2025 (1) TMI 1322 - AT - Service Tax

Valuation of service tax - Inclusion of waiver from payment of telephone charges given by the appellants to their employees referred to as CFA is to be included for the purpose of calculating the service tax payable by the appellants - HELD THAT - The telephone service providers are required to pay service tax on the consideration received by them the consideration being the gross amount charged; in this case the gross amount charged by the appellant is the amount they collected from their employees and not the discount given to the employees in the form of CFA. The appellants relies on a number of cases including that of M/S BHAYANA BUILDERS (P) LTD. OTHERS VERSUS CST DELHI OTHERS. 2013 (9) TMI 294 - CESTAT NEW DELHI-LB wherein the principle of law was settled to state that the value of goods or material supplied free of cost would not be included in the gross amount charged under Section 67. This particular submission is not relevant to the facts of the case as there is no goods or material supplied free of cost by the service receivers to the service provider i.e the appellant. What is to be seen in the present case is whether the discount or free allowance extended by the appellants to their employees is includable in the assessable value. In the scheme of the service tax taxation includability of any amount in the gross amount charged for service requires to be the consideration flowing from the service receiver to the service provider. In the instant case it is the service recipient that is getting benefitted monetarily in the form of free allowance or discount and there is no flow of consideration from the service recipients to the service provider. For the purpose of valuation of service tax the goodwill cannot be taken into consideration. It is found that learned Commissioner did not arrive at the value of the goodwill for the purpose of taxation even if goodwill is considered to be an additional consideration. It is incorrect to take the entire free allowance given to the employees as monetary value of goodwill. Conclusion - (i) Service tax cannot be levied when there is no consideration received. Free allowance given to the employees by the appellant is in the nature of discount/ concession and as the same has not accrued to the service provider-appellant the same cannot form part of the consideration for the purpose of levy of service tax. (ii) Under the facts and circumstances of the case Department has not made out any strong argument in favour of best judgment method. (iii) Computation of service tax cannot be on the basis of assumptions and presumptions. (iv) The Show Cause Notice is vague and does not specify the service which is rendered by the appellant; moreover the benefit of discounts/ free allowance is accruing to the employees rather than the appellant who is the service provider. Consideration flowing towards the service recipient cannot be included for the purpose of taxing the service provided by the appellant. Appeal allowed.

The judgment of the Appellate Tribunal CESTAT Chandigarh addresses the appeal filed by M/s Bharati Airtel Ltd against the order demanding service tax on the waiver of telephone charges provided to its employees under the Airtel Employees Services Scheme (CFA). The Tribunal considered various legal issues, including the applicability of service tax on free services, the validity of the best judgment assessment, and the invocation of the extended period of limitation.

Issues Presented and Considered:

The core legal questions considered were:

Whether the waiver of telephone charges (CFA) provided to employees constitutes taxable consideration under the Finance Act, 1994.
Whether the best judgment assessment under Section 72 of the Finance Act, 1994, was validly invoked.
Whether the extended period for the demand of service tax was justifiably invoked.
Whether the computation of service tax demand was legally sustainable.
Whether the penalties imposed under Sections 76, 77, and 78 of the Finance Act, 1994, were warranted.

Issue-wise Detailed Analysis:

1. Taxability of CFA:

The Tribunal examined the legal framework under Section 67 of the Finance Act, 1994, which determines the value of taxable services. It considered precedents like M/S Bhayana Builders and M/S Intercontinental Consultants, which clarify that services provided free of charge do not attract service tax.
The Tribunal found that the CFA offered to employees was not a consideration in cash or kind and thus not taxable. The Tribunal rejected the argument that goodwill or employee services could be deemed as consideration.
The Tribunal noted that the appellants were already paying service tax on amounts collected for services exceeding the CFA limit, aligning with the law that only received consideration is taxable.

2. Best Judgment Assessment:

The Tribunal scrutinized the invocation of the best judgment assessment under Section 72, which is applicable when returns are not furnished or tax cannot be assessed as per the Act.
The Tribunal found that the appellants were regularly filing returns, and the conditions for invoking Section 72 were not met. The Tribunal criticized the department for not providing sufficient time for the appellants to furnish necessary details before issuing the show cause notice.
The Tribunal emphasized that tax assessments should be based on factual data rather than assumptions or arbitrary calculations.

3. Extended Period of Limitation:

The Tribunal evaluated the invocation of the extended period for demand, which requires evidence of suppression, misstatement, or fraud.
The Tribunal found no evidence of mala fide intent or suppression by the appellants, as the department was already aware of the CFA scheme from prior audits and show cause notices.
The Tribunal concluded that the extended period was unjustifiably invoked, as the appellants had no obligation to disclose free services in their returns.

4. Computation of Tax Demand:

The Tribunal criticized the computation method used by the department, which was based on assumptions and multipliers without factual basis.
The Tribunal highlighted the fundamental principle that tax demands should be precise and based on actual figures, not on hypothetical calculations.

5. Penalties:

The Tribunal addressed the imposition of penalties under Sections 76, 77, and 78, which require evidence of willful evasion or suppression.
The Tribunal found no justification for penalties, as the appellants acted in good faith and there was no deliberate concealment of facts.

Significant Holdings:

The Tribunal held that the waiver of telephone charges provided to employees did not constitute taxable consideration under the Finance Act, 1994. It emphasized that service tax is applicable only on consideration actually received or receivable by the service provider. The Tribunal set aside the best judgment assessment and the invocation of the extended period, finding them unjustified. It also annulled the penalties imposed, concluding that there was no evidence of willful evasion or suppression by the appellants.

The Tribunal's decision underscores the principle that tax assessments must be based on actual transactions and consideration, not on assumptions or hypothetical values. It reinforces the requirement for clarity and precision in tax demands and the importance of adhering to statutory conditions for invoking extended periods and penalties.

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