2015 (4) TMI 129 - AT - Service Tax

Business Support Services - nature of receipt - repayment of loan or advance towards services to be rendered - whether the sum of ₹ 1,493/- crores received by the appellant from RCM is an advance for the taxable services rendered or to be rendered by the appellant to M/s. RCM or is it a loan by way of Inter Corporate Deposits given to the appellant - Held that - On details scrutiny of the balance sheets produced by the learned Counsel for appellant, we find that accounts of the appellant as well as RCM do not indicate any co-relation in the repayment of the loan and receipt of the service charges by the appellant. The emphasis of the Revenue that the agreement between the appellant and RCM very clearly indicates that an amount of ₹ 283/- crores was to be adjusted against the service charges would also not carry the case of the Revenue any further as the appellant as well as RCM being a public limited companies, have clearly indicated in their balance sheets that the amounts have been shown as received and loans repaid. - provisions of Section 67 of the Finance Act, 1994 refers to gross service charges paid or payable for the services rendered or to be rendered has to be read as it is. In our view, the entire sum of ₹ 1,493/- crores does not qualify as an advance towards the services to be rendered by the appellant to RCM. - Decided in favour of assessee.

Summary

Issues Involved:
1. Whether the sum of Rs. 1,493 crores received by the appellant from RCM is an advance for taxable services or a loan.
2. Interpretation of the Master Service Agreement and its clauses.
3. Examination of the financial records and balance sheets.
4. Applicability of Section 67 of the Finance Act, 1994.
5. Whether the repayment of the amount was an afterthought.
6. Consideration of the auditor's report and its implications.

Detailed Analysis:

1. Whether the sum of Rs. 1,493 crores received by the appellant from RCM is an advance for taxable services or a loan:
The central issue in this case is to determine if the Rs. 1,493 crores received by the appellant from RCM is an advance payment for services rendered or a loan. The appellant contended that the amount was an interest-free loan, which was repaid within the same financial year. The adjudicating authority, however, treated the amount as an advance for services, thus attracting service tax liability.

2. Interpretation of the Master Service Agreement and its clauses:
The Master Service Agreement, particularly clauses 4.1, 4.2, and 11, was scrutinized to determine the nature of the payment. The appellant argued that these clauses did not constitute a conclusive contract regarding the nature of the payment, suggesting it was an "agreement to agree." The tribunal agreed with this interpretation, stating that the clauses did not indicate the amount received was an advance for services.

3. Examination of the financial records and balance sheets:
The appellant's and RCM's balance sheets and auditor's reports were examined. The appellant's half-yearly balance sheets for the period ending 30th September 2007 and 31st March 2008 showed the amounts as loans, which were repaid. The tribunal found that the adjudicating authority misinterpreted the auditor's report, which referred to loans under Section 301 of the Companies Act, 1956. The tribunal concluded that these provisions were not applicable in this case, supporting the appellant's claim that the amount was a loan.

4. Applicability of Section 67 of the Finance Act, 1994:
Section 67 of the Finance Act, 1994, which deals with the valuation of taxable services for charging service tax, was considered. The tribunal held that the entire sum of Rs. 1,493 crores did not qualify as an advance towards services to be rendered, thus not attracting service tax under Section 67.

5. Whether the repayment of the amount was an afterthought:
The revenue argued that the repayment of the amount started only after the investigation commenced, suggesting it was an afterthought to show the amount as a loan. However, the tribunal found that the repayment was recorded in the appellant's balance sheets before the investigation, supporting the appellant's claim that the amount was always treated as a loan.

6. Consideration of the auditor's report and its implications:
The auditor's report for both the appellant and RCM was considered. The tribunal found that the amounts were shown as loans in the audited accounts of both companies, which were in the public domain. This supported the appellant's claim that the amount was a loan and not an advance for services.

Conclusion:
The tribunal concluded that the amount of Rs. 1,493 crores received by the appellant from RCM was an interest-free loan and not an advance for services. Consequently, the tribunal set aside the impugned order, allowing the appeal with consequential relief. The tribunal also noted that since the appeal was disposed of on merits, other submissions made by both sides were not recorded.

Separate Judgment:
The second judge agreed with the findings and added that the audited books of accounts clearly showed the amount as a loan, not as consideration for services. The judge emphasized that the repayment of the loan was reflected in the financial records, further supporting the appellant's claim.

Final Order:
The appeal was allowed, and the impugned order was set aside with consequential relief to the appellant.