COMMISSIONER OF SERVICE TAX Vs. RELIANCE INFOCOMM LTD.

JUDGEMENT

(1.) THE Revenue is in appeal against the impugned order wherein the ld. adjudicating authority has set aside the demands sought to be confirmed by issuing show cause notice to the respondent and also dropped the penalty against the respondents. The brief facts of the case are that the respondents are engaged in providing telephone connection service covered under Section 65(105)(b) of the Finance Act, 1994. The respondent appointed M/s. Reliance Industries Ltd. (RIL) as an agent to market the TRAI approved Tariff Plans with respect to telephone connections services provided by it by means of various schemes floated by the agent in this regard. These services were provided through Code Division Multiple Access (CDMA) technology and could be availed by the subscribers only on a handset specially programmed and designed.

(2.) THE ld. Spl. Counsel appearing on behalf of the Revenue submits that the respondents have provided the service being telegraph authority duly registered under Indian Telegraph Act, 1985 and provided telephone connection services to its subscribers through its marketing agent M/s. RIL under various schemes. Vide its letter dated 18 -9 -2006 to DGCEI, M/s. RIL had explained and clarified that Dhirubhai Ambani Pioneer Offer was a self -contained scheme. There was no separate entity like club independent of the scheme of Dhirubhai Pioneer Offer. All subscribers to the scheme became eligible for the privileges as noted in the offer. The scheme laid down that subscribers would be eligible for free handsets and other privileges like insurance of handset and financing in case of deferred payment option. The money collected was utilized for providing the said privileges to the subscribers. As per Section 65(7) of the Act. The "Assessee" means a person liable to pay the Service Tax and includes his agent. The marketing agent of the Respondent was providing the telephone connection services including provision of free handsets and other privileges to the subscribers of the respondent. Therefore, the gross amount collected by M/s. RIL was collected on behalf of the respondent only and the same ought to be the taxable value for the purpose of payment of Service Tax by the respondent. The attempts made by the respondent to isolate the amount collected from the subscribers towards DAP club charges from the purview of Service Tax would not be legally tenable, more so, as the DAP club charges are integral part of the DAPO scheme which was floated only to garner the subscribers for the taxable services rendered by the respondent. Therefore, the DAP club membership charges and DAP club privilege charges are the part of taxable value of the service provided by the respondent. From the perusal of the DAPO scheme clearly shows that it is a composite scheme of service and supply of free handsets provided to the subscribers of the respondent. Therefore, there was no sale of handsets and the value of DAP club membership charges and DAP club privilege charges could not be isolated from the value of other taxable services provided by the respondent to its subscribers. It is further submitted CDMA phones provided to the subscribers of the respondent were programmed to respond only to the services provided by the respondent and the same could not be used to avail of the services of any other telephone operators. Therefore, the supply of free handsets to the subscribers was merely incidental to the services provided by the respondent. Therefore, the respondents are liable to pay Service Tax on the gross amount charged by their agent from the subscribers.

(3.) ON limitation, he submits that the respondent has collected club membership and club privilege charges from its subscribers under the DAPO scheme and the same has not been included in the value of taxable services. Therefore, the extended period of limitation has rightly invoked. With regard to the penalty, he submits that the respondent adopted a scheme and the same has not been disclosed to the department for valuation of the service provided by them and also adjusted outstanding dues from the fixed deposit and not informed to the department. In these circumstances, penalties are required to be imposed on the respondent. In these terms, it is prayed that the impugned order be set aside and the appeal be allowed.