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Vodafone Cellular Ltd. Versus Commissioner of Central Excise, Pune

Valuation of goods - Free issue of SIM Cards - Telephone Services - Whether during April 2003 to September 2006 distribution of free of recharge voucher attracts service tax liability or otherwise despite the fact that the recharge voucher are given free of cost to the dealers as consideration for commission - Held that:- Appellant is discharging the service tax liability under the category of "Telephone Services" on an amount received by them from distributors/dealers for the sale of prepaid SI .....

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relevant period, the appellant herein being service provider has discharged the service tax liability on the prepaid SIM Cards sold by them to the distributors/dealers. The sale of such prepaid SIM Cards on the MRP value is undisputed and discharge of service tax liability for services rendered on such sale is also accepted by revenue. It is to be noted that the recharge voucher are distributed free of cost, appellant has not received any amount towards the recharge voucher, though the distribu .....

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rvice provider.

Gross amount paid by the person to whom telecommunication service is actually provided is the amount on which tax liability is to be discharged which would mean that prior to 01.03.2011, the amount received by telecommunication provider from the dealer is the amount received for the services provided by the service provider - ratio of judgement of the Tribunal in the case of BPL Mobile Cellular (2007 (6) TMI 107 - CESTAT, CHENNAI) on similar set of facts would be appli .....

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d:- 4-8-2015 - M V Ravindran, Member (J) And C J Mathew, Member (T) For the Appellant : Shri. Vinay Jain C. A. For the Respondent : Shri. K.S. Mishra, Adv ORDER Per: M. V. Ravindran This appeal is directed against order-in-original No.28/P-III/ST/COMMR/2012-13 dated 11.03.2013. 2. Heard both sides and perused the records. 3. On consideration of submission made by both sides, we find that the main issue is valuation dispute which is correctly recorded by the adjudicating authority at Paragraph No .....

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is providing the taxable service, the full amount off such SIM cards are charged and recovered for provision of services provided or to be provided from the subscribers of such services. Section 67 of the finance Act, 1994 (Hereinafter referred to as Act') provides that value of taxable service for the purpose of levy of Service Tax shall be gross amount charged' as consideration. In the instant case, subscribers are quite obviously charged in full for such service provided or to be pro .....

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the subscribers for such SIM cards are required to be included in the taxable value for the purpose of levy of Service tax in terms of Section 67 of the Act, read with Section 66 & Section 68 of the Act, and that Service Tax is required to be discharged by the notice on such amount paid by the subscribers." 4. The issue is now squarely settled by this bench in appellants own case in appeal no ST/111/09 by a final order dated 28/05/2015. The said order is reported at 2015-TIOL-1173-CEST .....

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ot; and are discharging the service tax liability. It was noticed by Revenue that the appellant operates through various distributors/dealers appointed by them for distribution of their pre-paid and postpaid SIM Cards. The issue involved in this case is regarding prepaid SIM Cards, on which, the appellant discharges the service tax liability on the amount received by them from the dealers. The model of business is that the appellant sells the pre-paid SIM Cards to their dealers on the MRP/RSP me .....

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uch recharge vouchers distributed free by the appellant which also includes an element of service tax which has not been deposited in the Government treasury. After investigation and recording of the statements show-cause notice dated 01.09.2008 was issued to the appellant demanding differential service tax, interest thereof and penalties were proposed on amount of recharge vouchers distributed free by them during the period 01.04.2003 to 30.09.2006. Appellant contested the show-cause notice bef .....

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y has erred in coming to the conclusion that the tax liability arises on the appellant. He would then take us through the provisions of Section 67, as was relevant during the period and submits that the said Section envisages the discharge of service tax liability on gross amount charged by the service provider for the services rendered. It is his submission that the distribution of free recharge voucher was amounting to commission given by them to the dealer; they have already discharged the se .....

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d is "zero" the tax will also be "zero" even if the service is taxable. Subsequently he would submit that in 2011 the Finance Act was amended and Point of Taxation Rules, 2011 was introduced. Subsequent to such introduction, the Board vide Circular No. 334/3/2011-TRU dated 28.2.2011, has specifically clarified that the said valuation rules will be effective from 01.03.2011 and explanation added to Rule 5(1) of the Service Tax (Determination of Value) Rules, 2006 indicates tha .....

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s Tribunal in the case of Commr of Service Tax vs. Reliance Communication Ltd. - 2008 (11) STR 258 (Tri.-Mum) for the proposition that the provisions of Section 67 envisaged the service tax liability to be discharged on gross amount received for the services rendered. 3.3 He would also rely upon the decision of this Tribunal in the case of Tata Tele Services Ltd. - 2015-TIOL-775-CESTAT-MUM for the same proposition. 4. Learned D.R. on the other hand, would draw our attention to the findings recor .....

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ice tax payable on such recharge voucher; which would amount that the dealers have recorded the service tax liability from the subscriber. 4.2 He would submit that since the service tax liability has been borne by the individuals, the appellant herein being a service provider should have discharged the service tax liability. He would emphasise that the impugned order be upheld. 5. We have considered the submissions made at length by both sides and the records. 6. It is an admitted fact that the .....

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mate subscriber/customer. 6.1 We find that the main issue to be decided in this case is whether during April 2003 to September 2006 distribution of free of recharge voucher attracts service tax liability or otherwise despite the fact that the recharge voucher are given free of cost to the dealers as consideration for commission. 6.2 The provisions of Section 67 during the relevant period are as under:- Section 67 "For the purposes of this Chapter, the value of any taxable service shall be t .....

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deposits made by the subscriber at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; (c) the amount of premium charged by the insurer from the policy holder; (d) the commission received by the air travel agent from the airline; (e) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; (f) the reimbursement received by the authorised service stati .....

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being service provider has discharged the service tax liability on the prepaid SIM Cards sold by them to the distributors/dealers. The sale of such prepaid SIM Cards on the MRP value is undisputed and discharge of service tax liability for services rendered on such sale is also accepted by revenue. It is to be noted that the recharge voucher are distributed free of cost, appellant has not received any amount towards the recharge voucher, though the distributors/dealers have sold the recharge vou .....

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e in the contention raised by the learned Counsel that the provisions of Service Tax (Determination of Value) Rules, 2006, that came into effect from 19.04.2006; Rule 6 discuses about the inclusion/exclusion of commission, for determining the correct value of the services rendered. We perused the said provisions of Rule 6(1) of Service Tax (Determination of Value) Rules, 2006 and note does not include the "Telephone Services" by any stretch of imagination. For the brevity sake we repro .....

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at the time of application for telephone connection or pager or facsimile or telegraph or telex or for leased circuit; (iii) the amount of premium charged by the insurer from the policy holder; (iv) the commission received by the air travel agent from the airline; (v) the commission, fee or any other sum received by an actuary, or intermediary or insurance intermediary or insurance agent from the insurer; (vi) the reimbursement received by the authorised service station, from manufacturer for ca .....

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commission, fee or any other sum, by whatever name called, paid to such agent by the insurer appointing such agent in relation to insurance auxiliary services provided by an insurance agent." 6.5 Subsequently the said Service Tax (Determination of Value) Rules, 2006 were amended or substituted with effect from 01.07.2012 and the provisions for inclusion/exclusion of the value under Rule 5 were further explained by an Explanation in respect of telecommunication services which reads as under: .....

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mean that prior to 01.03.2011, the amount received by telecommunication provider from the dealer is the amount received for the services provided by the service provider. 6.6 We also find the learned Counsel is correct to bring to our notice that the CBEC was of the same opinion as can be seen from para 5 of the Circular No. 62/11/2003-ST dated 21.8.2003. We reproduce the same:- "Service rendered free of charge: 5.1 In the context of certain services, a doubt has been raised as to whether .....

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regarding discharge of service tax on an amount received by the appellant therein for the sale or prepaid SIM Cards to the dealers and distributors; in that case the appellant threrein discharge the service tax liability on actual amount received from the distributors after adjustment of commission payable to them. The Bench recorded as under:- "5. After giving careful consideration to the submissions, we note that ld. Commissioner (Appeals) misdirected himself by quoting from the text of .....

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