Service tax liability on distributor of simcard/recharge

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CA. D.K.JAIN (Querist)
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13 November 2013 Dept. is issuing SCN to simcard/ recharge distributors for service tax not paid on difference of MRP and distributor price for four years ( 2008-09 to 2011-12). Is distributor liable to pay tax? If liable, can the telecom company take CENVAT for 2008-09 to 2011-12 now.Pls give relevant provisions and case laws if reported.

CA. Narottam Kumar Rawat

CA. Narottam Kumar Rawat (Expert)
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13 November 2013 Dear Sir,

The Difference is may be treated only discount and the same is not liable to service tax.

A case already under litigation refer the same: 2007 (8) S.T.R. 136 (Tri. - Chennai) IN THE CESTAT, SOUTH ZONAL BENCH, CHENNAI
Shri P. Karthikeyan, Member (T)
JR COMMUNICATIONS & POWER CONTROLS
Versus
COMMR. OF C. EX., TRICHY

In case need copy of Judgement contact: nrawat2004@gmail.com

CA. D.K.JAIN

CA. D.K.JAIN (Querist)
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14 November 2013 Pls give reference of cases decided by the of the High Court or the Supreme Court if reported.

Aashok Kumar Sharma online

Aashok Kumar Sharma online

(Expert)
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24 July 2025 Here’s a detailed response on the **service tax liability of SIM card/recharge distributors on the difference between MRP and distributor price** and the **CENVAT credit issue**:

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### 1. **Is Distributor Liable to Pay Service Tax on the Difference (MRP - Distributor Price)?**

* The **difference between MRP and distributor price** is generally treated as a **trade margin or discount** given by the telecom company to the distributor.

* **Service tax is not leviable on the trade margin or discount** because the distributor is not providing any taxable service on that margin; it's a commercial discount.

* This is supported by case laws and tribunal decisions such as:

**JR Communications & Power Controls vs. Commissioner of Customs & Excise, Trichy (2007 (8) S.T.R. 136 - CESTAT Chennai)**

* The Tribunal held that the difference between MRP and distributor price is a **discount** and **not liable to service tax**.

* The important factor is that the distributor is **not providing any separate taxable service on this difference**.

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### 2. **Can Telecom Company Take CENVAT Credit for the Period 2008-09 to 2011-12 Now?**

* CENVAT Credit can be availed on **service tax paid on input services or inputs** used in the manufacture of goods or provision of output services.
* If **service tax was not paid by the distributor** on the difference, then the telecom company **cannot claim CENVAT credit on that amount retrospectively**.
* Moreover, CENVAT credit has to be taken in the **same financial year or within the prescribed time limit**, as per CENVAT Credit Rules.
* If the department issues SCN (Show Cause Notice) alleging non-payment of service tax by distributors, telecom companies **cannot claim CENVAT credit unless service tax was actually paid**.

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### 3. **Relevant Provisions**

* **Section 66B of Finance Act, 1994** — Levy of Service Tax.
* **CENVAT Credit Rules, 2004** — Conditions for credit and time limits.
* Case law:

* **JR Communications & Power Controls (CESTAT Chennai)** — Discount not liable to service tax.
* Look for any recent High Court or Supreme Court rulings for binding precedent, but tribunal rulings carry persuasive value.

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### 4. **Summary**

| Issue | Position |
| --------------------------------------------------- | --------------------------------------------------------------------------- |
| Service tax on difference (MRP - Distributor Price) | Generally treated as discount; not liable for service tax |
| Distributor liable to pay tax? | No, if treated as discount; but case facts matter |
| Telecom company claim CENVAT? | No, if service tax not paid; CENVAT credit allowed only on paid service tax |
| Reference case | JR Communications & Power Controls, CESTAT Chennai (2007) |

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If you want, I can help you draft a legal note or representation based on this, or find any updated rulings if you specify the jurisdiction. Would that help?

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