2013 (5) TMI 618 - HC - Service Tax

Free call services provided to employees - Pre-deposit demand of a sum of ₹ 80 crores out of a tax demand of ₹ 118,70,19,472/- as also a penalty in the amount of ₹ 125 crores - chargeability of service tax on the free calls which are provided by the appellant to its employees - As per assessee any service provided free of charge cannot be the subject matter of service tax as per Circular dated 13.10.1997 issued by the Central Board of Excise and Customs by way of a clarification - Held that - The appellant would be entitled to partial relief at this stage as the period in question for which the demand has been raised is 2004-09. Even agreeing with the respondents that the CBEC Circular dated 13.10.1997 was superseded by the later Circular dated 23.08.2007, it would imply, prima facie, that the earlier Circular dated 13.10.1997 held the field till 23.08.2007. It is in this context learned counsel was asked to bifurcate the tax demand of approximately ₹ 118 crores between the two periods, i.e., from 2004 upto 23.08.2007 and from the latter date till the end of the relevant period in 2009. Therefore, considering the entire period 2004-09 and the tax demand of approximately ₹ 118 crores, the period prior to 23.08.2007 would entail, if at all, a tax demand of approximately ₹ 70 crores. Thus the requirement of predeposit of ₹ 80 crores does not appear to be reasonable and be reduced to ₹ 25 crores. The said amount be deposited by 31.05.2013. In case the said deposit is made, the rest of the demands including the penalty would be stayed till the pendency of the appeal before the Tribunal.

Summary

Issues:
1. Conversion of writ petition into an appeal under Section 35G of the Central Excise Act, 1944.
2. Challenge to the order of the Customs Excise Service Tax Appellate Tribunal regarding pre-deposit of tax demand and penalty.
3. Interpretation of chargeability of service tax on free calls provided to employees.
4. Consideration of CBEC Circulars dated 13.10.1997, 23.08.2007, and 01.12.2008 in relation to service tax liability.
5. Determination of reasonable pre-deposit amount for the tax demand.

Issue 1: Conversion of Writ Petition into Appeal
The High Court directed the conversion of the writ petition into an appeal under Section 35G of the Central Excise Act, 1944, as the order of the Customs Excise Service Tax Appellate Tribunal was under challenge. The appellant was required to deposit the differential court fees within two days.

Issue 2: Challenge to Tribunal's Order on Pre-deposit
The appellant contested the Tribunal's order directing a pre-deposit of &8377; 80 crores out of a tax demand of &8377; 118,70,19,472/- along with a penalty of &8377; 125 crores. The High Court modified the pre-deposit amount to &8377; 25 crores, considering the period in question and the proportional tax demand.

Issue 3: Interpretation of Service Tax on Free Calls
The dispute revolved around the chargeability of service tax on free calls provided to employees. The revenue argued that service tax should apply as the employees would have paid for the calls if not provided for free. The appellant contended that service tax is only applicable on charged services, citing CBEC Circulars supporting this position.

Issue 4: CBEC Circulars and Service Tax Liability
The High Court analyzed the CBEC Circulars dated 13.10.1997, 23.08.2007, and 01.12.2008 to determine service tax liability. The appellant relied on the Circulars to support the argument that services provided free of charge are not subject to service tax, emphasizing the relationship between employer and employee.

Issue 5: Determination of Reasonable Pre-deposit Amount
After considering the arguments and the period of the tax demand, the High Court deemed a pre-deposit of &8377; 25 crores as reasonable, modifying the Tribunal's order. The appellant was directed to make this deposit by a specified date, with the remaining demands and penalty stayed during the appeal.

In conclusion, the High Court's judgment addressed the conversion of the writ petition into an appeal, the challenge to the Tribunal's order on pre-deposit, the interpretation of service tax on free calls, the relevance of CBEC Circulars in determining service tax liability, and the determination of a reasonable pre-deposit amount for the tax demand. The decision provided nuanced analysis and modifications to ensure fairness and compliance with legal principles.