In Reliance Communication Infrastructure Limited vs. Commissioner of Service Tax, the Mumbai Bench of the Customs Excise and Service Tax Appellate Tribunal (CESTAT) held that sale of sim cards by the appellants to the distributors is not a telecommunication service and hence not liable to Service Tax.
The appellant-assessee, Reliance Communication Infrastructure Limited, is engaged in activity of marketing, distribution, billing and collection services for Reliance Communication Ltd. (RCOM) and has been classifying such service under ‘Business Support Service’. Reliance Communication Ltd. (RCOM) provides telecommunication services. The appellant is authorized to collect the sums due from the customers/subscribers in the capacity of the agent of M/s Reliance and also authorized to bundle their own services and products along with tariff plans of M/s Reliance. The Appellant is also engaged in the business of purchase/ sale of Sim Cards to various distributors across the country under an agreement with such persons.
A show cause notice was issued to the appellant with a demand to pay service tax along with interest and penalty on the ground that the sale of Sim cards is taxable communication services provided to the customer as said service has been provided on behalf of M/s RCOM. According to the show cause notice issued the value of Sim cards shall form part of the activation charges as no activation is possible without the provision of Sim cards. The provision of SIM cards to distributors/ end users on behalf of RCOM is thus taxable entry under Telecommunication service. The adjudicating authority confirmed the demand along with interest and penalty. The appellant appealed before the CESTAT.
The Counsel for the appellant argued that the appellant are not telecom service provider and are merely engaged in the supply of Sim cards. He contended that the sale of Sim Cards to distributors was an independent transaction which was separate from marketing and distribution services to RCOM as sale of Sim Cards is a sale of goods. He also informed that the State Government had levied VAT on the sale of Sim card. He further submitted that the appellant apart from carrying out the marketing services and billing the customers and collecting the bill amount from the customers did not engaged in the providing any service either to the customer or to RCOM which can be taxed under the category of ‘Telecommunication Service’. He argued that SIM card is not an integral part of Telecommunication service but is part of the telecommunication network.
The Counsel for the Revenue argued that tax has been avoided by showing the sale of sim card through the Appellant which is group company and it is planning of tax avoidance. He submitted that the consideration for the supply of sim cards which is in the nature of provision of telecommunication service is collected by the Appellant and merely because the taxable service is provided using the services of Appellant the levy of tax cannot be avoided. He argued that SIM cards are required to be activated for providing telecommunication services and therefore are part of such services provided by RCOM. Hence the SIM cards cannot be considered as goods and thus liable for Service Tax.
The bench comprising of Judicial Member Ramesh Nair & Technical Member Raju found that the appellant was not providing any telecommunication service to any person and that there was no principal service or dominant service to which the sale of sim card could be related. The bench distinguished the case at hand with that of the Idea Mobile Communication Ltd. vs. Commr. Of C. Ex. & Cus., Cochin. “The Hon’ble Court held in idea case supra that the value of Sim card forms the part of value of activation charges and hence it has to be included in the gross value of services rendered by M/s Idea. However, in the present case we find that the Appellant is not rendering any services of telecommunication. They are selling Sim Cards to the distributors who in turn sell it to subscribers. M/s RCOM has no role in sale of such sim cards except inactivation on its network for which they charge subscription…. The sale of sim card is an independent activity without any relation to any other service hence the same cannot be made liable to service tax. The consideration received from sale of Sim cards is retained by the Appellant themselves and not being remitted to M/s RCOM who is telecom operator which shows that the sale of Sim cards is not part of telecommunication service. We thus find that the Appellant is engaged in two separate activities viz. first rendering marketing services to M/s RCOM or billing services and second sale of Sim cards. These two separate activities not being related to each other does not fall into the category of telecommunication service so as to charge service tax from the Appellant on the sale of Sim cards on which appropriate VAT has been paid.” observed the bench.
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