9911796707
TMI Blog2025 (1) TMI 1322X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... then exemption can be granted subject to approval from Function Heads or CEO/COO as specified under the Scheme; in case of the approval of the said waiver, waived amount is reimbursed as per a laid down process. Revenue conducted an Audit of the appellants circle in Karnataka; appellant was as ked to submit details of the waiver granted by the Appellant to its employees; show cause notices dated 21.08.2008 and 20.04.2009 (for the period April 2006 to March 2007and April 2007 to September 2008) were issued to the Appellant for the Bangalore Circle proposing the demand of service tax under 'telephone services' on the amount of call free allowance waiver granted by the Appellant to its employees. Subsequently, after the issue of centralized registration, to the appellant at Gurgaon, dated 01.10.2009, the revenue issued the impugned Show Cause Notice dated 23.04.2010, proposing demand of Rs. 118,70,19,472/- for the period October 2004 to September 2009, along with interest and penalty, proposing best judgment assessment under Section 72 of the Act and invoking extended period of limitation, on the amount of waiver given to the employees on pan India basis for the Relevant Period. Learn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ESTAT-DEL 4. Learned Counsel submits further that the learned commissioner wrongly concludes that the Appellant earned goodwill by providing services to the employees under the Scheme and also receiving services of the employees constitute consideration for services rendered by the Appellant; that supply of free telephone services up to certain limits to the employees, does not create goodwill of the Appellant; also, there is no provision under service tax to treat goodwill as additional consideration; TRAI does not charge any license fee on free services; work done by the employees by using the facility provided under the Scheme cannot be treated as non-monetary consideration flowing from the employees to the employers; he relies on Carrier Point Infosystems Ltd Vs CCE, Jaipur-I 2019 (365) ELT 544 (Tri.-Del.) and M/s Resonance Eduventures Pvt Ltd and others Vs CST, Jaipur 2018 (10) GSTL 314 (Tri. - Del.). 4.1. Learned Counsel submits, without prejudice to the above submissions, that non-monetary consideration was not taxable prior to 18.04.2006; it was only after the amendment with effect from 18.04.2006, Section 67 of the Act provided for the valuation in case where the provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t assessment could not have been invoked. He places reliance on Ms Blue Star Communication and others Vs CCE&ST-Ludhiana 2019-TIOL-3789-CESTAT-CHD. 6. Learned Counsel submits also that the demand proposed in SCN was based on the figures given by the Appellant for the Bangalore circle for the period from April 2006 to September 2009 vide letter dated 15.04.2010; the same was divided by 7 (seven) to arrive at a half year figure which was multiplied three times to arrive at one and half years' figure; it was further multiplied three times, to make up for the assumed increase in the number of employees and finally by 18 to cover all the circles to arrive at the total all India figure; service tax figure for the Relevant Period. He submits that the said calculation adopted by the department is without any factual basis; in reality, the number of employees reduced from 11876 to 9552 in the year 2007-08to 9020 in 2008-09 and 7996April 2009 to Sep 2009; moreover, the figures taken for valuation pertained to the Bangalore circle which is a larger one as compared to other circles. He submits that the alleged demand could not exceed Rs 21 Cr Approx based on the list of employees, certified b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rement for seeking clarifications; the reasoning of the department that the Appellant should have approached the service tax authority for clarification is fallacious. He submits that there is no specific column under the returns for showing the grant of free services to the employees and non-disclosure of the same does not amount to suppression of facts. He submits that self-assessment by the assessee cannot be the ground for invoking extended period of limitation; it is the duty of the central excise officer to scrutinize the returns files by assessee and seek details which he feels necessary to scrutinize them under Section 72; an assessee cannot be faulted for not providing any information which it was not required to provide in the ST-3 returns. He submits that the SCN is vague as it did not specify the category or nature of the taxable services alleged to have been provided by the Appellant; it merely proceeds on the premise that the waiver of charges up to a specified limit, granted by the Appellant to their employees is nothing but an additional consideration; it does not even mention as to what is the service that is being provided by the Appellant; it is settled principle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A limit and family members bills to be generated in employee's name as per Section 6.4; Excess amount over CFA limit will be deducted directly from the salary account or credit card; No carry forward of balance/ unused CFA amount allowed; Waiver needs to be reimbursed as per normal reimbursement process as per Section 6.4; exemption was permitted beyond CFA limit if employee proves that excess usage was directly related to work, in exceptional casesas per Section 6.4; Payment will be made like a normal customer (through various modes available) etc. 9.1. Learned special Counsel submits that there is no dispute that the appellant did not declare the value of free services as taxable value for providing telecom services in their ST-3 returns nor they paid service tax payable thereon; the appellant also failed to submit the information/details relating to free telecom services even when asked for by the department in writing in April 2010 for PAN India services provided by them to their employees and relatives thereof; despite 2 SCNs dated 21.08.2008 and 28.04.2009 issued for the period April 2006 to Sept 2008 by Bangalore service tax in respect of free services provided to employees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provision of telephone services to employees were not for business purposes; if so, there was no scope of billing to each employee, providing partial exemption from charges, charging of cash beyond permissible CFA limit; no scope for giving allowance to relatives of employees etc; the policy nowhere states that beyond CFA limit only, the employee shall be treated as regular postpaid subscriber; the scheme clearly considers each such employee as a regular postpaid consumer for the purpose; in absence of any exemption provided by the statute, the appellant cannot claim exemption from payment of service tax on telecom charges relating to the telephone/mobile used by the employees or their relatives; case law relied upon like Magnus Construction-2008 (11) STR 225 (Gau.) , Tiger Sport Marketing-2009 (13) STR 59 (Tri. Del.), IOCL- 2007 (8) STR 527 (Tri. Kol.) cannot be applied as the facts are clearly distinguishable; in case of IVL India P Ltd-2010 (17) STR 292 (T) training provided by employer to employee held not taxable because no charges were being collected from the employee unlike in this case. 11.1. Learned Special Counsel submits that there exists a service provider and servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant that no non-monetary consideration not taxable till 18.04.2006, learned special counsel submits that in view of explicit legal provisions contained in Section 67 (i), (ii) & (iii), the argument is not valid; Cases of Assam Gas Company-2008 (11) STR 73 (T) & Shri Pillai & Sons Motor Co-2008 (10) STR 403 (T)as well as Bharti Infotel Ltd-2006 (3) STR 554 (Tri. Del.) are interim orders and therefore not persuasive in nature; in the case of European Court of Justice, as per the Article 11A (1)(a) of Sixth directives, it was held that the taxable amount was the consideration actually received by taxable person hence leviable to VAT on actual price charged to the employees; there is no such provision in Service tax laws; on the contrary, Section 67 r/w Rule 3(a) of Valuation Rules provides otherwise. 12.2 Learned Special Counsel submits that valuation applied was most reasonable as the same is based upon the figures supplied by the appellant for Karnataka State to Bangalore authority; consideration was received indirectly as incentive part of remuneration packages other than cash but at the cost of revenue by evading service tax; had there been no exercise of option, the employees wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... himself has to be blamed for Best judgment assessment; in case of NBC Corporation Ltd Vs CST 2014 (1) TMI 151 (Del HC), it was held that best judgment order passed will be akin to ex-parte order when assessee fails to produce records/details and officer passes the order on the basis of other information or data available. He submits that the appellant's reliance on Rajasthan Spinning-2007 (218) ELT 641 (SC), RS Enterprises-2003 (159) ELT 766 (Tri. Del.)and Yogesh Sood-2001 (129) ELT 674 (Tri. Del.), Vardhaman Steel-2006 (197) ELT 401 (Tri. Mumbai) is incorrect as the facts of the cases are different. 13.3. Learned special counsel submits that the plea regarding cum duty value has been rightly addressed by the impugned order; Explanation 2 to Section 67 up to 18.04.2006 and thereafter sec 67(2) provided clearly that where the gross amount charged by a service provider is inclusive of service tax payable, the value shall be such amount as with the addition of tax payable, is equal to the gross amount charged; the appellant while discharging service tax on the value exceeding the CFA limit did not consider as cum-duty value; they treated the same as in case of normal customers (valu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nput service within the meaning of sec 2(l) of CCR, 2004; it is not clear if the appellant were availing credit of service tax paid on the amounts recovered from others and employees over above, the credit limit; appellants produced no evidence to establish the nexus between free services/discounted services provided by the appellant and its output services or in relation to activity of business of the appellant; In view of non-admissibility of credit, question of revenue neutrality does not arise; admissibility of credit is subject to various terms and conditions prescribed in the Cenvat Credit Rules, 2004 which include those related to time frame for availing and utilizing credit; Hence, a blanket remark cannot be made and credit claimed. He relies on • Punjab Tractors Ltd 2005 (181) ELT 380 (SC) • Dharampal Satyapal 2005 (183) ELT 241 (SC) • Mahindra & Mahindra Ltd 2005 (179) ELT 21 (SC) • Mahanagar Gas Ltd vs CCE Thane -II 2011 (24) STR 376 (Tri-Mumbai) 16. Learned special counsel submits on the claim of Bona fide belief of the appellants and invocation of extended period, that in view of the fact that no tax has been paid so far even after being po ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iability gets attracted by virtue of law. He relies on Pratibha Processors Vs UOI 1996 (88) ELT 12 (SC) and UOI vs Valecha Egg Ltd 2010 (249) ELT 167 (Bom). 17.1. Learned special counsel submits on the issue of penalties that mala fide intent is vividly clear from their contumacious conduct, evasive reply and deliberate concealing the material facts leading to evasion of service tax to the tune of Rs. 118 crores; once extended period is invokable, equal penalty under Section 78 becomes corollary; the appellant has not been able to justify the reasonable grounds for invocation of Section 80; Explanation providing for retrospective amendment of Section78 proviso was omitted on 08.04.2011; hence, simultaneous penalty not imposable from 10.05.2008 only; however, both the penalties are imposable against the appellant for the period October 2004 to 09.05.2008. Learned special counsel relies on the following in support of his arguments on the issue of penalties. • Dharmendra Textile Processors 2008(231) ELT 3 (SC) • Rajasthan Spinning & Weaving Mills 2009 (238) ELT 3 (SC) • Lark Chemicals Pvt Ltd 2016 (42) STR 417 (S.C.) • Idea Cellular Ltd 2019 (26) GSTL 224 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icy is applicable to all employees of Bharti Airtel Limited (The Company). For the purpose of this policy, the following people are deemed to be 'employees': • Those who are on the employment rolls of The Company. • Selected relatives of those who are on the employment rolls of the Company (relatives defined as Parents / Children / Spouse / In Laws (Father and Mother In law) / Siblings)* • Employees of Bharti Group Companies"* *Only rates are applicable, CFA [call free allowance] not possible. *Associate Employee - as per the Associate Phone Policy. 20. From the policy, it is clear that the CFA is permissible to the employees of Bharati Airtel Ltd. only. Learned Special Counsel for the Department tries to argue that the CFA is also extendable to the relatives of the employees where there is no employee-employer relation. It appears that the clarification given below the eligibility that only the rates applicable to CFA are applicable to relatives of the employees and employees of the Group Company but CFA per se to such relatives. Going by the scheme of the things, learned Counsel for the appellants submits that the CFA extended by the appella ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. We find that learned Counsel for the appellants relies on a number of cases, including that of M/s Bhayana Builders (supra) 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. We find that 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, we find that it is the service recipient that is getting benefitted monetarily in the form of free allowance or discount and there is n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly paid by the employees, is also not paid by the assessee to them along with their pay packages, but adjusted. The contention of the assessee that they have not received any payment in terms of Sec. 68 (1) and Rule 6 of the Act & rules and liability to pay tax does not arise is not correct. As per Sec. 68 (1) "Every person providing taxable service to any person shall pay service tax at the rate specified in section 66 in such manner and within such period as may be provided." Rule 6 provides the manner and period for payment of service tax. Section 68 (1) was substituted by the Finance (No. 2) Act, 1998 with effect from 16-10-98. The assessee is the service provider and 'any person' in the section is the recipient of service, which includes the 'employees' as per the General Clauses Act. Thus, being a service provider, the assessee is liable to pay service tax. In Central Excise matters also the free samples supplied or gifted by the assessee are not exempt from levy of excise duty. 25. The appellants submits that goodwill cannot be termed as 'consideration' and that supply of free telephone services up to certain limits to the employees does not create ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the purpose of levy of service tax. It is not correct on the part of learned Commissioner to come to a conclusion that the appellants are receiving goodwill for the free telephone services provided to their employees. For the purpose of valuation of service tax, the goodwill cannot be taken into consideration. We find 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. We further find that arguments on the basis of goodwill were not part of the Show Cause Notice and the adjudicating authority sets up a new case in the impugned order. Therefore, we consider that the attempt made by the adjudicating authority has no legal basis. Moreover, the Department relies on the case of M/s BSNL (supra) to support their argument that even if there is an employer and employee relationship, services are to be taxed. We are of the opinion that this issue is not relevant to the impugned case. It is not the case of the Department that the appellant is not paying service tax on the consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f royalty. It states that "in consideration of SII providing technical services to the Indian company, the Indian company shall pay to SII royalty at the rate of 4% on the Net Sales subject to ……" We do not agree with the argument of the ld. Sr. Advocate that the service provided is Intellectual Property Service and service of Engineer Consultancy is not provided, notwithstanding the fact that the royalty is paid for such services which is determined on basis of Net Sales. It is well established in law that measure of taxation does not determine the nature of taxation. But the pertinent fact of this case is that whereas the show cause notice was issued in September, 2003, the royalty on account of technical services for the years 2000-2001 and 2001-2002 was paid in 2004. This fact has been also certified by the Chartered Accountant and not controverted by Revenue. The Service Tax provisions under the Service Tax Rules, 1994, as applicable during the period in dispute, clearly provided that Service Tax is payable when the value of taxable services is received. The relevant provisions in law was Rule 6 (1) which stated that Service Tax is payable when payments are recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Circle for a period of three and half years. (ii) The number of employees must have grown three times. (iii) Periodical turnover of all the Circles across India is equal. (iv) Free allowance was also extended to relatives of the employees and to the other group companies. 31. We find that such approximation has no place in demanding and confirming service tax. A fundamental principle of taxation is that tax has to be levied and collected not a rupee more and not a rupee less; therefore, there is no scope for approximation. We find that learned Adjudicating Authority has an occasion to look at the Chartered Accountant certificated dated 14.02.2012, which indicated band-wise number of employees of the appellant and the group companies. The adjudicating authority has neither relied upon the Chartered Accountant certificate nor discarded the same with evidence. Such an approach is not acceptable. Understandably, Revenue cannot be expected to establish tax evasion with a mathematical precision. However, when it's come to computation, it can never be on the basis of mathematical formulas and equations; it has to be on hard and factual figures. The assumptions that the number of e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ived. 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. (v) In view of (i), (ii), (iii)& (iv) above, the impugned Show Cause Notice and the impugned order cannot be sustained. 33. We find that as submitted by the learned Counsel for the appellants, the case laws relied upon by the learned Authorized Representative is distinguishable. In the case of the M/s BSNL (supra), such discounts giv ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
