2018 (11) TMI 1387 - AT - Service Tax

Doctrine of dominant use - rule 3(a) of Service Tax (Determination of Value) Rules, 2006 - Revenue neutrality - Circular no. 93/04/2007-ST dated 10th May 2007 - Held that - The appellant is, undoubtedly, aware of the scope of facility that is extended to its employees. They are equally aware that the revenues written off is a voluntary act of erasure on which the plea of liability to tax on receipt stands blunted. Had the appellant disclosed in their returns that there was no uncertainty on the non-recoverability of the amount decided in advance to be written off, the claim of disclosure could have been accepted. The penalty imposed under section 78 of Finance Act, 1994 is thus confirmed and, owing to the statutory exclusion of simultaneous imposition of penalty under section 76 of Finance Act, 1994 which, in the impugned order, is for a small portion of the demand, we set aside the other penalty. The impugned order is upheld.

Issues Involved:
1. Tax liability under section 65(105) (zzzx) of Finance Act, 1994 on free service provided to employees.
2. Applicability of taxable service definition and exclusion based on service provided to itself.
3. Invocation of doctrine of dominant use for tax relief.
4. Circular rescinding inconsistent instructions and reliance on full disclosure.
5. Determination of tax liability on billed amount for non-cash service.
6. Tax liability on service rendered to individual recipients.
7. Revenue neutrality claim and entitlement to input service credit.
8. Disclosure of non-recoverable amounts and invoking extended period under section 73.
9. Confirmation of penalty under section 78 and setting aside of penalty under section 76.

Analysis:

1. The judgment revolves around the tax liability of a telecom service provider on the free service provided to its employees. The Commissioner confirmed a demand and penalties for non-discharge of tax liability for a specified period. The appellant contested the decision citing the inability to segregate business and personal usage, invoking legal maxims and precedents to argue against tax liability on the entire free service.

2. The appellant argued that the service provided to employees should be excluded from taxable service as it is provided to itself. They contended that usage for business purposes should not constitute taxable service, citing legal principles and decisions to support their claim. The appellant also sought relief by invoking the doctrine of dominant use to establish the non-taxable nature of the service.

3. The appellant further relied on legal precedents and decisions to support their claim for tax relief based on the dominant use doctrine. They argued that tax liability on free services to employees was not legal, especially when tax liability was to be discharged on actual receipts for the period in question.

4. The Authorized Representative highlighted circulars and legal judgments emphasizing full disclosure and compliance with rules. The appellant's contentions regarding professional management and disclosure were challenged, citing relevant legal judgments to support the opposition to the appellant's claims.

5. The judgment analyzed the company policy on billing for non-cash services and the nature of the billed amounts. It was observed that the billed amounts were related to personal use by employees, reinforcing the conclusion that tax liability should apply to the written-off amounts not discharged.

6. The judgment delved into the billing process and the nature of service provided to individual recipients. It was established that the tax liability crystallizes when the debt of the employee is erased, and the demand and interest were deemed applicable in this scenario.

7. The appellant's claim of revenue neutrality and entitlement to input service credit was refuted based on the nature of the service provided and the absence of credit eligibility. Legal precedents were cited to reject the appellant's argument on revenue neutrality.

8. The judgment discussed the appellant's disclosure obligations regarding non-recoverable amounts and the invocation of the extended period under section 73. The failure to disclose certain aspects led to the confirmation of penalties and the application of legal decisions to support this stance.

9. The confirmation of penalties under section 78 was upheld, while the penalty under section 76 was set aside due to statutory exclusions. The judgment concluded by upholding the impugned order with modifications based on the detailed analysis and legal interpretations presented throughout the judgment.

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