TMI Blog2020 (3) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... d by the Appellant and VAT is discharged on the sale of mobile handsets to the customers. However, while selling the handsets the Appellant sells them at a price lower than the purchase price and Tata Tele Services pays the differential amount as subsidy to the Appellant. In the present case, the SCN, even after reproducing the seven clauses of section 65(19), does not specify which particular clause was attracted and it only mentions that the assessee is an authorized distributor appointed by M/s TTSL for selling CDMA handsets along with connection to the customers. The expenditure incurred by the distributor is reimbursed by M/s TTSL in the guise of subsidy and the same appears to be covered under the definition of Business Auxiliary Service and chargeable to Service Tax since, the amount received by the assessee was in respect of providing Business Auxiliary Service to M/s TTSL. The submission made by learned Counsel for the Appellant deserves to be accepted. The Appellant did receive a fixed commission for marketing the services of Tata Tele Services for the works enumerated in schedule A of the Agreement. This schedule does not refer to buying and selling of handsets ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of Service Tax, Jaipur the Commissioner by which the demand of service tax on the amount of subsidy received by the Appellant from M/s Tata Tele Service Ltd Tata Tele Services to the extent of ₹ 61,11,831/- has been confirmed with penalty under sections 78 and 76 of the Finance Act, 1994 the Act . It needs to be noted that the demand of ₹ 6,11,341/- has been dropped but interest under section 75 of the Act has been imposed because of belated payment of service tax. 2. The Appellant is a distributor appointed by Tata Tele Services for marketing their telecom service products in terms of the distributorship agreement. It holds registration under the taxable category of Business Auxiliary Services BAS under section 65 (105) (zzb) of the Act. Tata Tele Services pays commission to the Appellant for the services provided under the distributorship agreement and the Appellant charges service tax on the commission received. 3. The Appellant claims that it also decided to engage itself in the business of selling mobile handsets and for this it paid VAT on such sales. The Appellant claims that for this business separate agreements were entered into by the Appel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f ₹ 4,97,74,039/- was received by the assessee on account of subsidy. Further, on perusal of the Balance sheet of the assessee for the period 2006-07 to 2009-10, it appears that they have received an amount under the head of Scheme Discount as shown in the Profit Loss account for the period 2006-07 to 2009-10. The total amount of ₹ 50,38,879/- appears to have been received from M/s TTSL for providing the services of promotion or marketing and other services. The amount so received by the distributors in the guise of subsidy and amount received on account of Scheme Discount, appears to be taxable under the services of Business Auxiliary Service defined under section 659(105)(zzb) of the Finance Act, 1994. ----------------------------- 4 As per section 65(19) of the Finance Act, 1994 Business Auxiliary Service means any service in relation to- (i) ------- (ii) ------- (iii) ------- (iv) ------- (v) ------- (vi) ------- (vii) ------- In terms of section 65(105) (zzb), taxable Service means- any service provided or to be provided-to a client, by any person in relation to business auxiliary service. 5. From the above, it appear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er. They had procured the handsets with intent to sell the same with TTSL connections as per agreement with TTSL. Thus, their argument that it was their independent trading activity and TTSL had no nexus with sale of handsets has not substance being factually incorrect. For the same reason it cannot be said that there was no activity undertaken by the noticee for which they are receiving the said amounts under the name of subsidy . The question that also arises is whether the said amount received by the noticee in the name of subsidy from TTSL is liable to be taxed under the category Business Auxiliary Services . -------------------- It clearly emerges that by selling the handset at a much lower price than what has been purchased along with a TTSL connection in terms of directions received from the TTSL, the activity undertaken by the noticee is a service provided by them and is clearly falling under the category of service in relation to Business Auxiliary Services . In view of the above discussions, I have no hesitation in holding that the amounts received by the noticee from TTSL under the name of subsidy is nothing but a consideration received against pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... orted the impugned order and made the following submissions:- (i) In view of clauses 10.1 and 14.1 of the Agreement, the service rendered by the Appellant is in the nature of BAS and that it was not necessary to indicate a particular clause of section 65(19) of the Act; (ii) Reimbursements which are related to a taxable service are not exempted from payment of tax. In support of this contention reliance has been placed upon the decision of the Tribunal in BEE AM Industries Pvt. Ltd. V/s Commissioner of Central Excise Service Tax, Meerut-I 2017 (4) GSTL 185 (Tri-Del.) (iii) The extended period of limitation was correctly invoked. 11. The contentions advanced by the learned Counsel for the Appellant and the learned Authorized Representative of the Department have been considered. 12. The issue that arises for consideration in this Appeal is whether the subsidy received by the Appellant from Tata Tele Services on the sale of mobile handsets purchased by the Appellant from independent vendors can be said to be an amount received for providing BAS to Tata Tele Services and, therefore, chargeable to service tax. 13. In order to appreciate the contentions advanced ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the Department of Telecommunications, and distribution of prepaid cards, smart cards and all other services within purview of the said licence in relation to the telecom service as may be included/specified by TTSL from time to time.- c) Commission shall mean the commissions payable to the Distributor by TTSL for marketing the Service as set for the in the Schedule A herein. xxxxxxxxxxxxxxxxxxxx 2. APPOINTMENT 2.1. The Distributor hereby confirms and agrees that the representations and assurances given by it/him/her and recorded herein from the basis of this Agreement and relying on such assurances and representations of the Distributor, TTSL hereby appoints the Distributor for the purpose of marketing/selling/reselling of such service, goods and any other products/commodities provided by TTSL and/or any other organization as may be specified by TTSL in writing from time to time. The appointment of the Distributor is subject to the terms and conditions set forth in this Agreement. xxxxxxxxxxxxxxxx 10. Sale of handsets, prepaid cards 10.1 The Distributor shall be required to purchase CDMA (Code Division Multiple Access) phones and equipments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution of prepaid cards, smart cards and all other services within the purview of the license in relation to the telecom service. The appointment of the Appellant as a distributor was subject to the terms and conditions set forth in the agreement. The duties of both Tata Tele Service and the distributor have been enumerated in clauses 4 and 5 of the agreement. Clause 7 of the agreement deals with consideration/ commission and it provides that in consideration of duly performing the duties and obligations as contemplated, the distributor shall be entitled to a commission as set forth in Schedule-A. The sale of handsets, prepaid cards is contained in the clause 10 of the agreement. It provides that the distributor shall be required to purchase CDMA (Code Division Multiple Access) phones and equipments including handsets, prepaid cards from Tata Tele Services or such persons authorized by Tata Tele Services. Clause 13 of the agreement deals with termination of the agreement by Tata Tele Services and clause 14 deals with the result of termination. 15. It is not in dispute that the Appellant has paid the service tax on the commission received by the Appellant for marketing/ s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess Auxiliary Service means any service in relation to, - (i) promotion or marketing or sale of goods produced or provided by or belonging to the client; or (ii) promotion or marketing of service provided by the client; or (iii) any customer care service provided by the client; or (iv) procurement of goods or services, which are inputs for the client; or Explanation For removal of doubts, it is hereby declared that for the purpose of this sub clause, inputs means all goods or services intended for use by the client, (v) production or processing of goods for, on or on behalf of, the client; (vi) provision of service on behalf of the client; or (vii) a service incidental or auxiliary to any activity specified in sub-clauses (i) to (vi), such as billing, issue or collection or recovery of cheques, payments, maintenance of account and remittance, inventory management, evaluation or development of prospective customer or vendor; public relation services, management or supervision, (viii) and includes services as a commission agent, but does not include any activity that amounts to manufacture of excisable goods Explanation- xxxxxxxxxxxxxxxxxxx ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces on behalf of the client i.e. Director, e-Seva and sustained the demand. We find that under BAS, there are seven sub-clauses. Demand under sub-clause (vii) could be on activities relatable to either one of the preceding six sub-clauses. Therefore, if a notice issued proposing demand under BAS, the noticee will not be aware as to the precise ground on which tax is proposed to be demanded from him unless the sub-clause is specified. In the instant case, service tax was proposed to be demanded for an activity under BAS and BSS. Under BSS also several activities are listed as exigible under that head. In the absence of proposal in the show-cause notice as to the liability of the assessee under the precise provision in the Act, we find the demand to be not sustainable. 24. The aforesaid two decisions of the Tribunal clearly hold that it is imperative for the Department to specify which specific service contained in the seven clauses of section 65(19) of the Act is being provided and in the absence of any specific service pointed out in show cause notice, the demand cannot be confirmed as the noticee will not be aware as to which precise service contained in the sub-clause has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aside the impugned order, it is considered appropriate to examine them also. 31. The contention of the learned Counsel for the Appellant is the subsidy received by the Appellant is a mere pass through amount and, therefore, is not taxable. The submission is that there is no agreement between the Appellant and the Tata Tele Services for promotion of services of Tata Tele Services for subsidy to be given to the Appellant. 32. The said amount is merely a pass through amount from Tata Tele Services to the customer and is not taxable to service tax in the hands of the Appellants. The Appellant receives the amount in relation to the sale of handsets along with connections of Tata Tele Services and in no way can it be assumed or stated that it is a remuneration for marketing of telecom service products of Tata Tele Services. In fact, there is no agreement between the Appellants and Tata Tele Services for promotion of services of Tata Tele Services for which they receive subsidy. 33. The Learned Authorized Representative of the Department has, however, submitted that the subsidy received by the Appellant is nothing but a payment for the services provided by the Appellant to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such service provided. Therefore, it is not any amount charged which can become a basis value on which service tax becomes payable. The amount charged has to be necessarily a consideration for the service provided which is taxable under the Act. The Supreme Court further held that by using the word for such service provided, the Act has provided for a nexus between the amount charged and the service provided and, therefore, any amount charged which has no nexus with taxable service is not a consideration for the service provided nor does it become a part of the value taxable under section 67 of the Act. 37. In the present case, the Appellant is engaged in the marketing of telecommunication services of Tata Tele Services for which it is receiving a consideration and the Appellant is discharging service tax on the said amount of consideration. The amount of subsidy that the Appellant is receiving on account of sale of handsets at a lower price does not have any nexus with the promotion or marketing of the services provided by Tata Tele Services. It needs to be noted that Tata Tele Services is reimbursing only that amount to the Appellant which the Appellant would have othe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f removal and where the assessee and the buyer have no interest directly or indirectly in the business of each other and the price is the sole consideration for the sale. Normal price, therefore, is the amount paid by the buyer for the purchase of goods. In the present case, it is the stand of the revenue that loss making price cannot be the normal price and that too when it is spread over for nearly five years and the consideration being only to penetrate the market and compete with other manufacturers who are manufacturing more or less similar cars and selling at a lower price. The existence of extra commercial consideration while fixing the price would not be the normal price as observed by this Court in Xerographic Ltd. s case (supra). If price is the sole consideration for the sale of goods and if there is no other consideration except the price for the sale of goods, then only provisions of Section 4 (1)(a) of the Act can be applied. ------------------Therefore, merely because the assessee has not sold the cars to the related person and the element of flow back directly from the buyer to the seller is not the allegation in the show cause notices issued, the price at whi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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