2013 (7) TMI 182 - AT - Service Tax

Taxability of free services - free telephone / mobile services to the employees and elective relatives of such employees - the eligible employees were treated as regular post - paid customers - Service provided by the appellant was mobile phone connection/fixed line and Broad Band services and fixed wireless phone as well as Black Berry services or push mail service. - Telecom service received free of cost by the employees, family member of such employees as well as employees of associate companies did not make any contribution to the business of the appellant company Held that - The policy was designed by appellant to circumvent the law granting personal benefit to them at the cost of Revenue - No nexus with evidence was established by appellant that its case falls under free calls provided were exclusively meant for providing any taxable out put service - the language of the policy does not grant immunity to the appellant when substance of the matter is looked into there was a planned evasion made by the Appellant in the name of employees phone policy and assessable value of free calls escaped taxation. Merely creating a fiction of no consideration received by the appellant in respect of the aforesaid nature of free service provided by it, the appellant appears to have been immensely benefited by reduction of monetary package of remuneration to its eligible, employees, their relatives and employees of Bharti Group of companies. Such undisclosed benefit of appellant was at the cost of Revenue. The appellant failed in the course of hearing to satisfy that value of service were disclosed perquisite to its employees in its account and disclosed to Income tax Authority. The circular on which appellant was relying was withdrawn and the withdrawn circular cannot over ride the law relating to taxation of taxable service provided - the appellant misconceived the circular for a misplaced sympathy. Plea time barred - extended period of limitation Held that - Time bar plea of appellant was baseless - the appellant deliberately suppressed material facts without providing details to the department nor it was registered - Show cause notice were issued to the appellant consequent upon audit finding relating to the period - going to the facts of the case the notice is not time barred thus the appellant cannot escape from taxation. The appellant is a very big concern and its accounts are computerized by well-built software - it cannot plead its innocence after deliberately delaying to furnish information to the department - Motive of evasion of appellant was well established. Revenue neutrality - Held that - When the appellant pleaded that there should be Revenue neutrality that was also discarded by the learned Adjudicating Authority in Para 41(ii) of the order bringing out that there was no integral connection between the calls allowed free by the appellant and the taxable output service that produced. Therefore appellant s failure to furnish relevant facts and figures denying liability proved suppression. Separate proceedings to be initiated in relation to the services provided by the appellant in different states. Stay application two third amount of service tax was ordered to be submitted stay granted partly.

Issues Involved:
1. Taxability of free telecom services provided to employees and their relatives.
2. Determination of the value of taxable services.
3. Allegations of non-compliance with the Finance Act, 1994.
4. Applicability of service tax on services provided without monetary consideration.
5. Invocation of the extended period of limitation.
6. Revenue neutrality.
7. Time-barred nature of the demand.
8. Quantum of demand and penalty.

Detailed Analysis:

1. Taxability of Free Telecom Services Provided to Employees and Their Relatives:
The appellant provided free telecom services to its employees, their relatives, and employees of Bharti Group companies under the "Bharti Airtel Limited Employees Phone Policy" from October 2004 to September 2009. The policy allowed for free services up to a certain limit, beyond which charges were applied. The appellant did not register under the Finance Act, 1994, nor disclose the value of these free services to the Service Tax Authority, leading to a service tax demand of Rs. 1,18,70,19,472/-.

2. Determination of the Value of Taxable Services:
The appellant claimed the value of the free services was nil, but the adjudicating authority determined the value according to the rules prescribed by section 67 of the Finance Act, 1994. The authority held that the free services provided were taxable and computed the quantum of loss of revenue.

3. Allegations of Non-Compliance with the Finance Act, 1994:
The Revenue alleged that the appellant failed to determine the value of taxable services, discharge service tax liability, and furnish ST-3 returns, thereby contravening sections 67, 68, and 70 of the Finance Act, 1994. The appellant suppressed the fact of having provided taxable services with the intent to evade payment of service tax, justifying the invocation of the extended period of five years under section 73(1) of the Act.

4. Applicability of Service Tax on Services Provided Without Monetary Consideration:
The appellant argued that free services provided to employees were not taxable, citing Circular No. 23/3/97-ST dated 13.10.1997. However, the adjudicating authority and the tribunal found that the value of the free services was convertible into money and taxable under section 67 of the Act. The policy's crafty language did not grant immunity from tax liability.

5. Invocation of the Extended Period of Limitation:
The tribunal found that the appellant deliberately suppressed material facts and failed to provide relevant information to the department. The show cause notices were issued based on audit findings, and the extended period of limitation was invoked justifiably.

6. Revenue Neutrality:
The appellant's plea of revenue neutrality was dismissed as baseless. The tribunal held that the appellant failed to prove that the free services were used exclusively for providing taxable output services. The plea of revenue neutrality did not hold as there was no integral connection between the free services and the taxable output services.

7. Time-Barred Nature of the Demand:
The tribunal rejected the appellant's plea that the demand was time-barred. The adjudicating authority found that the appellant's deliberate suppression of facts and failure to register under the Delhi jurisdiction justified the invocation of the extended period of limitation.

8. Quantum of Demand and Penalty:
The adjudicating authority determined the service tax demand to be Rs. 1,18,70,19,472/-, excluding figures related to the Bangalore jurisdiction. The tribunal directed the appellant to deposit Rs. 80 crores within four weeks as an interim measure, staying the realization of the balance tax demand, penalty, and interest during the pendency of the appeal.

Conclusion:
The tribunal upheld the adjudicating authority's findings that the free telecom services provided by the appellant were taxable, and the value of such services was rightly determined under section 67 of the Finance Act, 1994. The appellant's arguments regarding non-taxability, revenue neutrality, and time-barred demand were dismissed. The tribunal directed a partial deposit of the demand amount as an interim measure, staying the balance during the appeal's pendency.

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