Whether service tax be payable by sim card distributor on commission received by him and commission is included in MRP of sim card ?

PJ/CASE LAW/2016-17/3216

Case- GOYAL AUTOMOBILES VersusCOMMISSIONER OF C. EX., CHANDIGARH-II

Citation- 2016 (43) S.T.R. 268 (Tri. - Del.)

Brief Facts- The appellants are franchisee distributors of products of M/s. Bharat Sanchar Nigam Ltd., in which capacity they have entered into agreements with the principals for sale of SIM cards, recharge coupons and “top-up” coupons relating to mobile telephony. SIM cards sold to first-time customers require activation after the payments have been deposited with M/s. Bharat Sanchar Nigam Ltd. all of which are handled through the franchisee distributor. The other two products are sold to existing customers and do not involve any cumbersome procedures. The franchisee distributor is entitled to commission at the agreed rate on the SIM card sales while the principal transfers the other products at a discount which are then sold to customers at MRP rates
Appellant’s Contention- Appellant contention is that the tax liabilities had been discharged by M/s. Bharat Sanchar Nigam Ltd. in full on the MRP value of SIM-cards and, therefore, there is no ground for recovery of tax from the appellant who are merely distributors.

Respondent’s Contention- M/s. Goyal Automobiles was held liable to tax of Rs. 15,08,924.30 on services related to SIM cards and Rs. 3,78,637/- in relation to the other products and M/s. Narota Ram Goyal & Sons was held liable to tax of Rs. 8,64,785.01 on services related to SIM cards and Rs. 3,17,819/- in relation to the other products. In addition, the appellants were held liable to interest and penalties under Sections 77 and 78 of Finance Act, 1994

Reasoning of Judgement- The Hon’ble authority find that the impugned order has built its foundation on the assumption that appellants render “business auxiliary service” in relation to SIM cards and hence liable to tax on the commission earned by them. At the same time, the impugned order has considered the commission received as discount on sale of recharge and “top-up” coupons as not liable to tax following the decision of the Tribunal in Commissioner of Central Excise, Meerut v. Moradabad Gas Service [2013 (31)S.T.R.308 (Tri.-Del.)]. Our attention has also been drawn to the decisions of this Tribunal in the case of GR Movers v. Commissioner of Central Excise, Lucknow [2013 (30)S.T.R.634 (Tri.-Del.)] and Daya Shankar Kailash Chand v. Commissioner of Central Excise & Service Tax, Lucknow [2013 (30)S.T.R.428 (Tri.-Del.)]. The Hon’ble High Court of Allahabad has upheld these two decisions.
The Hon’ble authority has find that this contrived distinction attempted in the impugned order by the first appellate authority does not conform to logic or to any commercial distinction. On the contrary, the three decisions cited above are clear in laying down the principle that the user of the telephony services is the service recipient and tax liability on the gross value charged from such customer, whether first-time purchaser of SIM card or subsequent purchaser of other cards, is collected from the customer and deposited to Government account by the principal. An attempt has been made to catalogue the various activities that devolve on the appellants in relation to activation of SIM cards without appreciating the fact that the SIM cards are marked with an MRP on which tax is collected in full from the customer. Therefore, the commission paid to appellants is also included in the value on which tax has been collected from the customer. The customer is, consequently, the recipient of the full value of services from none other than M/s. Bharat Sanchar Nigam Ltd.; thus, it is no different from the other two products.

Decision- Appeal allowed.

Comment-As per the facts and circumstances of the case settled law is that the user of Telephony services whether by purchase of new SIM card or by getting ‘top up’ cards, is service recipient and principal providing said service is liable for tax on MRP as since the commission received by distributors is included in MRP on which Service Tax has already been discharged, Service Tax under aforesaid service not leviable on distributor again.

Prepared by- Akshit Bhandari

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PJ/CASE LAW/2016-17/3216

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