Margin earned by franchisees on sale of SIM cards/recharge coupons not liable to Service tax

Chotey Lal Radhey Shyam Vs. Commissioner of Central Excise & Service Tax, Lucknow [2015 (64) taxmann.com 399 (Allahabad – CESTAT)]

Facts:

Chotey Lal Radhey Shyam (“the Appellant”) was appointed as a franchisee for Lucknow by Bharat Sanchar Nigam Limited (“BSNL”), on principal to principal basis, for sale of their SIM cards and recharge coupons. The Appellant, in turn, sells the same through network of retailers which amounts to trading activity and the Appellant did not provide any services to BSNL. Further, BSNL has paid the Service tax on the face value of the SIM cards and recharge coupons including the profit margins of the franchisee i.e. the Appellant. However, the Department alleged that the Appellant was promoting/marketing the products of BSNL and thereby, liable to levy of Service tax on profit margins under the category of “Business Auxiliary services”.

Held:

The Hon’ble CESTAT, Allahabad relying upon plethora of judicial pronouncements held that in the instant case, BSNL has already paid Service tax on the SIM cards and recharge coupons sold to the Appellant and therefore, again demanding Service tax from the Appellant would amount to double taxation, which is not permissible in law. Further, the Appellant was only engaged in purchase and sale of SIM cards & recharge coupons and his relationship with BSNL is on principal to principal basis. Thus, the Appellant cannot be termed as an agent of BSNL. Hence, the allegation of the Department that the Appellant is promoting/ marketing the business of BSNL is misconceived.