Service tax liability on distributor of simcard/recharge
This query is : Resolved
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.
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
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
14 November 2013
Pls give reference of cases decided by the of the High Court or the Supreme Court if reported.
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**:
---
### 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**.
---
### 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**.
---
### 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.
---
### 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) |
---
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?
---
### 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**.
---
### 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**.
---
### 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.
---
### 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) |
---
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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