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Analysis of Recent Decisions - IDT

Madhukar N Hiregange , Last updated: 16 February 2013  

INDIRECT TAXATION – Analysis of  few Recent Judgments

Madhukar N Hiregange F.C.A.

The analysis of 2 judgments in central excise and a few judgments in service tax have been provided as under:  

Central Excise Decisions:


1. Landmark judgement in Commissioner of Central Excise, Mumbai Vs M/s Fiat India Pvt Ltd & Anr[2012-TIOL-58-SC-CX] on valuation of excisable goods for discharge of excise duty liability. The facts of case were as follows-

Facts of the case

Assessee was involved in manufacture and sale of FIAT Uno model cars. The cars are sold below cost of production for the period 1996 to 2001. Price declarations filed declaring whole sale price of cars for sale through depots from 1996.

Enquiries/Investigation by revenue authorities whereby they found that:

a. Whole sale price declared is much less than cost of production and thus price declared cannot be treated as a normal price for purpose of quantification of assessable value under Section 4(1)(a) of CE Act and for levy of excise duty as it would lead to a short payment of excise duty.

b. Cars sold at a loss to penetrate the market (not disputed). As all the kits were being imported in SKD/CKD condition for the manufacturing of cards from outside India. The cost of manufacture from SKD condition was Rs 3,98,585. The cost of manufacture from CKD condition Rs 3,80,883 against an assessable value which was declared of Rs 1,85,400


1. Whether the Price declared by assessees for their cars which is admittedly below the Cost of manufacture can be regarded as "normal price" for the purpose of excise duty in terms of Section 4(1) (a) of the Act.

2. Whether the sale of cars by assessees at a price, lower than the cost of manufacture in order to compete and penetrate the market, can be regarded as the "extra commercial consideration" for the sale to their buyers which could be considered as one of the vitiating factors to doubt the normal price of the wholesale trade of the assessees.

Contentions of the Revenue

a. The “loss making price” continuously for a period more than 5 years while selling more than 29000 cars cannot be price at which goods are “ordinarily sold”.

b. Loss incurred by taxpayers in order to penetrate the market to be borne by them and in the process Government not to lose revenue.

c.  As the main consideration of taxpayer is to penetrate market and “normal price” cannot be accepted, since it is intertwined with receiving a higher monetary turnover – hence, “price is not the sole consideration”.

d. When the normal price is not ascertainable and valuation on the basis of cost of production plus profit has to be applied

Contentions of FIAT

e. There was no mandate to pay duty on manufacturing cost and profits.

f.  Normal price was not to be rejected only because it is less than the cost of production.

i. Genuineness of sale price not in doubt and dealings with buyers at arms length

ii. There was no additional consideration or flow back of money from the buyers  over and above the assessable value which was declared.

General observations of the Supreme Court

a. The application of section 4(1)(b) may cause a serious hardship to the taxpayer.

b. The mere hardship not a valid consideration to distort the language of the statutory provisions.

c. Duty leviable on the value of goods as manufactured-

i. Manufacturing cost and profit take to account.

ii. Sale not a necessary condition for charging excise duty

d. Deeming fiction of law considers the selling price or nearest ascertainable price to be value of goods for excise valuation purpose.

e. Price adopted by Fiat not held to be ‘normal price’ since selling cars consistently at a loss price cannot be termed ‘normal price’.

f. Sale of cars for a period of 5 years at a loss price is to compete with the other manufacturers of cars and to penetrate the market

i. If such sales taken as sales in the ordinary course, it would be against the expression 'ordinarily sold’.

ii. If low price is charged due of extra-commercial considerations, price could not be taken to be fair, arrived at on purely commercial basis

Observations of the Supreme Court on Normal Price

The price is not the ‘normal price’, for the following reasons:

i. The price of the cars was not based on the manufacturing cost and manufacturing profit, but fixed at a lower price to penetrate the market.

ii. Though the normal price of cars is higher, cars were sold at a lower price to compete with the other manufacturers of similar cars.

iii. Certainly a factor in depressing the sale price to an artificial level

iv. The full commercial cost of manufacturing and selling the cars was not reflected in the lower price.

Price at which the taxpayer had sold its goods to the wholesale trader cannot be accepted as 'normal price' for the sale of cars merely because:

a. The taxpayer has not sold the cars to the related person; and

b. The element of flow back directly from the buyer to the seller is not alleged

Observations of the Supreme Court – Ordinarily sold

a. The word 'ordinarily' does not mean majority of the sales; what it means is that price should not be exceptional and it cannot include extra-ordinary or unusual price.

b. The sale of cars in the market continuously for a period of five years at a loss price is to compete with the other manufacturers of cars and to penetrate the market.

c. If such sales taken as sales made in the ordinary course, it would be against the expression 'ordinarily sold’.

d. If there is an extra-ordinary or unusual price, specially low price, charged because of extra-commercial considerations, the price charged could not be taken to be fair and reasonable, arrived at on purely commercial basis.

Held as follows-

a. The goods are sold below manufacturing costs and manufacturing profits. Therefore such a sale could be disregarded as not done in ordinary course of sale or trade. As assesees are not fulfilling the conditions which is enumerated in Section 4(1)(a) of the Act, the valuation to be done under Section 4(1)(b) of Central Excise Act.

b.  The H’ble Supreme Court held that taxable event is manufacture of excisable goods. The charge of incidence of excise duty stand attracted as soon as the taxable event takes place. Further sale or ownership is not relevant for purpose of taxable event under Central excise. The duty payable whether or not goods are sold.

c. Only if a price is a sole consideration for the sale of goods, and if there is no other consideration except the price for the sale of goods, then only the provisions of Section 4(1)(a) of the Act can be applied.

d.  The Supreme Court held that the sale price is not the normal price as established from the following circumstances which is admitted by assessee-

-  The price of cars was not based on manufacturing costs and manufacturing profits, but was fixed at a lower price to penetrate market.

-   The normal price for cars higher. They were selling at a lower price to compete with manufacturers of similar cars. This was depressing sale price to artificial level.

-  The full commercial cost of manufacturing and selling car was not reflected in lower price.

e.   As assessee was charging a lower price due to competition, the price charged could not be taken to be fair and reasonable, arrived at on purely commercial basis, to be counted as price for levying excise duty under Section 4(1)(a) of CE Act. Accordingly cannot be regarded as price at which goods are sold to buyers.

f.  It was held that main reason to sell at a price which was lower than manufacturing costs and profits was to penetrate the market and this would constitute extra commercial consideration. Accordingly Section 4(1)(a) would not be applicable.

2.    An important analysis of judgement in case of CCE, Chennai-II v. Australian Foods India Ltd (2013(287)ELT385(SC) wherein applicability of SSI exemption to goods which are not physically bearing brand name was examined.

Commissioner of C. Ex., Chennai-II vs Australian Foods India (P) Ltd. 2013 (287) E.L.T. 385 (S.C.)

Brand name & SSI exemption


Assessee was engaged in the manufacture and sale of cookies from branded retail outlets of ‘cookie man’. The assessee acquired the brand name from Cookie Man Pvt Ltd Australia[which in turn acquired from Auto-bake Pvt Ltd, Australia].

The brand name used the words ‘Cookie man’ accompanied by a logo depicting the smiling face of a mustachioed chef. The assessee was selling some of these cookies in plastic pouches/containers on which the brand name described above was printed. No brand name was affixed or inscribed on the cookies. Excise duty was duly paid, on the cookies sold in the said pouches/containers. However on the cookies sold loosely from the counter of the same retail outlet, with plain plates and tissue paper, duty was not paid.(Essentially this was the question of law to be decided).

The retail outlets did not receive any loose cookies nor did they manufacture them. They received all cookies in sealed pouches/containers. These sold loosely were taken out of the containers and displayed for sale separately. Even though no separate register was maintained to account for sale of cookies sold loosely, their numbers were calculated from the number of empty pouches/containers left behind at the end of the day.


Whether assessee entitled to avail small scale exemption benefit in respect of cookies loosely sold from the counter of retail outlet.

Final verdict-Decision:

a. Once it is established that specified goods is a branded goods, whether it is sold without any trade name on it, or by another manufacturer, it does not cease to be a branded goods of the first manufacturer.

b. In case of goods sold from exclusive single brand retail outlets or restaurants or stores, the fact that a good sold from such a store ought to be a relevant fact in construing if the good is its branded good or not. In the case of such goods, perhaps a rebuttable presumption arises in favour of such goods being branded goods of the specified store. Such a presumption if it is shown that the specified good being sold is in fact a branded good of another manufacturer.

c. It is not necessary for goods to be stamped with a trade or brand name to be considered as branded goods under SSI notification.

d. A scrutiny of surrounding circumstances is not only permissible but necessary to decipher the same; the most important of these factors being the specified outlets from which these goods are sold.

e. There is no single formula to determine whether goods is branded or not;such a determination would vary on case to case basis.

f.  Cookies without inscription of a brand name, indicate a clear connection with the brand name, in course of assesses business of manufacture and sale of cookies under brand name’cookie man’. They would continue to be the branded cookies of ‘cookie man’ and hence cannot claim exemption under SSI exemption.

Held by the Supreme Court that where manufacture and sale of specified goods that do not physically bear a brand name but are sold from branded outlets it would disentitle the assessee from the benefit of SSI exemption Notification.

Service Tax Decisions

Tribunal rejects case against Katrina Kaif(actor)

The department had demanded Rs. 2.79 Crores of service tax and interest and penalty from the actor on her modeling assignments. Her agent paid the same though under a wrong category.

The actor had instructed her agent Matrix India Entertainment Consultants to receive payments for her modeling assignments and pay service tax on her behalf.

Revenue demanded service tax of Rs 2.79 Crores and an interest and penalty of Rs 34 Lakhs saying Matrix paid tax under  advertisement agency service category and not business auxiliary service.

CESTAT said that actor had correctly discharged her service tax liability rejecting revenue department charge of non-payment of service tax. The Tribunal held that payment of service tax under a different category does not mean no service tax was paid for activity in question. Further that payment of service tax by agent would amount to a discharge of service tax liabiliity by the actor.

This case could be a precedent for service tax payment by a agent and liability if payment is wrongly made.

Decision on Construction Services:

Concept of Service under negative list based taxation

3. Narne Construction P. Ltd. Vs  UOI 2013 (29) S.T.R. 3 (S.C.)


a. The company was engaged in the promotion of ventures for development of lands into house-sites and invited the intending purchasers through paper publication and brochures to join as members. The intending purchasers responded and joined as members on payment of fees. The sale and allotment of plots were subject to terms and conditions.

b. The sale is not open to any general buyer but restricted only to the persons who have joined as members on payment of the stipulated fee. The members should abide by the terms and conditions set out by the seller. The sale is not on "as it is where it is" basis.

c. The terms and conditions stipulated for sale of only developed plots and the registration of the plots would be made after the sanction of lay out by the concerned authorities. The sale price was not for the virgin land but included the development of sites and provision of infrastructure.

d.  The company had undertaken the obligations to develop the plots and obtain permissions/approvals of the lay outs. The plots were developed by spending huge amounts and subsequent to the amounts paid by the purchasers the plots were developed.

e. It is therefore, manifest that the transaction between the parties is not a sale simplicitor but coupled with obligations for development and provision of infrastructure. Inevitably, there is an element of service in the discharge of the said obligations."


Whether the company was, in the facts and circumstances of the case, offering any "service" to the purchasers within the meaning of the Consumer Protection Act, 1986 so as to make it amenable to the jurisdiction of the for a established under the said Act.

Observations of Supreme Court on service concept

 While examining the true purport of the word "service" appearing in the legislation[Consumer Protection Act, 1986] observed: "It is in three parts. The main part is followed by inclusive clause and ends by exclusionary clause. The main clause itself is very wide. It applies to any service made available to potential users. The words 'any' and 'potential' are significant. Both are of wide amplitude. The word 'any' dictionarily means 'one or some or all'. In Black's Law Dictionary it is explained thus, "word 'any' has a diversity of meaning and may be employed to indicate 'all' or 'every' as well as 'some' or 'one' and its meaning in a given statute depends upon the context and the subject-matter of the statute".

The use of the word 'any' in the context it has been used in Clause (o) indicates that it has been used in wider sense extending from one to all. The other word 'potential' is again very wide. In Oxford Dictionary it is defined as 'capable of coming into being, possibility'. In Black's Law Dictionary it is defined as "existing in possibility but not in act. Naturally and probably expected to come into existence at some future time, though not now existing; for example, the future product of grain or trees already planted, or the successive future installments or payments on a contract or engagement already made."

In other words service which is not only extended to actual users but those who are capable of using it are covered in the definition. The clause is thus very wide and extends to any or all actual or potential users.

The legislative intention is thus clear to protect a consumer against services rendered even by statutory bodies. The test, therefore, is not if a person against whom complaint is made is a statutory body but whether the nature of the duty and function performed by it is service or even facility." (emphasis supplied)

Whether housing construction and building activities carried on by a private or statutory body tantamount to service?

Construction of a house or flat is for the benefit of person for whom it is constructed. He may do it himself or hire services of a builder or contractor. The latter being for consideration is service as defined in the Act.

Similarly when a statutory authority develops land or allots a site or constructs a house for the benefit of common man it is as much service as by a builder or contractor. The one is contractual service and other statutory service. If the service is defective or it is not what was represented then it would be unfair trade practice as defined in the Act. Any defect in construction activity would be denial of comfort and service to a consumer. When possession of property is not delivered within stipulated period the delay so caused is denial of service.

Such disputes or claims are not in respect of Immovable property as argued but deficiency in rendering of service of particular standard, quality or grade.

When the contractor or builder undertakes to erect a house or flat then it is inherent in it that he shall perform his obligation as agreed to. A flat with a leaking roof, or cracking wall or substandard floor is denial of service. Similarly when a statutory authority undertakes to develop land and frame housing scheme, it, while performing statutory duty renders service to the society in general and individual in particular." (emphasis supplied)

Held by the Supreme Court that-

This Court held that when a person applies for allotment of building site or for a flat constructed by development authority and enters into an agreement with the developer or a contractor, the nature of the transaction is covered by the expression "service" of any description.

This kind of transaction involved much more than a simple transfer of a piece of immovable property. It was not a case of mere sale of property with all advantages and/or disadvantages on “as is where is” basis and it is service within the meaning of section 2(1)( c ) of Consumer Protection Act, 1986 and any deficiency/defect therein was amenable to jurisdiction of forum established there under.

It is a case where a clear cut assurance was made to the purchasers as to the nature and the extent of development that would be carried out by the company as a part of the package under which sale of fully developed plots with assured facilities was to be made in favour of the purchasers for valuable consideration. To the extent the transfer of the site with developments in the manner and to the extent indicated earlier was a part of the transaction, the company had indeed undertaken to provide a service.

Possible Implications of this decision under Service Tax Law-

This decision could be of assistance in interpreting the expression ‘activity involving merely transfer of title in immoveable property’, which is excluded from the definition of service in section 65B(44) of Act, under the negative list based taxation, as extracted below-

Section 65B(44) "service" means any activity carried out by a person for another for consideration, and includes a declared service, but shall not include—

(a) an activity which constitutes merely,––

(i) a transfer of title in goods or immovable property, by way of sale, gift or in any other manner; or

(ii) such transfer, delivery or supply of any goods which is deemed to be a sale within the meaning of clause (29A) of Article 366 of the Constitution; or

(iii) a transaction in money or actionable claim;

(b) a provision of service by an employee to the employer in the course of or in relation to his employment;

(c) fees taken in any Court or tribunal established under any law for the time being in force.

Since in the instant case, the activity has involved more than a transfer of title, it was held to be a service.

However whether we could extend the definition as understood under the consumer protection act to service etax is debatable. May not be directly used.

Valuation & Reimbursement of Expenses

4.  An important judgment of Delhi High Court in the case of Intercontinental Consultants And Technocrats Pvt Ltd vs. UOI & Anr [2012-TIOL-966- HC-Del-ST] changing the position of law pertaining to valuation covering reimbursements. Considering the change in the position of law, we would discuss the essence of the decision, its impact on valuation of taxable services for the period prior to and after the introduction of negative list based taxation.


In Intercontinental Consultants And Technocrats Pvt Ltd, was providing consulting engineering services. In the course of the carrying on of its business, they rendered consultancy services in respect of highway projects to the National Highway Authority of India (NHAI). The petitioner receives payments not only for its service but is also reimbursed expenses incurred by it such as air travel, hotel stay, etc. It was paying service tax in respect of amounts received by it for services rendered to its clients. It was not paying any service tax in respect of the expenses incurred by it, which was reimbursed by the clients.

Department had issued show cause notices demanding service tax on the said reimbursed expenses on the ground that those are essential expenses for providing the taxable services of consulting engineers.


The said company had filed writ petition before the High Court of Delhi with following two prayers along with quashing of show cause notice:

a. Quashing Rule 5 of the Service Tax (Determination of Value) Rules, 2006 to the extent it includes the reimbursement of expenses in the value of taxable service for the purpose of charging service tax in entirety.

b. Declaring the said rule to be unconstitutional and ultra vires Section 66 and 67 of Finance Act, 1994.

After examining the legal position, H’ble High Court of Delhi allowed the writ holding that:

a.  In the valuation of the taxable service, nothing more and nothing less than the consideration paid as quid pro quo for the service can be brought to charge.

b. Rule 5 purports to tax not what is due from the service provider under the charging Section, but it seeks to extract something more from him by including in the valuation of the taxable service the other expenditure and costs which are incurred by the service provider “in the course of providing taxable service”.

c. What is brought to charge under the relevant Sections is only the consideration for the taxable service. By including the expenditure and costs, Rule 5(1) goes far beyond the charging provisions and cannot be upheld.

In this backdrop we discuss what would be the impact prior to and after introduction of negative list based taxation.

Implications of this decision prior to 01.07.2012 i.e. before introduction of negative list based taxation:

Since April 2006 till now, more than five and half years, most of the service providers did not wanted to challenge the provisions and decided to include reimbursements also in the taxable value and were charging service tax. However in certain cases where they had not charged service tax on such reimbursements and either found and notices were issued or no notices were issued would have now little sense of relief with this decision as it would give relief for them from any demands already raised or would have raised.

Until the law laid down by this decision holds the field, those cases would get relief. Even if the said position is changed either by retrospective amendment or overruled by Hon’ble supreme court by taking any other view also, the service providers can claim the limitation aspect and also seek waiver of penalties as the matter pertains to interpretation and different view existed.

By virtue of this decision after quashing Rule 5(1) it would be important for service provider to identify what is reimbursement and what is not. Merely calling it as reimbursement in the bills would not make it reimbursements. It should be clear from the terms of agreement/service order/work order etc., that there was an obligation upon the service receiver to incur such expenditure and instead if the service provider incurs such expenditure, the same would be reimbursed by the service receiver to service provider. Further reimbursement means it should be at actual and supported by sufficient documentary evidence.

On the other hand in view of the paper writer, if it is merely said that the price would be determined by cost incurred plus certain percentage of such cost, it cannot be considered as reimbursement.

Therefore it would be responsibility of the service providers to have sufficient documentary support to prove whether exclusions made claiming it to be reimbursements are in fact reimbursements and not separation or segregation of consideration as reimbursements.

Implications of this decision after 01.07.2012 i.e. before introduction of negative list based taxation:

There was paradigm shift in the methodology of taxation under service tax, from positive list based taxation to taxing of any activity defined to be service unless it is covered under negative list.

Though there was change in the manner of determining the levy, there was no change in the valuation provisions, which remained essentially same. Therefore in the normal course, the proposition as explained above would have to continue even after the 1st of July 2012.

However in view of paper writer, there are certain aspects, which would come into play. Earlier the taxation was based on positive list based taxation, i.e. if the activity undertaken falls under defined specific type of services, it would have been taxed. Otherwise, it would not have been taxed. But now any activity undertaken if it is not covered under the negative list would become taxable.

Now the question arises, whether the activity of incurring such expenditure on behalf of the service receiver can also be considered as service and if so, whether it would become part of the main service as it would be considered as bundled services?

In the opinion of paper writer the answer may be ‘YES’. However again the consideration for such additional activity is said to be already included in the amount being charged for the main services and the expenditure incurred by the service provider on behalf of service receiver cannot be considered as consideration for the activity of incurring such expenditure. When it is reimbursement, it means that the payment is made on behalf of the service providers and not as service charges.

To conclude in view of the paper writer, even under the new law, the re-imbursements would not form part of taxable value and should not be included in the taxable value until this position of law holds good, subject to the fact that there is proper documentary evidence to support the fact that the amounts incurred are reimbursement of expenses.

Point of Taxation

5.  A recent decision of Hon’ble Delhi High Court in Delhi Chartered Accountants Society(Regd) vs UOI and Ors(2013-TIOL-81-HC-Del-ST).

Delhi Chartered Accountants Society(Regd) vs UOI and Ors(2013-TIOL-81-HC-Del-ST)


The petitioner is an association of chartered accountants. Services rendered by chartered accountants are taxable services under erstwhile section 65(105)(s) of the Finance Act, 1994. As you know that the rate of service tax was enhanced from 10% to 12% wef 1.4.2012. As per Rule 79c) of Point of Taxation Rules in case of 8 specified services [one of which was chartered accountants service] provided by the individuals or proprietary firms or partnership firms, point of taxation shall be the date on which payment received or made as case maybe.

Further Rule 7© of POT Rules amended vide notification no.4/2012-ST dated 17.3.2012 effective from 1.4.2012 under new Rule 7 of POT rule, whereby the point of taxation is date of receipt of payment only for the service tax payable under reverse charge, ie under Section 68(2) of Finance Act, 1994.

Further date of receipt of payment for 8 specified services by the individuals or proprietary firms or partnership firms been extended to all service providers, by inserting a proviso to section 6(1) of Service Tax Rules, 1994 vide notification no.3/2012-ST wef 1.4.2012 as under:

“Provided also that in case of individuals and partnership firms whose aggregate value of taxable services provided from one or more premises is fifty lakh rupees or less in the previous financial year, the service provider shall have the option to pay tax on taxable services provided or agreed to be provided by him up to a total of rupees fifty lakhs in the current financial year, by the dates specified in this sub-rule with respect to the month or quarter, as the case may be, in which payment is received”.


In this backdrop service tax authorities rely on two circulars issued by TRU Circular no.154 dated 28.3.2012 and 158 dated 8.5.2012 which says in case of 8 specified services provided by individuals or proprietary firms or partnership firms and in case of services wherein tax is required to be paid on reverse charge by service receiver, if payment is received or made as case maybe on or after 1st April, 2012, the rate of service tax applicable will be 12% and not 10%.

What is rate of service tax for the services provided by the Chartered Accountants prior to 1.4.2012 and the invoice also issued prior to 1.4.2012 but payment received after 1.4.2012.


It was held that where services of chartered accountants were actually rendered before 1.4.2012 and the invoices also issued before that date, but the payment was received after that date, the rate of service tax would be 10% and not 12%.

While quashing the circulars as contrary to provisions, the High Court compared the old and the new Rule 7 of the POT Rules and held that the circulars in question have not taken note of this aspect, and as noted earlier have proceeded on the erroneous assumption that the old Rule 7 of POT Rules continued to govern the case notwithstanding introduction of new rule 7 of POT Rules which does not provide for contingency which has arisen in current case.

Hence the Circulars are quashed as being contrary to Finance Act, 1994 and the POT Rules, which have been notified in exercise of powers conferred upon Central Government under clause(a) and clause(hhh) of Sub-section (2) of section 94 of the Finance Act, 1994 and they are also required to be placed before both Houses of Parliament under Sub-section (4) of Section 94. They thus have the force of law. The circulars have to be in conformity with Act and the Rules and if they are not, they cannot be allowed to govern the controversy.

It is well settled that a circular which is contrary to Act and Rules cannot be enforced. This was also held in CCE, Bolpur vs. Ratan Melting & Wire Industries(2008(13)SCC(1).

Import of services:

6.   A stay matter in Suntec Business Solutions P Ltd vs. C.C.E., C. & S.T., Thiruvananthapuram - I2012 (25) S.T.R. 159 (Tri. - Bang.), held though activities undertaken by such subsidiaries on behalf of applicant in relation to the agreement entered in between the applicant and customer, no evidence of import of services as services prima facie carried out in foreign countries.

Suntec Business Solutions P Ltd vs. C.C.E., C. & S.T., Thiruvananthapuram-I2012 (25) S.T.R. 159 (Tri. - Bang.)


The service tax demand related to activities undertaken by the subsidiaries outside India, and that the said activities have been undertaken in respect of software products developed and sold by the assessee to various customers in foreign countries.


The assessee seeking waiver of demand of Service Tax totaling around 14.45 crores, out of which, Rs. 13.4 crores relate to demand under the category of Business Auxiliary Services said to have been received from the Subsidiaries of the assessee who are operating from different countries.


The activities undertaken by the Subsidiaries appear to be on behalf of the applicant in relation to the agreement entered into between the applicant and the customers, but, prima facie, these activities have been carried out in the foreign countries. The activities undertaken included fixing mistakes in the software during the implementation and also activities in the nature of improvement based on requests of the customers. The evidences do not, prima facie, show that these activities have been carried out in India and, therefore notwithstanding payment by the applicant to the Subsidiaries abroad, there is no evidence of import of the services.

Sales Tax vs Service Tax:

7. In my view it cannot be disputed that even if sales tax is wrongly remitted and paid that would not absolve them from the responsibility of payment of service tax, if otherwise there is a liability to pay the same.

 If the article under reference is not susceptible to tax under the Sales Tax Act, the amount of tax paid by the assessee could be refunded as the case may be or, the assessee has to follow the law as may be applicable. But a position in law, may not be accepted that even if sales tax is wrongly remitted that would absolve the parties from paying the service tax if the same is otherwise found payable and a liability accrues on the assessee.

In the same way, the charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card. This was held in Idea Mobile Communication Ltd., wherein the apex Court has taken the view that the SIM card has no intrinsic sale value and is supplied to customers for providing mobile service to the customers; that the sale of SIM card is merely incidental to the service being provided and only facility is identification of the subscribers, their credit and other details, and it would not be assessable to sales tax. In this backdrop we examine a very recent CESTAT decision.

Vodafone Essar Ltd Vs Commissioner of Service Tax, Mumbai2012-TIOL-647-CESTAT-MUM


The assessee is a service provider under the category of telecommunication service and providing mobile phone services. To perform this activity, the assessee provides SIM cards to their customers through their dealers. When the applicant is clearing SIM cards to their dealers, they pay sales tax/VAT and for providing telephone services/mobile services they charge activation charges on which they are paying service tax


The Revenue is of the view that SIM card is an instrument which provides services only for activation of mobile phone without which the mobile phone cannot function. Therefore, the sale of SIM card is a part of service.


The Bench observed -

"7. After carefully considering the submissions made by both sides, we are of the view that in the case of Idea Mobile Communication Ltd., cited (supra), the Hon'ble apex Court has confirmed the view taken by the Hon'ble Kerala High Court wherein it was held that a transaction of selling of SIM card to the subscriber is also a part of the "service" rendered by the service provider to the subscriber. We also are not convinced with the contention of the Ld. Counsel that the amount paid as sales tax be considered as sufficient compliance of Section 35F of the Central Excise Act, read with Section 83 of the Finance Act. As this Tribunal have no power to adjust such payments as the same is created under the Special Act i.e., Customs Act, Finance Act and Central Excise Act. Therefore, we have no power to adjust the payment of sales tax against service tax. As discussed above, the applicant have failed to make out a case for 100% waiver of pre-deposit.

It was held that in respect of the telecommunication service, the value of SIM card to be included in AV for payment of ST. Tribunal has no power to adjust payment of Sales Tax against Service Tax: CESTAT. Following the decision of Idea Mobile Communication Ltd., (supra), applicant directed to make pre-deposit of balance amount of service tax adjudged within twelve weeks and report compliance.

Acknowledgement to CA Roopa Nayak for this material. For further queries mail to pdicai.org

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Published by

Madhukar N Hiregange
(Chartered Accountant)
Category Service Tax   Report

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