CESTAT: Buying and Selling of SIM cards & Recharge Coupons does not amount Business Auxiliary Service

CESTAT: Buying and Selling of SIM cards & Recharge Coupons does not amount Business Auxiliary Service

The Customs Excise and Service Tax Appellate Tribunal (in short CESTAT), Delhi bench, ruled that buying and selling of SIM cards and recharge coupons by a distributor under a Distributor Agreement with a Telecom Operator, does not amount to providing business auxiliary services to the said Telecom Operator and hence, service tax cannot be levied on the same.

The division bench comprising of Justice Dilip Gupta (President) and Mr. P.V. Subba Rao (Technical Member) were hearing an appeal filed in the matter of M/s. J.K. Enterprises vs. Principal Commissioner, Central Excise Commissionerate, Alwar.

The appellant is engaged in the business of buying and selling of SIM cards, recharge coupons etc. for mobile phones under a super distributor agreement with M/s Vodaphone Essar Digilink Ltd. A show cause notice dated 11th October, 2013 covering the period April 2008 to March 2012 was issued to the appellant alleging that it was providing business auxiliary service to M/s Vodaphone Essar Digilink Ltd. as their franchisee for sale/distribution and marketing of the SIM cards and recharge coupons. Accordingly, service tax was demanded and penalties were proposed to be imposed. The show cause notice culminated into the issue of the impugned order.

Following which the Principal Commissioner of Central Excise passed an order, confirming the demand of service tax under Section 73 of the Finance Act, 1994, along with penalty, against the appellant. Aggrieved by which the appellant filed an appeal before the CESTAT.

The appellant submitted that it was merely trading in SIM cards and recharge coupons, and was not rendering any service to M/s Vodafone. It further contended that the entire demand was hit by limitation as it was issued after a period of one year and extended period of limitation could not have been invoked in this case because on the same issue a show cause notice dated 26th April, 2011 was issued to the appellant by the Department. The second show cause notice cannot be issued invoking extended period of limitation.

To this the Revenue department asserted that according to the decision passed by the Supreme Court in Idea Mobile Communication Ltd vs. C.C.E.& C (2011), SIM cards are not goods but are a form of service, its value is includible to the value of the service provided by the telecom operator, buying and selling of SIM cards can be considered as rendering business auxiliary service to the principal.

The bench proceeded to deal with the question of extended period of limitation first. "As per Section 73 of the Finance Act, 1994 demand invoking the extended period of limitation can be issued where service tax was not paid by reason of (a) fraud or (b) collusion (c) willful mis-statement (d) suppression of facts or (e) violation of act or rules with an intent to evade payment of duty. It is a well settled legal principle that "suppression" does not mean mere omission but a positive act of suppressing information with an intent to evade payment of service tax," observed the Appellate Tribunal while noting that the entire demand in this case was beyond normal period of limitation and on this ground, it set aside the entire show cause notice.

While noting that the CESTAT has consistently held that buying and selling of SIM cards and recharge coupons does not amount to providing business auxiliary service to the principal in several cases, further the CESTAT referred the decision passed by CESTAT in M/s Devangi Communications and others vs. CST and CE (2018), which ruled that telecom operators discharging service tax on the whole MRP value of SIM cards and recharge cards there could be no further service tax liability on the persons who are dealing/selling the said SIM cards or recharge cards to the public.

Due to the aforesaid reasons the CESTAT ruled that the impugned order could not be sustained either on merits or on the limitation and set aside while allowing the appeal.