ORDER
C.N.B. Nair, Member (T)
1. The appellants in these cases are providers of cell phone service. Under the impugned orders, there are demands for service tax on the cell phone service and penalties under Sections 76 and 78 of the Finance Act, 1994 and also demand for interest.
2. We have perused the records and heard both sides.
3. The appellants have no case in regard to service tax as that issue remains settled by the decision of the Hon’ble Kerala High Court in the case of Escotal Mobile Communications Ltd. v. UOI and Others [2004 (177) E.L.T. 99 (Ker.)]. Same is the case in regard to interest also.
4. However, in regard to penalty, the contention of the learned Counsel for the appellants is that no penalty is called for in view of Section 80 of the Finance Act. That section reads as under :
80. Notwithstanding anything contained in the provisions of Section 76, Section 77, Section 78 or Section 79, no penalty shall be imposable on the assessee for any failure referred to in the said provisions if the assessee proves that there was reasonable cause for the said failure.
Learned Counsel for the appellants submits that the appellants were paying service tax in respect of the amount collected for the telephone service. Failure to pay tax was limited to amounts charged for the SIM card and activation charge. It is being submitted that these charges were considered as sale of goods which attracted sales tax. The appellants were thus paying sales tax. They were under the impression that service tax by the very nature of the tax was on service and cannot fall on sale of goods. Based on this, it is being argued that appellant had ‘reasonable cause’ for failure to make payment of service tax in time. Learned Counsel has further submitted that this issue is not clear even today inasmuch as the matter remains referred to the Constitution of the Supreme Court in the case of Escotal Mobile Communications Ltd. in Civil Appeal No. 2408 of 2002.
5. Learned DR would contend that the taxability itself remains settled in favour of the Revenue by the decision of the Kerela High Court. He further contends that the appellants being established cellular service providers, there can be no reason to believe that sale of SIM card and collection of activation charge were not part of sale of telephone service. He therefore, contends that this is a case of suppression of value of service provided with intent to evade service tax and thus, penalty under Section 78 is justified.
6. We find merit in the contention of the appellant with regard to penalty. The facts and circumstances leading to the dispute lend to that conclusion only. The appellants are registered and were paying service tax in regard to fees for providing telecommunication service. The sale of SIM card and activation charge do not directly lead to providing of telecommunication service. The fact that the appellants were treating these as sale of goods and paying sales tax also is indicative of their bonafide belief that the realisation from these heads were not relatable to providing telecommunication service. The Hon’ble Kerala High Court upheld the service tax on a finding that there was an aspect of service involved in the sale of SIM card, while the High Court of Uttar Pradesh had taken a view that installation charges for telephone connection are not sale of goods. While the judgment of the Kerala High Court is before the Constitution Bench, the decision of the Uttar Pradesh High Court remains reversed by the Supreme Court [2004 (170) . 385 = Sales Tax Cases (Volume 130) 2003]. It is clear from these circumstances that the issue was not free from doubt and the finding of suppression of value by the appellants so as to evade service tax is not warranted. In this view of the matter, we set aside the penalties imposed and allow the appeals to that extent. The impugned order is modified to this extent.
(Dedicated and pronounced in open Court)