BHARTI AIRTEL LTD. Vs. CCE

JUDGEMENT

(1.) THE appellants are telephone service providers. They provide cellular phone connection to their subscribers, for which SIM cards are used. During the period of dispute (July 2002 to July 2003), they paid service tax on the above service, but without including the value of SIM cards in the taxable value for the purpose of such payment. In a show cause notice dated 21.3.2005, which invoked the proviso to Section 73(1)(a) of the Finance Act, 1994, the department demanded differential tax of Rs. 7,93,457/ - from the appellants on the value of the SIM cards used for providing telephone service to their subscribers during the above period. The notice proposed penalties under Sections 76 and 78 of the Act also, apart from demanding interest on the aforesaid amount of service tax under Section 75 of the Act. These demands/proposals were contested. In adjudication, the original authority confirmed the above demand of tax with interest against the party and imposed on them penalties of Rs. 7,93,457/ - each under Sections 76 and 78. The appeal filed by the assessee against the decision of the adjudicating authority came to be rejected. The present appeal is against the decision of the appellate Commissioner.

(2.) AFTER examining the records and hearing both sides, I note that the appellants have raised a few issues which they had not raised before the original authority. Firstly, it is their grievance in the present appeal that the SCN did not even specify the category of taxable service in respect of which the demand was raised. It is submitted that the demand in the SCN is towards "the service tax due in respect of SIM card sales". Ld. counsel submits that there is no such service figuring any - where in the list of taxable services under Section 65 of the Finance Act 1994. Secondly, it is the case of the appellants that no reason whatsoever was stated in the SCN for invoking the larger period of limitation under the proviso to Section 73(1)(a) of the Act. The demand of service tax, raised in the SCN issued on 21.3.05, is for the period prior to August 2003, but the requisite allegation for invoking the larger period of limitation was not raised in the notice. I find that these objections of the assessee were not raised before the original authority. The third substantial issue, which is being raised in the present appeal, is whether service tax can be demanded on the sale value of SIM cards. On this issue, ld. counsel for the assessee submits, the Hon'ble Supreme Court's judgment in the case of Bharat Sanchar Nigam Ltd. v. UOI 2006 (2) STR 161 (SC) is relevant. In that case, it was held by their lordships that, if SIM cards were goods on which sales tax had been levied, they would not be exigible to service tax. As, in that case, it was not certain as to whether sales tax had been levied, the Hon'ble Supreme Court was remanding the matter to the original authority. As pointed out by ld. counsel, the apex court's ruling in BSNL case (supra) was followed by the Tribunal in the case of Idea Mobile Communication Ltd. v. CCE Trivandrum 2006 (4) STR 132 (Tri. -Bang.), wherein it was found that the assessee was not contesting the levy of sales tax on SIM cards and, therefore, it was held that service tax was not leviable thereon. Ld. counsel has also claimed support from the Tribunal's more recent decision in BPL Mobile Communications Ltd. v. CCE Mumbai 2007 (7) STR 440 (Tri. -Mumbai), wherein also it was found that the assessee had voluntarily paid sales tax and, therefore, it was held that no service tax could be levied on SIM card value. I have heard ld. JDR also who has reiterated the findings of the Commissioner (Appeals).

(3.) IN the present case also, it has been claimed by ld. counsel that the appellants had been paying sales tax on SIM card value during the period of dispute and that they have not objected to that levy. However, no documentary evidence of sales tax payment is available on record. In the circumstances, I am of the view that the original authority should ascertain the fact and take a final decision after giving the assessee a reasonable opportunity of adducing evidence and of being heard. Of course, the assessee shall have the right to raise other objections also before the said authority. In case, it is found that the appellants had been voluntarily paying sales tax on SIM card value during the period of dispute and evidence thereof is produced by them to the satisfaction of the original authority, they shall have no liability to pay service tax. The adjudicating authority shall also consider the assessee's plea of limitation against the demand of tax in the event of the demand being sustained on merits. As regards penal liability, it has been contended by ld. counsel that, as the substantial issue in the case is largely interpretative in nature, it cannot be said that the assessee had any intent to evade service tax and, therefore, they cannot be penalized. The adjudicating authority shall give careful consideration to this plea also.