CESTAT Kolkata Holds Vodafone SIM Distributor Commission Exempt From Service Tax, Sets Aside Part Of Demand

The Customs, Excise and Service Tax Appellate Tribunal (CESTAT), Kolkata, has ruled that commission earned from a Vodafone SIM distributorship was exempt from service tax under a 2012 notification.

The tribunal also set aside the demand on plastic dustbins and portable toilets supplied to local bodies and State Governments, holding that the transactions involved sales of goods on which VAT had been paid.

The ruling came in an appeal filed by Reliable Enterprises, a sole proprietorship based in Patna.

A coram of Judicial Member Ashok Jindal and Technical Member K. Anpazhakan held that the commission earned from Vodafone Limited was covered by the exemption under Serial No. 29(f) of Notification No. 25/2012-ST dated June 20, 2012.

It also ruled that demands up to September 2016 were unsustainable on limitation.

The tribunal ruled, “We find that the said commission is exempted at Sl.No.29(f) of Notification No.25/2012-ST dated 20.06.2012. Therefore, on the commission earned from Vodafone Limited, the appellant is not liable to pay service tax. Therefore, whole of the demand on this account is set aside.”

Reliable Enterprises had challenged an order confirming a service tax demand of ₹1.60 crore, along with an equivalent penalty under Section 78 of the Finance Act, 1994. The adjudicating authority had also imposed additional penalties and a late fee for alleged non-compliance with service tax requirements.

The department initiated proceedings on the ground that receipts reflected in the business's income tax records represented taxable consideration for services rendered. A show cause notice issued on October 22, 2021, proposed a service tax demand of ₹3.56 crore, including applicable cesses, for the period from April 2016 to June 2017. The adjudicating authority eventually confirmed ₹1.60 crore of the proposed demand and dropped the rest.

Reliable Enterprises challenged the demand on three main grounds: the exemption for commission earned from its Vodafone distributorship, the treatment of goods supplied to government bodies and local authorities, and the extended period of limitation.

On the Vodafone issue, the business argued that its agreement covered the distribution of recharge vouchers and that the commission it earned was exempt under Serial No. 29(f) of the 2012 notification. The tribunal accepted this argument and set aside the entire demand relating to the commission.

The tribunal also examined the demand on plastic dustbins, portable toilets and other equipment supplied to local bodies and State Governments. Reliable Enterprises produced invoices showing the sale of goods and payment of VAT.

Finding that these transactions involved the supply of goods rather than services, the tribunal ruled that service tax was not payable on them.

It observed, “From the above, it is very much clear that the appellant has not provided any service, but has supplied plastic dustbins, portolet toilets etc., on which VAT has been paid. Therefore, on such supply, the appellant is not liable to pay service tax. Therefore, the demand confirmed on this account is also set aside.”

On limitation, the tribunal noted that the show cause notice was issued on October 22, 2021. It held that demands up to September 2016 were unsustainable on limitation. The order refers to September 31, 2016, an apparent date error, as September has only 30 days.

However, the tribunal held that service tax remained payable on works contract services provided to Sintex Prefab and Infra Limited and Sintex Industries Limited between October 1, 2016, and June 30, 2017. It directed that tax be calculated at 33% of the gross amount received, along with interest.

No penalty was imposed on the business in respect of this surviving liability.

The tribunal accordingly set aside the demands relating to the Vodafone commission and the supply of goods while retaining the limited service tax liability on the works contract services, with interest but without penalty.

For Appellant: Amit Kumar and Vijay Kumar, Advocates

For Respondent: S.K. Jha, Authorised Representative