Issues on Discount Cards

[Bhumin]

Dear All,

I have query on Discount cards.

A company(say ABC Ltd) sells Discount cards which is Main business of the co.
Co has patch up with all big company which allows the card holder to avail the discount facility.
Thus ABC Ltd selling Card or Providing Discount Services?

SO accordingly my query is there is VAT levied or Service Tax ?

Is the case is similar to Co providing SIM CARD.(SC Verdict on Idea Mobile is applicable here?)

Waiting for quick reply.....

Thanks,
Bhumin Mehta.

[ashutosh majumdar]

See, as you have rightly stated, the same issue had come up in the context of s. 194H on whether there was a "sale" of the sim card or not. The view taken was (from Vodafone Essar):

The argument that there is a "sale" of a Sim Card is not acceptable because a Sim Card has no value or use for the subscriber other than to get connection to the mobile network. The supply of the Sim Card is only for the purpose of rendering continued services by the assessee to the subscriber of the mobile phone. Consequently, the charges collected by the assessee at the time of delivery of Sim Cards or Recharge coupons is for rendering services to ultimate subscribers. The distributor is the middleman arranging customers or subscribers for the assessee after ensuring proper identification and documentation. Besides the discount given at the time of supply of Sim Cards and Recharge coupons, the assessee is not paying any amount to the distributors for the services rendered by them like getting the subscribers identified, doing the documentation work and enrolling them as mobile subscribers to the service provider namely, the assessee. The argument that the relationship between the assessee and the distributors is principal to principal basis is not acceptable. The distributor is an agent and canvasses business for the assessee. The terminology used by the assessee for payment to the distributors is immaterial. In substance the discount given at the time of sale of Sim Cards or Recharge coupons by the assessee to the distributors is a payment for services rendered to the assessee and falls within s. 194H.

The same logic should apply here. In fact, the Court relied on the VAT judgement in the case of the same assessee. So, service-tax would be payable.