TMI Blog2018 (11) TMI 233X X X X Extracts X X X X X X X X Extracts X X X X ..... rt of the telecommunication network of the appellants and after activation are for the purpose of identifying the subscriber on their network so that he can make or receive the call through their network. Thus the claim of the appellant that the sale of SIM card by the appellant is an independent transaction of sale of goods simplicitor is not tenable, because the same SIM cannot be used for any other purpose other than identifying the consumer on appellants network for provision of telecommunication services. The real test laid down by the Apex Court in the case of IDEA MOBILE COMMUNICATION LTD. VERSUS CCE. & C., COCHIN [2011 (8) TMI 3 - SUPREME COURT OF INDIA] is not vis a vis the transfer of SIM or the property in SIM, but the nature of use of the SIM. If the SIM is used for identification of the consumer on network of the mobile operator, then provisioning of SIM is incidental to the service being provided by the operator - there are no merit in the submissions made by the Appellant in respect of non inclusion of the value of SIM in the services provided by them. Benefit of the N/N. 12/2003-ST - Held that:- The SIM as programmed and provided by the Appellant to the consum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... order not considered the said documents and the service tax already paid by the appellants in respect of these transactions, the matter will have to be remanded back for re-quantification of the demand of service tax. Appeal allowed by way of remand. - APPEAL Nos. ST/85143,85144/2015 - A/87807-87808/2018 - Dated:- 2-11-2018 - Dr. D.M. Misra, Member (Judicial) And Mr. Sanjiv Srivastava, Member (Technical) Shri D.B. Shroff, Sr. Advocate, for appellant Shri Roopam Kapoor, Commissioner (AR) and Shri M.K. Sarangi, Joint Commissioner (AR), for respondent ORDER Per: Sanjiv Srivastava The two appeals are directed against the order in original of Commissioner Central Excise Mumbai II, holding as follows in the matter remanded by the Tribunal by its order dated 03.09.2012 .a) I uphold the demand of Service tax (including E. Cess and S.H.E Cess) amounting to ₹ 26,18,56,057/- (Rupees Twenty Six Crore Eighteen Lakhs Fifty Six Thousand and Fifty Seven only) made in the show cause notice F No V/ST/Dn-V/Bel/Tata Tele/2012-13/34634 dated 23.12.2012 and ₹ 1,79,01,623/- (Rupees One Crore Seventy Nine Lakhs One Thousand Six Hundred and Twenty Three ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntimation to the service tax department has been admitted by Shri Srinath Narasimhan Managing Director, Shri S G Murali C F O in their statements; iv. Appellants had suppressed the correct nature of service in form of sale of SIM card provided by them which fall within the category of Telecommunication Service with intention to evade payment of Service Tax. v. They failed to declare the correct value of SIM card transaction which is an integral part of Telecommunication Service provided by them during the period from 01.04.2007 to 31.03.2012 with intent to evade payment of Service Tax. vi. A show cause notice dated 23.10.2012 was issued to Appellant demanding service tax of ₹ 26,18,56,057/- not/ short paid by them during the period 01.04.2007 to 31.03.2012; vii. One more show cause notice dated 20.05.2014 demanding Service Tax of ₹ 1,79,01,623/-/- not/ short paid by them during the period 01.04.2012 to 31.03.2013; viii. In both the show cause notices penalties were proposed and also the demand for the interest made under Section 75 of the Finance Act, 1994. 2.3 Matter has been adjudicated by the order as referred in para 1 supra, by the Commissioner c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submitted that indeed in their case there is actual transfer of property in SIM cards from Appellant to its customer. In terms of clause 3(h) of the terms and condition of CAF, the subscriber gets the absolute ownership of the SIM card and restriction on transferability i.e. requirement to take their consent is only to comply with the KYC obligations and due to security concerns regarding the misuse of SIM cards. This fact distinguishes their case from the other operators. Since there is actual transfer in property of SIM the decision of Apex Court in case of IDEA Mobile Communication will not be applicable in their case. Post 2015, the CAF has been amended to provide that the property in the SIM vests with Appellant, thus prior to 2015, there was intention to transfer the property in goods. 4.4 Commissioner was wrong in applying the Dominant intention test in case two separate transaction of sale of goods and service. Such test can be applied only to the composite transaction. The contention of department that SIM card by itself has no value and represents the right to use the service of the Appellant. It is submitted the transfer of such an intangible right is also a sale und ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lant from the case of other operators is not factually and legally tenable. So long as the subscriber has no option to use same SIM again and again for receipt of telecommunication service from any provider and right to transfer it for use to any other person, it is only permissive use and no sale. Only by putting remark on documents that property in SIM is transferred to subscriber is not valid claim, as the SIM and/ or Mobile number which it represents is controlled by the operator. In case the consumer ports the number to any other operator, he has to use another SIM of new operator. Further the intention to transfer the property in SIM not mentioned in Starter Kit. 4.11 The claim that SIM card once sold is not taken back also corroborate the position that it has no value for subscriber unless coupled with the agreement to provide service. It is not the claim of the appellant that the dominant intention of the parties (subscriber and operator) is to sale SIM rather than provide Telecom Service. 4.11 The contention that there is separate transaction of sale and service is misleading. What is sold is the starter kit and only agreement with subscriber. At the time of buying t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not intimated to the department. Further the issue with regards to leviability of Service Tax has been adjudicated by the Apex Court in the case of BSNL in the year 2006. Hence any misinterpretation of the same cannot be claimed to interpretational issue or a bonafide belief. The business practice has come to knowledge of department first in 2009, and hence show cause notice has been issued invoking extended period of limitation. He relied on the decisions of as follows in his support i. Mysore Rolling Mills Pvt Ltd Vs CCE Belgaum [1987 (28) ELT 50 (SC)] ii. Lakhan Singh vs CCE [2016 (46) STR 297 (T-Del)] iii. Vodafone Digilink Ltd [2013-29-STR-229-Raj] 5.1 We have considered the submissions made by the Appellant and Revenue. 5.2 The issues for consideration for us as per the submissions made by the Appellants are:- i. Whether the value of SIM sold by the Appellants as an independent commodity be included in the assessable value of the taxable service under Section 65 (105)(zzzx) of the Finance Act, 1994 ( Act ) for the purpose of levy of service tax? ii. Whether the extended period of limitation can be invoked for confirming the service tax demand in the fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pped and paired together i.e. when the appellant as telecom operator sets up the infrastructure and the customer purchase the necessary equipment i.e. handset and SIM card compatible to the network of the appellant. 1.14 Till the time of activation, aforesaid five elements are still in network building stage and the actual activation commences once the handsets and the SIM card are paired, interfaced and integrated. 1.15 The SIM card has an inbuilt memory of varying capacity used for storing personal information/data and is integrated with IMSI which when mapped with MDN number authenticates and identifies a customer in the appellant s network. 1.16 After the purchase of SIM card by the prospective customer the retailer sends SMS to the appellant and also to distributor the customer is mapped in the system with a request to unblock the IMSI/MIN/RSN. Based on the above SMS the IT System unblocks the said IMSI/MIN/RSN. This is called as First Level SMS. 1.17 On receipt of the aforesaid SMS of the retailer, the distributor sends SMS to the appellant confirming the activation request made by the retailer. This is called as Second Level SMS. 1.18 After inse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel Restaurant Association of India v. Union of India (1989) 3 SCC 634 - subjects which in one aspect and for one purpose fall within the power of a particular legislature may in another aspect and for another purpose fall within another legisla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion relatable to entry 54 of List II of Seventh Schedule, the tax on the aspect of services rendered not being relatable to any entry in the State List, would be within the legislative competence of Parliament under Article 248 read with entry 97 of List I of the Seventh Schedule to the Constitution. We are, therefore, unable to accept the contention of Mr. Ravindranatha Menon that there is any possibility of constitutional invalidity arising due to legislative incompetence by taking the view that sale of SIM card is simultaneously exigible to sales tax as well as service tax. Once the aspect theory is kept in focus, it would be clear that the same transaction could be exigible to different taxes in its different aspects. Thus, we see no reason to read down the legislation as suggested by Mr. Menon. .. 47. Conclusions : (a) The transaction of sale of SIM Card is without doubt exigible to sales tax under the KGST Act. The activation charges paid are in the nature of deferred payment of consideration for the original sale, or in the nature of value addition, and, therefore, also amount to parts of the sale and become exigible to sales tax under the KGST A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t sold by the assessee to the subscribers but is merely part of the services rendered by the service providers, then a SIM card cannot be charged separately to sales tax. It would depend ultimately upon the intention of the parties. If the parties intended that the SIM card would be a separate object of sale, it would be open to the Sales Tax Authorities to levy sales tax thereon. There is insufficient material on the basis of which we can reach a decision. However we emphasise that if the sale of a SIM card is merely incidental to the service being provided and only facilitates the identification of the subscribers, their credit and other details, it would not be assessable to sales tax. In our opinion the High Court ought not to have finally determined the issue. In any event, the High Court erred in including the cost of the service in the value of the SIM card by relying on the aspects doctrine. That doctrine merely deals with legislative competence. As has been succinctly stated in Federation of Hotel Restaurant Assn. of India v. Union of India : (SCC pp. 652-53, paras 30-31) ... subjects which in one aspect and for one purpose fall within the power of a particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the remand of the matter by the Supreme Court to the Sales Tax authorities the assessing authority under the Sales Tax Act dropped the proceedings after conceding the position that SIM Card has no intrinsic sale value and it is supplied to the customers for providing telephone service to the customers. This aforesaid stand of the Sales Tax authority is practically the end of the matter and signifies the conclusion. 18. The sales tax authorities have themselves conceded the position before the High Court that no assessment of sales tax would be made on the sale value of the SIM Card supplied by the appellant to their customers irrespective of the fact whether they have filed returns and remitted tax or not. It also cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there is a liability to pay the same. If the article is not susceptible to tax under the Sales Tax Act, the amount of tax paid by the assessee could be refunded as the case may be or, the assessee has to follow the law as may be applicable. But we cannot accept a position in law that even if tax is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew all the conditions of sale are fulfilled and the value of the SIM separately shown as required for admissibility of the said exemption. It cannot be the case that consumer, of telecommunication services provided by the appellant had the intent to purchase the said SIM without services that are to provided making use of the SIM. The intent of the consumer is to avail the telephony service. Even if the appellants claim that they have transferred the property in the said SIM the same cannot be held to be correct. The SIM as programmed and provided by the Appellant to the consumer is always the part of the tele-communication network of the appellant and has no other use other than to identify the consumer on the said network. Since the property in the said SIM in effect is not transferred to the consumer, and the said SIM is only used for activation, identification and provisioning of the telecommunication services to the consumer, the transaction in SIM cannot be said to be one of sale of goods. Apex Court has also in case of Idea Mobile Communication held that the intrinsic value of the SIM to consumer is zero, which implies that consumer would not purchase the SIM for a considera ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing authority under the Sales Tax Act dropped the proceedings to levy sales tax on SIM cards. So far as the respondent is concerned, it is not known whether returns are filed conceding turnover and liability under the Act, or whether assessments are pending. In any case, the assessing officer in the case of respondent cannot take a stand different from the stand taken by another assessing officer in the case of BSNL and BPL mobile services. Consequently, no assessment for sales tax could be made on the sale value of SIM cards supplied by the respondent to their customers, no matter whether they have filed returns and remitted tax or not. There is no need for us to consider the legality or otherwise of the proceedings pertaining to respondent pending before the Sales Tax authorities. If tax is wrongly remitted, it is for them to claim refund and if tax remitted is collected tax, it has to be forfeited under Section 46(A)(1) of the KGST Act, and customers can claim refund. Leaving open this issue, we proceed to decide the correctness of the Tribunal s order which is under challenge. 3. In the BSNL case decided by the Supreme Court, the controversy was whether sales tax is paya ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the respondent under Section 73 of the Act. 7.2 Thus we are not in position to agree with the contention of the Appellant that any sale of SIM cards independently have taken place in the process of providing the taxable service. The supply of SIM cards is integral with provision of the taxable service and without the said SIM cards the provisioning of this taxable service is impossible. Accordingly we are not in position to extend the benefit of Notification No 12/2003-ST to the Appellants. 8.1 Adjudicating authority has by the impugned order adjudicated two show cause notices. One was issued demanding service atx for the period from 2007 to 2012 and other one was issued for the period 2012-13. The Show Cause Notice issued demanding Service Tax for the period 2007 to 2012 has been issued invoking extended period of limitation. 8.2 relying on the submissions made by the Appellant during the audit conducted by the revenue in 2009, appellants have claimed that all the facts were in knowledge of the department and hence relying on various case laws, they have argue against the invocation of extended period. They also have argued that there act of not paying the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lared about the same to the department at the appropriate time they cannot claim the benefit of knowledge of department. 8.8 The act of appellant declaring on the CAF that property in the SIM Card is transferred is nothing but an act of misdeclaration, as the property in the part of the mobile network used to identify the consumer on network, their credit and other details, is always with the appellants and not transferred. In fact even the right to use the said SIM also is not being transferred. Hence by mis-declaring the same on same on CAF, appellants have claimed transaction in SIM cards as that of independent sale and thus suppressed the value of services provided by them. 8.9 The reliance placed by the Appellants on various case laws do not help their cause as suppression, misdeclaration etc are questions in relation to fact and need to be assessed according to the facts of each case. Sine on examination of facts in present case we find appellants have suppressed the true nature of transaction in SIM from the department, with intention to evade payment of taxes extended period of limitation has been rightly invoked for demanding service tax from them. 8.10 Reference ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd of short levied duty for a past period of one year if a new interpretation is found to be correct. The provision is not that demand due to such interpretation will apply only from the date the changed interpretation is notified to the assessee. This tilt is justified because the interest of a sovereign which trusts its subjects to comply with its laws and pay tax has to be safeguarded and it cannot be totally left to the changing minds of the servants of the sovereign. Considering these aspects the matter how bona fide the assessee was, in the facts of a particular case, in not paying the tax due to the sovereign is to be judged. 8.5 If ignorance of law is not a defence a wrong understanding of law can be a much lesser defence. 8.6 It can be seen from all the decisions of the Apex Court that the question of suppression is examined basically with reference to two issues one whether the department had an opportunity to know about all the relevant matters and secondly whether the assessee had reasonable cause with reference to clarifications issued by the department or decisions given by the Court to bona fidely believe that he was not liable to pay the disputed tax. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mputes the appellant to the charge. Such view brings harmony in construction of law and for effective implementation thereof in respect of self assessment procedure. The act of false declaration can be remedied by levy of penalty. Thus penalty levied under Section 76 is confirmed and so far as penalty under Section 78 is concerned that shall be limited to the quantum of tax payable upon re-computation as directed aforesaid. However, the authority shall examine whether concession in penalty is permissible under second proviso to section 78 of the Act. Interest as required under Section 75 shall be payable on the tax due. 8. We agree with the aforesaid findings recorded as to suppression of facts. 9. Counsel for the appellant has relied upon decision of Hon ble Supreme Court in Continental Foundation Jt. Ventura v. Commr. of C.Ex., Chandigarh-I - 2007 (216) E.L.T. 177 (S.C.). in which expression suppression has been considered thus : The expression suppression has been used in the proviso 10. to Section 11A of the Act accompanied by very strong words as fraud or collusion and, therefore, has to be construed strictly. Mere omission to give correct inf ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ondent (appellant herein) did not mention the vital word hanks , they suppressed a material fact which, to their knowledge, would not bring their sewing thread within the exemption Notification. For all these reasons, we find no merit in these appeals. The appeals are, accordingly, dismissed, without any order as to costs. 8.13 Since we hold that appellants have suppressed the facts with intention to evade payment of taxes penalty under Section 78 is justified against them. Reliance is placed on the decision of Apex Court in case of Vandana Art Prints Pvt Ltd. [2017 (50) STR 91 (SC)] 4. A neat submission that has been made by Mr. K. Radhakrishnan, learned senior counsel appearing for the appellant, is that in terms of Section 11AC of the Central Excise Act (hereinafter referred to as Act ), the penalty has to be equal to the duty so determined. 5. Section 11AC of the Act reads as under :- Penalty for 11AC. short-levy or non-levy of duty in certain cases. - Where any duty of excise has not been levied or paid or has been short-levied or short-paid or erroneously refunded by reasons of fraud, collusion or any wilful misstatement or suppression of f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same is incorporated in such notification in the gazette by which rates of interest chargeable Under Section 11AB are declared. The second aspect would be whether there is any discretion not to charge the interest Under Section 11AB at all and we are afraid, language of Section 11AB is unambiguous. The person, who is liable to pay duty short levied / short paid / non levied / unpaid etc., is liable to pay interest at the rate as may be determined by the Central Government from time to time. This is evident from the opening part of Sub-section (1) of Section 11, which runs thus: Where any duty of excise has not been levied or paid or has been short levied or short paid or erroneously refunded, the person, who is liable to pay duty as determined under Sub-section (2) or has paid the duty under Sub-section (2B) of Section 11A, shall in addition to the duty be liable to pay interest at such rate.... The terminal part in the quotation above, which is couched with the words shall and be liable clearly indicates that there is no option. As discussed earlier, this is a civil liability of the assessee, who has retained the amount of public exchequer with himself and w ..... X X X X Extracts X X X X X X X X Extracts X X X X
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