CUSTOMS, EXCISE & SERVICE TAX APPELLATE
TRIBUNAL
NEW DELHI
PRINCIPAL BENCH - COURT NO. 1
SERVICE TAX APPEAL NO. 54510 OF 2014
(Arising out of Order-in-Original No. JAI-EXCUS-001-COM-016-14-15 dated 20 May, 2014 passed by Commissioner of Service Tax, Jaipur-I (Appeals)
Balaji Enterprises .…… Appellant
(Opp. State Excise Office, Station Road Bikaner Bikaner, Rajasthan)
VERSUS
Commissioner of Central Excise and Service Tax, Jaipur-I ....… Respondent
(NCR Building, Statue Circle..C-Scheme-Jaipur, Rajasthan-302005)
APPEARANCE:
Shri Tarun Gulati, Shashi Mathew & Mr. Ameya Dadhick, Advocates for the Appellant
Shri R.K. Majhi, Authorized Representative for the Respondent
CORAM : HON"BLE MR.JUSTICE DILIP GUPTA, PRESIDENT HON"BLE MR. BIJAY KUMAR, MEMBER (TECHNICAL)
DATE OF HEARING: 20 September, 2019 Final Order No._51611/2019
JUSTICE DILIP GUPTA
This Appeal seeks the quashing of that part of the order dated
1. the Commissioner
2. Tata Tele Services
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Rs.61,11,831/- has been confirmed with penalty under sections 78 and 76 of the Finance Act, 19943. It needs to be noted that the demand of Rs. 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"4under 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 Appellant with third party manufacturers/vendors for supply of handsets sold by the Appellant to the customers. The invoices were raised by the vendors in the name of the Appellant and the Appellant was responsible for making payments to such vendors. According to the Appellant, Tata Tele Services was in no way connected with the payment to the vendors from whom the Appellant purchased the handsets. However, the handsets were sold by the Appellant at a price fixed by Tata Tele Services, which price was lower than the purchase price of the handsets and Tata Tele Services paid the different amount to the Appellant by way of subsidy. __________________
3. the Act
4. BAS
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4. The Appellant, therefore, claims that it was engaged in two business. The first was marketing of service products of Tata Tele Services for which the Appellant received a fixed commission and paid service tax. The second was sale of mobile handsets to customers either with the Tata Tele Services mobile communication or independently, depending upon the choice of the customers and it discharged its VAT liability on this sale.
5. It is from the year 2010 that the Revenue started collecting details from Tata Tele Services and subsequently from the Appellant regarding the subsidies received by the Appellant from Tata Tele Services on the sale of mobile handsets and on the basis of such information, a show cause notice dated 19 October 2011 was issued to the Appellant. The relevant portion of the show cause notice dated 19 October, 2018 is reproduced below:-
"1. M/s Balaji Enterprises, Opp. Excise Office, Station Road, Bikaner (hereinafter also referred to as „the assessee") registered as a Service Provider under the category of "Business Auxiliary Service" vide Service Tax Registration No. AHNPP3836HST001 appears to have been appointed as distributor of M/s Tata Teleservices Limited (hereinafter referred to "M/s TTSL" also) for selling/marketing their CDMA handsets along with connections. M/s TTSL are engaged in getting their services marketed through their distributor network on commission basis. The distributors purchase CDMA handset from the wholesale distributor of M/s TTSL and sell the same with connection to the customers at a lower price than the purchase price of CDMA. The difference between the purchase price and sale price is being reimbursed to the distributors by M/s TTSL in the guise of subsidy and an amount of Rs. 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 Rs. 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
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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 appears 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." (emphasis supplied)
6. The show cause notice also invoked the extended period of limitation mentioning that the assessee had suppressed material facts from the Department that it had received subsidy towards discount with an intention to evade tax and this fact came to the light of the Department only when the enquiry was initiated.
7. The Appellant filed a detailed reply dated 30 October 2012 to the show cause notice pointing out that they were trading handsets, which business was independent of the business arrangement with Tata Tele Services. It was emphasized that the Appellant was procuring the handsets from independent third party vendors on their own account and had direct arrangements with such vendors for supply of handsets and that they were not involved in sales/
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promotion/ marketing of CDMA handsets belonging to Tata Tele Services. It was pointed out that the subsidy was provided to the Appellant to compensate it for the loss incurred on sale of handsets at a lesser price and not for marketing/ promotional service of Tata Tele Services. The Appellant also submitted written submissions during the course of personal hearing on 11 November 2014.
8. The Commissioner, however, did not accept the contention of the Appellant and the relevant portion of the order passed by the Commissioner is reproduced:
"--------------- No prudent businessman engaged in simple trading of goods would sell its products at a loss unless there is some other way of making up the loss. In this case, the loss so incurred is being made up by TTSL by way of reimbursing the said amount to them and in turn TTSL"s sales of telecommunication services are promoted. Thus, certainly the amount given by TTSL to the noticee as subsidy is nothing but sale promotion expenditure on the part of TTSL. There is no doubt that the noticee had procured the handsets in his own account but not for sale as an independent trader. 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
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under the name of „subsidy" is nothing but a consideration received against provision of services correctly classifiable under „Business Auxiliary Services". The said amount has to be considered as taxable value and service tax is required to be discharged on the said amounts. To that extent, I do not find any force in the noticee"s contentions that the said amount was not in relation to any service but was in relation to sale of the handsets."
9. Shri Tarun Gulati, learned Counsel appearing for the Appellant has made the following submissions:-
(i) Subsidies are mere "pass through" amount and are not taxable. The Appellant received it in relation to the sale of handsets and it cannot be assumed that the amount was received for marketing telecom service products of Tata Tele Service. The agreement which the Appellant has with Tata Tele Service does not provide for payment of subsidy to the Appellant. The same is paid by Tata Tele Services to make up for the loss incurred by the Appellant on sale of mobile handsets at a lower price. In support of this contention reliance has been placed upon the decision of the Punjab & Haryana High Court in Commissioner of Central Excise, Chandigarh v/s Nahar Industrial Enterprises Ltd.5;
(ii) The payment of subsidy is in fact a gratuitous payment made by Tata Tele Services to the Appellant for selling handsets below the purchase price and, therefore, is not taxable;
______________________
5. 2010 (19) STR 166 (P&H)
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(iii) The amount received as subsidy is not a
"consideration" for taxable services as contemplated under section 67(1) of the Act and hence no service tax can be levied. In this connection reliance has been placed on the decision of the Supreme Court in Commissioner of Service Tax v/s Bhayana Builders Pvt. Ltd.6.
(iv) The subsidy received by the Appellant is not for providing any service under BAS nor does the show cause notice indicate which particular clause of section 65(19) of the Act is attracted.
(v) The Appellant is not promoting or marketing any service of Tata Tele Services when it receives the subsidy, which subsidy passed in full to the customers. Reliance has been placed on various decisions which shall be referred to at the appropriate stage;
(vi) The extended period of limitation could not have been invoked in the facts and circumstances of the case.
10. Shri Raj Kumar Majhi, learned Authorized Representative of the Department has, however, supported 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 __________________________
6. 2018 (10) GSTL 118 (SC)
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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-I7
(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 by learned counsel for the Appellant and the learned Authorized Representative of the Department it would be necessary to reproduce the relevant portions of the distributorship agreement entered into between Tata Tele Services Limited and the Appellant and they are as follows:-
" Distributorship Agreement This Agreement is made and executed at Jaipur on the 15thday of April, 2005.
xxxxxxxxxxxxxxxxxxxx
WHEREAS
TTSL is licensed to establish, maintain and operate Unified Telecom Services in various states in India (including the State __________________________
7. 2017 (4) GSTL 185 (Tri-Del.)
9
of Rajasthan in Rajasthan telecom circle) under the License granted by the Government of India through the Department of Telecommunications (DoT).
TTSL, for the purpose of marketing the Service, had desired to appoint distributors in the Service Area, who shall market the Service of TTSL and the schemes offered thereunder, through the dealer/operator network
The Distributor herein had represented to TTSL that it/he/she/ possesses necessary and requisite infrastructure, sufficient place (hereinafter referred to as the „Premises") manpower and adequate financial resources to market the Services of TTSL and fulfill all its/his/her obligations contained in this Agreement, so as to effectively distribute the Service of TTSL to the complete satisfaction of TTSL and hence has offered to be appointed as TTSL"s non-exclusive distributor. Relying on the aforesaid representations of the Distributor and believing the same to be true and that the intentions of the Distributor are bonafide, TTSL has agreed to appoint the Distributor as the Distributor of TTSL, on non-exclusive, non transferable and revocable basis, for marketing the Service of TTSL in the Service Area.
Pursuant thereto, TTSL has issued to the Distributor, a Letter of Intent recording its intent to appoint the Distributor for the said purpose and in consideration of mutual premises and covenants contained herein and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as below:
NOW THIS AGREEMENT WITNESSETH:
1. Definitions
a) ----------
b) "Service" shall mean one or more of the „telecom service provided by TTSL in the Service Area, which includes provision of all telecommunication service and other value added services under Unified Service Licence issued 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
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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 including handsets, prepaid cards etc from TTSL or such Person/s authorized by TTSL. The Distributor shall ensure that there is no sale of spurious and unauthorized phone equipment, prepaid cards from Distributor outlet(s) and/or the retails outlets under the control of the Distributor. It shall be the responsibility of the Distributor to effect the sales through proper invoices, which shall be serially numbered, dated and detailing the material particulars of the mobiles phones. The Distributor shall ensure that no activation cards or handsets are delivered to a prospective customer unless such customer has first submitted to the Distributor/dealer/retailer a duly completed and signed service application form and such other documents (including photographs) as may be specified by TTSL from time to time. The Distributor shall be responsible for recording the details of the purchasers of the prepaid cards, which includes his/her name, address, the date and location of purchase and other identities as may be specified by TTSL from time to time. The Distributor shall indemnify and keep TTSL indemnified against actions/claims/demands/disputes, whatsoever and all losses or damages caused by or due to any actions undertaken by or on behalf of any third party as a result of any violation/s by the Distributor of the provisions of this Clause.
xxxxxxxxxxxxxxxxx
14. Results of termination
14.1 Upon termination the Distributor shall:
Xxxxxxxxxxxxxxxxxx
g. immediately return to TTSL all equipment loaned by TTSL to the Distributor, all unpaid for inventory and all inventory supplied by TTSL on consignment. h. immediately handover to TTSL all stocks of handsets/equipment, coupons, vourchers and any and all other TTSL property and all copies (in whatever form) of all details, data and information including accounts, addresses and names of the Customers/Subscribers which are then in the possession of the Distributor.
xxxxxxxxxxxxxxxxxxx "
(emphasis supplied)
14. A perusal of the aforesaid agreement shows that Tata Tele Services for the purpose of marketing the telecom services desired to
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appoint distributors and the Appellant was appointed as a Distributor to market and sell service provided by Tata Tele Services. „Service"
has been defined to mean one or more of the "telecom service"
provided by Tata Tele Services which would include 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/ selling of the telecom services provided by Tata Tele Services.
16. The dispute is with regard to the subsidy received by the Appellant from Tata Tele Services on the sale of mobile handsets from third party vendor. According to the Appellant, there is a separate agreement with third party manufacturers/ vendor for supply of
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handsets to the Appellant which are subsequently sold by the Appellant to the customers and Tata Tele Services is no way connected with the payment to the vendors from whom the Appellant had earlier purchased handsets.
17. The case of the Appellant is that these handsets are sold at a price fixed by Tata Tele Services, which price is lower than the purchase price of the handsets and Tata Tele Services reimburses the differential amount by way of subsidy. The show cause notice dated
19 October, 2011 proceeds on the footing that the Appellant has been appointed as a distributor of Tata Tele Services for selling/marketing their CDMA handsets with connections. This premise is not in accordance with the terms of the agreement. The agreement provides that Tata Tele Services intends to appoint a distributor to market the service of Tata Tele Services. Clause 2 of the agreement, which deals with appointment also mentions that the Appellant has been appointed as a distributor for marketing/selling/ reselling of services, goods and any other product/commodities provided by Tata Tele Services. Tata Tele Services has not provided any handsets to the Appellant. The Appellant has purchased the handsets from third parties specified by Tata Tele Services. There is no agreement between the Appellant and Tata Tele Services for selling mobile handsets at a lower rate. The mobile handsets are independently purchased 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.
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18. The show cause notice further proceeds on the footing that the Appellant has received this amount of subsidy for providing the service of promotion of marketing and other services which amount, therefore, appears to be taxable under BAS defined under section 65(105)(zzb) of the Act.
19. BAS has been defined under section 65(19) of the Act as follows:-
"Business 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
20. Under section 65(105) (zzb) of the Act any service provided to a client, by any person in relation to business auxiliary service would be a taxable service.
21. The submission of learned Counsel for the Appellant is that it was necessary for the Department to specify the activity and the nature of service that was to be taxed and for this it was necessary for the Department to point out the specific clause out of seven clauses mentioned in section 65(19) of the Act but that was not mentioned in the show cause notice. In support of this contention, learned counsel has placed reliance upon the decisions of the Tribunal in
Commissioner of Custom & Central Excise, Goa v/s Swapnil
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Asnodkar8 and United Telecoms Ltd. v/s Commissioner of Service Tax, Hyderabad9.
22. In Swapnil Asnodkar, a Division Bench of the Tribunal observed as follows:-
"4. We have carefully considered the submission made by both sides. We find that though in the SCN the Respondent was made liable to pay service tax but as rightly held by the adjudicating authority, no specific clause of Section 65 (19) defining Business Auxiliary service has been shown to be applicable to levy service tax. It is not appearing from the show cause notice as to what goods or services the Respondent has promoted or helped to promote. The Appellate Commissioner also on the same ground has held that the demand being vague is not enforceable against the Respondent. We do not find any reason to infer any different view than expressed by the lower authorities as without specifying the activity and the nature of service of the Respondent he cannot be taxed. Further out of the seven clauses under Section 65 (19) no clause has been pointed out under which the Respondent is liable for service tax."
23. In United Telecoms Ltd., another Division Bench of the Tribunal observed as follows:-
"6. We find that no demand can be confirmed against any person towards service tax liability unless he/it is put on notice as to its exact liability under the statute. In the show-cause notice basic to the proceedings, the impugned activities were proposed to be classified under BAS and BSS. This proposal was confirmed by the Original Authority. We find that this order is not in accordance with the law. The impugned order held that UTL provided services 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 __________________________
8. 2018 (10) GSTL 479 (Tri-Mumbai)
9. 2011 (22) STR 571 (Tri.-Bang.)
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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 been rendered by him.
25. In the present case, as noticed above, the show cause notice, 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."
26. Thus, what has only been stated is that since the expenditure incurred by the Appellant is reimbursed by Tata Tele Services in the guise of subsidy, the same would be covered under the definition of BAS since the amount received by the Appellant would be in respect of providing BAS to Tata Tele Services.
27. Learned Authorized Representative of the Department has, however, referred to a decision of Supreme Court in J K Steel Ltd. v/s Union of India10to contend that citing a wrong rule does not vitiate the exercise of the power, if the source of power can be traced to a rule. This decision would not come to the aid of the Department since in the present case BAS has seven ingredients and it was necessary for the Department to point out which particular category _________________________
10. 1978 (2) ELT J 355 (S.C.)
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of service contained in seven clauses of BAS was attracted in the case of the Appellant.
28. Likewise, the decision of the Supreme Court in Collector of Central Excise, Calcutta v/s Pradyumna Steel Ltd.11would also not come to the aid of the Department. This decision holds that mere mention of a wrong provision of law, when power that has been exercised is available under a different provision, is by itself not sufficient to invalidate the exercise of that power.
29. The impugned order, therefore, can be set aside only on this ground as the show cause notice does not mention which service out of the seven services specified in section 65(19) of the Act was undertaken by the Appellant.
30. However, as learned Counsel for the Appellant and the learned Authorized Representative have made submissions on the other grounds raised by the Appellant for setting 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 _____________________
11. 1996 (82) ELT 441 (S.C.)
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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 Tata Tele Service under BAS.
34. 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 at lower prices and neither does the Agreement provide for payment of any subsidy, much less for promotion or marketing of Tata Tele Services. The subsidy, on the other hand, is paid to the Appellant by Tata Tele Services to compensate for the loss incurred by the Appellant on the sale of mobile handsets at a lower price and cannot be said to have any relation to the service of promotion or marketing. Thus, in the absence of any services provided by the Appellant to Tata Tele Services, service tax could not have been levied on the amount of subsidy received by the Appellant.
35. In this connection, reference can be made to decision of the Punjab and Haryana High Court in Nahar Industrial Enterprises Ltd. The Central Government, by a letter dated 23 January, 2003, directed the assessee to maintain a buffer stock of free sale sugar and
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to compensate the assessee the Government extended a buffer stock subsidy towards storage, interest and insurance charges for the said buffer stock of sugar. The Revenue contended that the amount received by the assessee as buffer subsidy was covered under the definition of "storage and warehousing services". The High Court held that service tax could be levied only if storage and warehousing service was provided. The assessee had stored goods in the compliance of the directions of Government of India and had received subsidy not on account of services rendered to the Government of India but as compensation on account of loss interest, and cost of insurance incurred on account of maintenance of stock.
36. This apart, what has also to be noticed is whether the amount received as subsidy is a "consideration" for taxable service under 67(1) of the Act and hence liable to service tax. The Supreme Court in
Bhayana Builders Pvt. Ltd. held that for valuation of taxable service, a provision has been made in the section 67 of the Act that provides that it would be the gross amount charged by the service provider for such service provided or to be provided by him". Thus, the amount should be charged 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
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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 otherwise received from the customer buying the handsets. No service is being provided. The amount of subsidy is merely a compensation and this amounts the Appellant would have received from the customer. In fact, it can be said that the arrangement between the Appellant and Tata Tele Service for selling the handset at a lower price only aids the business of the Appellant because it will be able to sell more handsets.
38. The submissions of learned Counsel for the Appellant that even if the subsidy is treated as a reimbursement, then too the same cannot be subjected to service tax also deserves to be accepted in view of the decisions of the Supreme Court in Union of India v/s Intercontinental Consultants & Technocrats Pvt. Ltd.12. 39 . The submission of learned Authorized Representative of the Department that since in the present case reimbursements are relatable to the taxable service and so they can be subjected to service tax cannot be accepted. Reliance on the decision of the Tribunal in ___________________________
12. 2018 (10) GSTL 401 (S.C.)
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BEE AM Industries Pvt. Ltd. is misplaced and the decision does not help the Department. The decision deals with notional annual rent of the premises used by the Appellant without paying any rent. The Tribunal held that work premises for the Appellant has been provided rent free and, therefore, the Appellant had used such accommodation to provide a taxable service. Thus, this would have a direct bearing on the quantum of amount charged by the Appellant for rendering these services.
40. The decision of the Supreme Court in Commissioner of Central Excise, Mumbai v/s Fiat India Pvt. Ltd.13would also not help the Department. The issue was whether the price declared by the assessee for the cars which were admittedly below the cost of manufacture be regarded as "normal price" for the purpose of excise duty in terms of section 4(1)(a) of the Central Excise Act, 1944. The Supreme Court held as follows:-
"43. What can be construed from the plain reading of Section 4 of the Act and the interpretation that is given by this Court on the expression `normal value" is, where excise duty is chargeable on any excisable goods with reference to value, such value shall be deemed to be the price at which such goods are ordinarily sold by the assessee to a buyer in the course of wholesale trade for delivery at the time and place of 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
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41. This is not the issue in the present case. This decision, therefore, would not come to the aid of the Department.
42. As, for the reasons stated above, it is not possible to sustain the demand, the contention of learned Counsel for the Appellant that the extended period of limitation under the proviso to section 73(1) of the Act could not have been invoked is not required to be examined.
43. Thus, it is not possible to sustain the impugned order. It is accordingly, set aside and the Appeal is allowed. (Dictated and pronounced in the open court)
(JUSTICE DILIP GUPTA)
PRESIDENT
(BIJAY KUMAR)
MEMBER (TECHNICAL)
Rekha