering a taxable activity, the same activity cannot be taxed under an earlier entry, which has not undergone change when the new entry was introduced. (v) They had not collected any amount towards service tax from their clients. The alleged value of the taxable service should have been treated as cum-tax and adjustment should also have been made for the cenvat credit available to the appellants as per the Cenvat Cr .....

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n the receipts on which service tax was demanded as exempted service in all the returns filed by them. Further in Appeal No.ST/805/2012, Show Cause Notice dated 04.02.2009 for the period July, 2004 to March, 2006 is time barred as Revenue was aware about the relevant facts prior to 28.05.2007 in-as-much-as: (a) The Superintendent of Central Excise has written a letter dated 28.05.2007 to the appellants asking them to deposit service tax, referring to internal audit IAR No.5/2007 dated 03.05.2007 .....

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added that the impugned Orders-in-Original are sustainable. 6. We have considered the contentions of both sides. As regards contention of the appellants that they were providing telecommunication service which is recognised as a separate service under section 65 (109a) ibid, they not being a telegraph authority were not liable to pay service tax and as they were covered under Telecommunication Service, they cannot be covered under BAS, it is pertinent to point out the inherent contradictions in .....

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tally invalid [even if the contention that being covered under Telecommunication Service would necessarily mean they were not covered under any other taxable service earlier is presumed (without admitting) to be valid]. 7. As regards the contention of the appellants that they were only acting as a courier for delivery of their clients' messages to their customers/subscribers and therefore they were not rendering any service to the subscribers of the clients, one has to carefully scrutinise t .....

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d the 'External Short Message Entity' (ESME) may initiate an application layer connection with an SMSC over a TCP/IP or X.25 network connection and may then send short messages and receive short messages to and from the SMSC respectively. The Bulk Messaging service in short is used to exchange short messages among the peer computer systems. So, it is basically development and maintenance of software to enable the exchange of short messages among peer systems. It includes the complete des .....

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PP Messaging setup is running on the Oracle as a database. The operating system used for the purpose is Linux. Oracle as a Database provides many advantages such as better table management and greater capacities for storage. This facilitates faster data recovery and rapid command execution. 3. Network Protocols: As mentioned the service itself runs over the SMPP and SS7 protocols which are standards for the SMS delivery across the globe. Using this service data from any part of the world is proc .....

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of two way messaging functions described above. It is also seen from the Product Note that SMPP service also has the following key features:- i. The gateway enables the sending of messages to more than 180 countries and 400 operators across the globe. ii. Both prepaid as well as post paid accounts for clients. iii. Routing table based traffic distribution. iv. Support for transmitter, receiver as well as transceiver modes of connection. v. Two way messaging support. vi. Support for BINARY messa .....

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f time. xiv- Internet firewall of security. xv. Online web interface for clients. xvi. Web based complaint management system. xvii. 24 Hour online support. xviii. Daily MIS reports on mail as well as SMS. The said Product Note further states that SMPP involves use of SMPP client software in the manner described during the personal hearing duly recorded in the impugned Order-in-Original, as reproduced below:- "..... On being asked by me whether their service can be classified as Business Aux .....

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r Example: When a client (ESME) wants to send a message "Greetings" to any mobile recipient, the SMPP Client S/W running on his system converts the same into binary format which is in the form of 0's and 1's. The data is held in each byte having single character-that is 1 byte each for 'G' 'r' ... and so on. Out of this 1 byte having 8 bits, only 7-bits are actually required and 8th bit is wasted. (This is accordance with communication standards on TCP/IP used f .....

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ge of any resources, mobile handsets interpret compressed data. So, gateway performs 7-bit to 8-bit compaction on data, so that no bit remains wasted and then sends this binary data to handset. After compression 'Gr' as sent to mobile station by SMS Gateway is '010001111-111001', the two blank spaces will have first two-bits of next character. So the total 16 bits of data for 'Gr' has been compressed to 14-bits represented by 'Gr'. The above example highlights onl .....

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of submit__sm PDU). Other party will supply the appellants the IP address from which SMPP client will access SMPP server. Only those IP address will be allowed to start a SMPP session. The above features further show that the service rendered by the appellants cannot be described to be merely involving only delivery of SMSs. 8. The appellants also argued that they were not providing service on behalf of their clients and cited the judgement of the Supreme Court in the case of W.O. Holdsworth &am .....

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" Thus in that case the Supreme Court was not describing an exhaustive meaning and scope of the terms "on behalf of. The other judgement cited by the appellants [Interocean Shipping Co. (supra)] on the meaning of "on behalf of" is in the context of whether commission agent acts on his own behalf or on behalf of someone else and therefore can hardly be treated as an authority on the meaning and scope of the expression "on behalf of"- In the present case, there is har .....

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what time they should be sent, the priority to be attached to them etc. are all decided by the clients and the appellants are merely acting on behalf of the clients. There is an agreement between the appellants and their clients, like an agreement dated 28.08.2006. Under the agreement, the appellants have to give their client a direct SMPP connection through their network. The appellants then have to deliver the SMSs received from the clients to the latter's subscribers for which they get a .....

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tion to provision of service on behalf of the clients. 9. The appellants also pleaded that the amount received by the appellants should be treated as cum tax amount and the demand has to be confirmed on that basis (if at all) and cited the judgement of the Supreme Court in the case of CCE Vs. Maruti Udyog [2002 (141) ELT 3 SC] in support thereof. However, we find that the appellants have clearly stated that they did not charge service tax from their clients in which case the Supreme Court judgem .....

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ee had cleared the goods based on exemption notification. In this case, it is obvious that the price charged should be transaction value, since the notice has apparently not included any service tax amount". Indeed, Section 67(2) of Finance Act, 1994 allows cum-tax benefit only if the gross amount charged for the service is inclusive of service tax payable. In the light of the admitted fact that the price charged by the appellants did not include any service tax, the cum tax benefit cannot .....

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such form and in such manner and at such frequency (and with such late fees not exceeding two thousands for delayed furnishing of return) as may be prescribed........ Thus, the self assessment procedure has been prescribed under the Service Tax Law and Procedures. It is thus mandatory on the part of the assesse to assess himself the exact service tax liability on the services being provided by him. The department can only know the nature of the service of an assesse through ST-3 return filed by .....

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ime of audit of the unit by the department. Thus, this shows that notice has fraudulently suppressed the material fact of providing the services of SMPP Messages to various customers on behalf of his clients with the intention to evade service tax." The adjudicating authority has dealt with this issue in para 4.10 of the impugned order, which is reproduced below:- "4.10 Now I come to the last issue. Is the extended period of limitation applicable? The notice was and is a service tax pa .....

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es, 2004 as taxable services which are exempt from the whole of the service tax and includes services on which no service tax is leviable under Section 66 of Finance Act, 1994. How was the department to know what services they were providing which they have categorized as exempt. In the days of self assessment, where department officials do not have anything to do with day to day provision of services, except for audit, it is difficult to accept this contention that they have kept the department .....

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d have brought this information to the notice of the department when they first applied for registration. I thus hold that the notice had suppressed material facts from the department with regard to business of 'SMPP' and as a regular tax payer, they should have known better. Once the suppression and intent to evade duty is established, the extended period of limitation would apply as held universally in all judicial pronouncements on this issue." Para 5 of the Show Cause Notice mer .....

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e impugned order. We have perused the proforma of ST-3 Return. It requires the assessee to list taxable services for which tax is being paid and all the exemption notifications which they have availed of. It does not have any column to give details of the exempted/non-taxable services rendered by the assessee. Thus, it is hard to sustain the charge of suppression of facts merely because they did not give the details (detailed description) of the exempted services, especially when there is no suc .....

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