In Service Tax Appeal No.53553 of 2015-CESTAT- Buying & selling of SIM cards,recharge coupons does not amount to providing business auxiliary service to principal: CESTAT sets aside Order confirming demand of service tax and penalty 
President- Dilip Gupta & Technical Member- P.V. Subba Rao [19-01-2023]

Read Order: J.K. Enterprises v. Principal Commissioner, Central Excise Commissionerate, Alwar 

LE Correspondent

New Delhi, January 27, 2023:The CESTAT has given relief to a company engaged in the  business of buying and selling SIM cards, recharge coupons under a super distributor agreement with M/s Vodaphone Essar Digilink Ltd in a case where a Notice was issued alleging that the Company was providing business auxiliary service.

A company named M/s J.K. Enterprises filed this appeal before the President- Dilip Gupta and Technical Member- P.V.Subba Roy assailing the order passed by the Principal Commissioner of Central Excise, Alwar whereby he confirmed the demand of Rs 62,20,384 as service tax under Section 73 and imposed and an equal amount of penalty under Section 78 and further imposed a penalty under Section 77.

The Company has been in the business of buying and selling SIM cards, recharge coupons etc. for mobile phones under a super distributor agreement with M/s Vodaphone Essar Digilink Ltd. A show cause notice dated October 11, 2013 covering the period April 2008 to March 2012 was issued to the appellant alleging that it was providing business auxiliary service to M/s Vodaphone Essar Digilink Ltd. as their franchisee for sale/distribution and marketing of the SIM cards and recharge coupons. 

Accordingly, service tax was demanded and penalties were proposed to be imposed. This show cause notice culminated into the issue of the impugned order.

It was the appellant’s case that the sale and purchase of SIM cards is trade and not a service and, therefore, it does not amount to providing business auxiliary service to M/s Vodafone. It was also argued that the entire demand was hit by limitation as it had been issued after a period of one year and extended period of limitation could not have been invoked in this case because on the same issue a show cause notice dated April 26,2011 was issued to the appellant by the Department. 

On the question of limitation, the Bench referred to Section 73 of the Finance Act, 1994 which  states that demand invoking the extended period of limitation can be issued where service tax was not paid by reason of (a) fraud or (b) collusion (c) wilful mis-statement (d) suppression of facts or (e) violation of act or rules with an intent to evade payment of duty.

Noticing that the Department was fully aware of the activities of the appellant and had issued a show cause notice on April 26,2011, the Bench opined that the Department couldnot allege that it was not aware of the activities of the appellant and the appellant had suppressed any information. 

The entire demand in this case is beyond the normal period of limitation, the Bench stated while holding that the judgment in Nizam Sugar Factory Vs. Collector of Central Excise applied squarely to the present case and a second show cause notice could not have been issued invoking extended period of limitation. 

The case of the Revenue was that since the Supreme Court had held in the case of Idea Mobile Communication Ltd. vs. CCE&C, Cochin , that SIM card is not goods and its value is includible to the value of the service provided by the telecom operator, buying and selling of SIM cards can be considered as rendering business auxiliary service to the principal.

On this aspect, the Bench said, “We find that this Tribunal has consistently held that buying and selling of SIM cards and recharge coupons does not amount to providing business auxiliary service to the principal in several cases.”

Referring to the judgment in Commissioner, Central Excise Vs. M/s Chotey Lal Radhey Shyam, the Bench allowed the appeal and held that the impugned order couldnot be sustained either on merits or on the limitation.